Result From Free Trade In Canada example essay topic

Trade and Prosperity Free trade is the act of exchanging goods or services between countries for minimal tariffs or fees. Between countries, this is a method of exchange that is gaining more and more popularity. By importing and exporting for low fees, free trade is an efficient way to cover up weaknesses in the country and gain on strengths. Free trade is a very controversial topic that is viewed upon differently by many people in many different countries. Some oppose free trade; they feel it will cause production losses or low employment in their country. Many countries also embrace it and believe it helps create a strong and healthy nation.

They join in free trade organizations or draft free trade agreements with other countries to try and capitalize on the potential benefits. In Canada, free trade with other countries is embraced and as a direct result, both business and consumers experience great economic and social prosperity. Ask any economist and they will tell you one of their main principles, which they rely on as if it were a verse from the bible, is: "free trade makes everyone better off (Mankiw, Kneebone, McKenzie & Rowe 9). To explain this, the terms opportunity cost and comparative advantage must first be defined.

The opportunity cost of an item is whatever that must be given up to attain that item (Mankiw, Kneebone, McKenzie & Rowe 53). For instance, if you are a farmer and decide to harvest corn all today, you are deciding not to feed the chickens or milk cows. Thus, the opportunity cost to attain corn would be the milk or eggs that you cannot gather. When producing goods, each country has an opportunity cost for an item. They cannot produce every single item they want; some good must be given up in order to attain other goods.

For example, Canada may have the decision on whether they should allocate resources to manufacture 500 computers or 1 car. The opportunity cost for one computer would be the number of cars that can be produced divided by the number of computers that can be produced, which is 0.002 cars. Alternatively, the opportunity cost for one car would be the number of computers divided by the number of cars, which are 500 computers. Consider also, for instance, that another country, Japan, could produce 1000 computers for every 1 car. Then, Japan's opportunity cost for computers would be 0.001 cars. When comparing computers, whoever has the lowest opportunity cost is said to have a comparative advantage in producing that product (Mankiw, Kneebone, McKenzie & Rowe 54).

The comparative advantage for computers, then, would go to Japan because they are more efficient at making them. They produce more computers and give up less than Canada does. Because Japan has the comparative advantage in producing computers in that example, free trade would maximize both country's production by having Japan specialize in producing computers and Canada specialize in producing cars. Then, both countries could trade the products they specialize in for the other, at a fair rate to be determined separately.

Without free trade, each country had a bigger limit on what good they could produce. With trade, both countries still have a limit to what the countries can produce, but since they are trading what they are best at producing, they are maximizing the total numbers of goods in the country. Thus by trade at a fair, un-taxed rate, they are capable of having more goods and services in their country and any given time. Both countries are able to produce the best they can and thus from trade, they receive the most of the other good as they possibly can. This is known as the law of comparative advantage (Mankiw, Kneebone, McKenzie & Rowe 55).

In Canada, the law of comparative advantage produces enormous benefits for both consumers and producers. First, by establishing trade connections with other countries, it allows Canada to specialize in producing what it is best in producing. No longer does the country have to produce products that are inefficient to produce, Canada can just focus on what it is good at making. Then, by trade, Canada can gain those products they are poor at making (Bhagwati 50). Therefore, free trade has maximized the amount of products that are being transferred around and it promotes the reduction in the amount of inputs required and promotes efficiency. Businesses then get to sell more products to customers and generate higher profits, which can then increase jobs in Canada and lead to a healthier economy.

Many of the resources that a business needs to produce a certain good are traded as well. Free trade allows for a more efficient method to attain these resourceful products and businesses are able to increase their productivity. This is a great help to businesses since it increases their efficiency, allowing them to waste less. Businesses are thus able to produce a greater quantity of outputs with ease and are also able to generate much higher revenues (Bhagwati 52). Not only do producers benefit, but Canadian customers also gain considerably. When producers produce large amounts of a good with lower amounts of resources, they can then sell them at a lower price as well.

