A Potential Negative Result Of Trade Agreements Is Protectionism

Economists are not concerned about these cyclical trade deficits or surpluses. Moreover, they are not worried when there is a deficit, because the country borrows heavily abroad to finance investments that will then be repaid. During the 19th century, the United States remained in this position, when it invested heavily to build railways across the continent, steel mills and other long-term investments. That is not the situation in the United States today. Today, it borrows many other countries to finance short-term consumption, such as the newest and largest HDTVs in Japan or South Korea, and these purchases do not generate income to pay off their debts in the future. The impact could be even worse if the deterioration of trade relations were compounded by the weakening of international financial regulation agreements, strengthened in the wake of the global financial crisis, which made the global financial system safer. [6] Lund agrees with the arguments discussed above: free trade causes global inequality, poor working conditions in many developing countries, job losses and economic imbalances. But free trade also leads to a “net transfer of working time and natural resources between the richest and poorest regions of the world,” he says. Free trade is advancing the growing global greenhouse gas problem, as workers in developing countries end up producing goods at much lower costs and in less favourable working conditions, usually with older, dirtier energy sources such as oil and coal, Hornborg says. This comes at a time when global economies are consuming more of the world`s declining natural resources and failing to develop clean fuel technologies such as solar and wind power. The impact on other economies would depend mainly on their size, openness to trade and the extent to which they trade with the tariff-dependent country. It is clear that the economies with the closest trade relations with this country would be the most affected. In short, even if one can argue about the relative contributions of each of these channels and the overall impact on economic activity, the results are qualitatively: an economy that imposes a tariff made public by other countries would be much worse off.

Its standard of living would decline and jobs would be lost. Trade competition and the benefits of larger markets can lead to a more efficient distribution of labour and capital between sectors and businesses. This better allocation supports innovation and therefore productivity.

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