Question

While economic analysis shows that free trade increases consumption for all trading partners, criticism against free trade has been expressed by several policy makers and voters. Trade proponents emphasize the positive net benefits of trade, increasing the economic pie for each trading partner and benefiting each country as a whole. Critics point to the distributional effects of trade in primarily importing countries, benefiting consumers with lower prices and harming some producers. In the U.S. some manufacturing workers have been made worse off as their labor is demanded less. What is the best policy for the U.S. to follow to maximize the well-being of all U.S. workers? Explain your answer. A. Pull out of free trade agreements such as NAFTA that potentially harm U.S. manufacturing workers, in the hope that jobs in the manufacturing industries will return to the U.S. B. Impose tariffs on imported manufactured goods to protect domestic manufacturing jobs that will reemploy workers. C. Keep tariffs on imported goods low but provide special unemployment insurance for workers who lose their jobs due to free trade agreements in order to guarantee displaced workers retain their same living standard while they find a new job. D. Keep tariffs on imported goods but establish and subsidize educational, training, and placement programs for workers who lose their jobs due to free trade agreements.

Answer 1

Answer:

The best policy for the U.S. to follow to maximize the well-being of all U.S. workers is:

A.  Pull out of free trade agreements such as NAFTA that potentially harm U.S. manufacturing workers, in the hope that jobs in the manufacturing industries will return to the U.S.

Explanation:

The other three options still impose some kind of tariffs on imported goods, which negate free trade agreements.  The best way out is to pull out, and then renegotiate trade agreements.  That is exactly what the Trump administration did with the new United States-Mexico-Canada Agreement (USMCA).  This new agreement, which replaced NAFTA, was concluded by the three countries on July 1, 2020.  According to the USMCA, the new trade agreement will equally benefit all workers, farmers, ranchers, and businesses in the US, Mexico, and Canada.