Canadian customers react by buying more. Customers undoubtedly gain from the lower prices that result from free trade in Canada. When businesses are able to attain the inputs needed to create a product in a more efficient way, the product then gains in quality (Murphy). Regardless of whether the product is a good or service, the quality goes up. When the resources for a product are made in a country that specializes in their production, the inputs are created more efficiently and effectively. Producers can thus attain more of an input, which generates more of an output as well.

Less waste is being produced in the manufacturing process and higher quality is the end result. Customers in Canada would thus be able to attain a better overall product. Consumers also benefit from getting a wider variety of products (Bhagwati 62). Some products can only be produced in other countries and Canada does not have the resources to make them. This, simply, is due to the Canada's inability to possess the methods or resources necessary to create the good. With trade, we are able to import the products we are unable to produce.

Free trade allows for this transaction to be done more efficiently and effectively. No additional fees are needed to be paid for such rare goods, so a larger amount of them will be imported to Canada at the lowest price possible. This generates a wider variety of goods that can be accessible to Canada. Consumers would then be benefiting by getting a wide assortment of products that were previously unattainable. This creates more consumer satisfaction, giving them more products to consume and use for their own joy. Many socialists believe that free trade is harmful to the environment (Murphy 2).

This idea is unfounded and untrue. Free trade has great benefits for the environment which are often overlooked. People who oppose free trade believe that the major trade organization, the World Trade Organization (WTO) and G 8 draft free trade agreements like the Free Trade Area of the Americas (FTAA) and General Agreement on Tariffs and Trade (GATT) that hurt the environment (International Trade Canada 4, 5). It is false fully believed that these agreements promote lowering the cost of inputs by the use of whatever environmentally unfriendly procedures possible. This issue is false for the one sole reason that basic principle of free trade is not being applied properly when the environment is damaged.

Comparative advantage is not only solely determined by who produces what product the best. The first example about the cars and computers production by Canada and Japan was only a 2 dimensional problem with 2 factors being concerned but factors such as the social effects on the environment must also be considered when discussing the principle of comparative advantage. If it was learned that Japan had to destroy 2 trees for every computer produced and Canada had to destroy only half a tree, the opportunity cost would change. In this new scenario, Japan is being inefficient by destroying more trees and would not have the comparative advantage in relation to the environment. It may be decided that they should not specialize in the production of computers.

On a large scale, every single factor must be well thought when trying to figure out who should produce what. Only by doing this, may the principle of comparative advantage be truly utilized effectively and the environmental and social concerns would be lowered. In terms of the environment, free trade should also have other benefits when used correctly. Free trade allocates the production of a good to occur in places not only most economically feasible, but environmentally friendly as well.

The principle of comparative advantage, in the real world, takes consideration the environmental and ethical standards as well. For example, when alloys such as aluminum are produced they are produced in places where there is abundant hydroelectric power. This is because hydroelectric power produces less pollution than the alternatives, gas or coal (BBC News). This way, when considering where aluminum is manufactured, people must also consider comparative advantage in terms of the effects of the environment too. When considering where the production of all products, businesses must always consider the harmful effects the production may have on the environment. Thus, by allocating these factors of production correctly, Canada and the whole world can benefit.

In Canada, certain laws penalize businesses if they create too much pollution which can harm the environment (Mayer 3). By minimizing the pollution created, businesses can generate a higher profit by producing more with no penalties. Consumers also benefit by experiencing a country with little pollution, thus creating a better, healthier climate to live in. The consumers and citizens of Canada in general also benefit from free trade. Countries who participate in free trade enjoy a high standard of living (Bureau and Salvaitici 1152). Canada has a high GDP, experiences technological improvements, great economic prosperity and living conditions.

