Discuss about the Economic Analysis of Free Trade Agreements.
Free trade agreement in its simplest form refers to an economic policy of not being selective against imports from and exports to foreign influences. Consumers and sellers from distinct economies may freely trade without the local government imposing tariffs, measures, subsidies or bans on their products and services. Free trade is thus the reverse of trade protectionism.
Basically, free trade agreements are intended to reduce the obstacles to trade between two or more republics, which are in place to aid protect native markets and businesses. Trade barriers normally come in as both tariffs and exchange quotas. FTAs are ultimately implemented to benefit consumers (Baier, et al., 2014)
FTAs do not just eradicate tariffs, they also discourse behind-the-border limitations that prevent the flow of goods and services between partners, motivate investment, enrich cooperation, and can also address other concerns, such as intelligent property, e-commerce and regime procurement (Lavy & Hannah, 2012)
Basically, Free trade agreements are aimed at increasing trade between two or more countries. This increase in trade activities between such countries brings about several advantages in the economies (Krueger, et al., 2012). Firstly, there is a noticeable economic growth as the markets for the local goods produced can access a considerably large market under minimal restrictions and barriers. Similarly, consumers’ satisfaction is high since a variety of goods is accessible at fair prices. (Krueger, et al., 2012)
Secondly, there is technology transfer whereby Native companies receive access to the most recent technologies from multinational associates (Krueger, et al., 2012). As these local economies develop, so do employment opportunities. Multi-national enterprises offer job trainings to local employees.
Expertise, ? International companies have more proficiency than domestic corporations to develop native resources. That’s particularly the case in mining sector, oil drilling and industrialization. FTAs allow the international firms to have access to these corporate opportunities (Baier, et al., 2014). When the global firms partner with the local firms to improve the resources, they coach them on the top practices and that gives native firms access to the new production methods.
Foreign straight investment, Investors will assemble to the state. This increases capital to expand native industries and enhance domestic industries (Evans, et al., 2015). Additionally, there is a decline in government spending; many governments usually subsidize native business segments. After the trade agreement eradicates subsidies, that money can be put to better use.
The TPP Partnership is considered to be the largest local trade accord in history signed by twelve countries in the year 2016 (Petri, et al., 2011). The basic goal of this deal was to expand economic incorporation among the states by decreasing tariffs and promoting trade to upsurge the growth level. Moreover, one of its objectives was for member countries to boost their ties with each other through this agreement (Pha & Jong, 2014). The basic notion of TPP was to make a single market just like the European Union. This treaty was reflected to be a very significant achievement since it has very diverse principles and approaches towards its member countries. The organization took a serious opinion of environmental safeguard and workers’ civil rights all enclosed in regulatory rationality (Petri, et al., 2011).
The TPP was bounded by rumors both good and bad. While some ruminate it as the world’s most aspiring trade pact, some saw it as the most dangerous. With Donald Trump’s conquest, TPP seemed to have hit a dead end (Fynn, et al., 2011). According to Trump, this deal was hurting American workers. He went ahead and outlined his agenda which he based on the simple principle of putting America first. He also expounded that he wanted the succeeding generation’s innovation and invention to occur on American soil (Gordon & Petri, 2016). He reflected it as a potential calamity for his country. America was therefore going to negotiate for reasonable bilateral trade agreements which would surge employment opportunities and assist revive American firms.
American withdrawal would mean the breakdown of TPP. States under this agreement such as Japan and Singapore expressed their reaction following the withdrawal by stating that TPP in absence of United States was meaningless and prone of collapse (Gordon & Petri, 2016). Repeatedly they warned that the failure to consent would weaken Washington’s standing amongst Asian trade cohorts and place Asia pivot in uncertainty If TPP breaks as it was expected, its outcomes would be broad. Moreover, it would adversely affect the global trade. There was silver lining however that the remaining states could perhaps forge ahead in absence of US though the impact would be diminished as easy access to US economy would be lost. (Fynn, et al., 2011)
The exit by the Trump regime of United States out of Trans-Pacific Partnership agreement, together with his outlined intent to discuss new deals with the partners bilaterally, posed questions to the remaining eleven TPP countries: should they move ahead with the pact as negotiated in exception of United States (Gordon & Petri, 2016), altering only the provisions for entrance into force? There was however two concerns that bore consideration. First, would TPP11 make sense for the Eleven as an impartial agreement? (Fynn, et al., 2011)Alternatively, would the fundamental provisions be constricted to those that work to the common advantage of the Eleven alone? The final option would readily be effected by provisionally relating those parts of agreement that work for the Eleven partners and on which easy consent would be achieved by appending the remainder. Accordingly whether to move on with provisional solicitation of the TPP agreement in full or in part was the most appropriate decision for the Eleven. (Gordon & Petri, 2016)
Second, since United States had initially negotiated the Trans-Pacific partnership as a chain of bilateral, with the prerequisite being the regionalization of foundation rules (Clinton, 2011), would the reviewed bilateral pacts between the U.S and the Eleven ultimately be rolled up into a TPP12 by reestablishing the regional dimensions, If actually the final result would be a reviewed TPP12, does the arrangement even matter? (Adamson, 2014)More precisely, would the Eleven be better off in terms of negotiating leverage with a fait accompli treaty of their own, which creätes preferences in the Eleven markets concerning the United States?
