Question

2. The economic model of trade between two countries that we encounter in Chapter 3 and in the first question of this problem set shows how exchange based uporn comparative advantage can be mutually beneficial to the two countries. In recent U.S. elections, we have seen that some in the United States are strongly opposed to free trade agreements a. How do those opposed to trade agreements such as NAFTA believe that Americans are harmed by international trade? Does this opposition to trade agreements make sense given the trade model we covered? Explain. b.

Answer 1

(a) The opposition is mostly amongst the labour groups as the influx of cheaper labour does not allow the wag rates to rise in the US and also causes Unemployment for some American workers, as a result countries.NAFTA liberalises movement of labour hurting these groups and also causes free trade, and a number of cheaper goods, especially labour intensive goods areimported duty free, hurting the labour intensive industries in the US

(b) The HO model states that the labour abundant nation is more likely to export labour intensive product, this causes some job losses in the US, especially firms producing labour intensive products such as Cotton textiles etc.

  Hope this helps. Please let me know if somehting has been missed or feel free to clarify in comments.