With all the benefits of free trade already discussed, like more products and higher efficiency, it should be no surprise that high economic prosperity is resultant (Bureau and Salvaitici 1152). From this, also comes the high standard of living. Canada is able to be proud of the fact that its citizens enjoy low poverty and high prosperity. The fact that a high standard of living is result of free trade can be shown in the top WTO members like the United States, the UK and Canada (International Trade Canada 3). All of these countries participate actively in free trade that generates a high level of economic activity and creates a large flow of money between consumers and producers.

In Canada, this economic movement generates prosperity and high living conditions which in turn financially benefits producers and consumers. Free trade generates greater jobs opportunities and higher wages. As a result of free trade, resources are shifted to sectors where productivity is high and lots of labour and capital flow to those sectors, increasing their growth and productivity even more. The workers that work their will then receive the maximum wages possible since numerous economic resources are flowing in that direction. For example Windsor has a relatively high comparative advantage in producing automobiles so they are given the responsibility of building cars. Since they then specialize in the production of cars, more resources and inputs for the productions of cars will be going to Windsor.

These increased resources also include people, labour and employment. In fact, there is a direct correlation between imports and jobs as well. The more the volume of imports we receive grows, the more jobs are created and vice versa (Murphy 3). Free trade is able to maximize the amount of product in an economy which also increases the amount of resources in Canada. The increased amount of resources benefits consumers since it increases the amount of jobs in the economy and it increases wages for the workers. Free trade now is already a huge part of Canada's economic success.

It is embraced by more than 150 countries. Canada is already a part of the WTO, North American Free Trade Agreement (NAFTA), GATT, numerous free trade agreements and trades freely with almost 160 other countries and this list is still growing (International Trade Canada 6). It is impossible for Canada to just stop participating in free trade (Mayer 1). This nation depends on free trade to sustain normal economic growth and cannot stand without it; it would be totally unfeasible and impossible to eliminate it. Every other developed country in the world practises it and for Canada to discontinue its participation it would forever lag behind the world in development. The fact is; businesses and consumers in Canada are now dependent on free trade (Mayer 2).

Without it, we would suffer large production losses, less goods and services, lower employment, lower wages and a weak economy. Right now, free trade is our only trade option; taxing trade would allow other countries to outperform Canada. It would make producers produce less and generate less and it would make consumers suffer by being unable to attain as much of a product as they need. Free trade must continue so Canada can continue its growth with other developed nations in the world.

As you can see, free trade has now become a sort of necessity in Canada. For the nation to continue its economic and social prosperity, free trade must continue. With free trade, Canadian businesses benefit from higher production levels, minimal waste of resources, and the economic growth that leads to better business operations. Customers also benefit from the wider array of products, lower price, less pollution, better living conditions and generally higher employment. Without free trade, Canada would lag behind compared to the rest of the world. Consumers and businesses would be unable to keep up with the progressing success of other developed countries.

Free trade must be continually embraced in Canada for businesses and consumers to continue enjoying the high economic and social prosperity that is currently occurring.

Bibliography

Bhagwati, Jagdish, "The Pure Theory of International Trade: A Survey", The Economic Journal, Vol 74, No. 293, Mar 1994.
pp. 1-84 BBC News, The Argument for Free Trade, web report/1999/11/99/battle for free trade/533208.
s tm, Feb 12, 2003 Bureau, Jean-Christophe, Salvaitici, Luca, "WTO Negotiations on Market Access in Agriculture: a Comparison of Alternative Tariff Cut Proposals for the EU and the US", Topics in Economic Analysis & Policy, Vol 4, Issue 1, March 26, 2004, pp 1152 International Trade Canada, Canada's Trade Negotiations and Agreements, web mae ci.
gc. ca / tn a-na / menu -en. asp, Nov 18, 2004 Mayer, Frederick, Interpreting NAFTA, Colombia University Press, Oct 15 1998 Mankiw, Kneebone, McKenzie & Rowe, Principles of Microeconomics 2nd Edition, Prentice Hall, 5th Edition, Jul 27, 2000 Murphy, Robert P.
Who Benefits From Free Trade, and How, web Jan 23, 2004.