Under this scenario, the Eleven would have the advantage of regional cumulation of worth added for basis determinations under the TPP11, while the United States, in its series of bilateral, would not lest it purchased this via its bilateral deals. In other words, trading off entree to cumulation would be a negotiation chip, which the TPP11 would establish, for each one of the Eleven in its bilateral concession with the United States (Krueger, et al., 2012). In this light, this note offers quantitative contribution bearing on the contemplation of whether the Eleven should approach it alone (Adamson, 2014). The note also takes up the query of whether such a mutual response offsets for the Eleven the innately negative effect of the ambiguity about access to the US market established by motions from the United States that it does not cogitate itself necessarily destined by its prior trade agreements, including its activities under the World Trade Organization (WTO) Agreement. (Fynn, et al., 2011)
Precisely, this paper evaluates the effect of the TPP as discussed excluding the bilateral obligations between the United States and each of the eleven partners. The TPP11 program shock entails the liberalization assurances made by the partners for tariffs and non-tariff barriers in products and services and external direct investment. (Baier, et al., 2014)
The TPP Partnership Agreement clenches Prospective for producers and the American consumers’ .Reports indicate that costs of imported trade products are increased by tariffs and quotas, which aggregate to concealed taxes on consumers ranging to as high as 67.5 percent on footwear or 32 percent on attire (Gordon & Petri, 2016), for instance. Tariffs on products from TPP countries amounted to almost $6 billion in the year 2015, and approximately all would ultimately be eradicated by the enactment of TPP agreement; this would be a benefit to consumers as there will be wide choice of goods available at reasonable prices. (Fynn, et al., 2011)
Similarly on the sector of production, with a collective population totaling to 490 million and creating roughly 14 percent of the international trade, the TPP11 partners are acute sources of U.S markets, products and services (Adamson, 2014). Every country positions to benefit from the cumulative commercial commitment with these states, as happens to general U.S. economy. For instance: In the year 2014, the U.S exports were roughly $726 billion in products and $178 billion in amenities to the TPP states (Fynn, et al., 2011). Joined, the overall TPP partners represent the biggest market for U.S. products and service exports in the whole world. 45% of U.S. products exports exited to TPP countries in 2014. This is a benefit to the producers as the market for their locally produced goods is large and under minimal restrictions due to reduced Tariffs and quotas. (Gordon & Petri, 2016)
Considering the Agricultural sector of the US economy, agricultural products being its major exports to Australia which totaled to $1.3 billion in the year 2016, being a member of TPP agreement is of much importance since for one (Evans, et al., 2015), Farmers will have broad markets for their locally products and secondly due to the eliminated border restrictions, the profits realized will be higher as compared to cases under trade policies being in place. This will mean high gains by the producers to expand their businesses.
US withdrawal from the TPP agreement will mean a lot to not only its local domestic consumers but also the producers. Firstly, considering the withdrawal the immediate reform will be the reestablishment of the Trade policies as used to be before entering into the agreement. This will directly mean a barrier to the exporters. (Gordon & Petri, 2016)
Considering the Australia exporters for instance, the reintroduction of Tariffs by the US will result to reluctance of the producers of major exports to the US (i.e. beef, aircraft, aircraft parts and alcoholic beverages) to exporting those products due to the limitations imposed (Clinton, 2011). This will lead to shortages in raw materials in the US industries which relied on these products. Retaliation by the rest of the TPP countries in reaction to US decision will also have impacts on their consumers. Considering that there will be reintroduction of Tariffs on the US products also, the producers market will be limited. This will mean an inadequate market for those products. This is a negative impact to producers (Petri, et al., 2011).
According to 2014 statistics it was revealed that US was a major market for the TPP11 products as well as a major source of Raw materials for the TPP11 local industries (Petri, et al., 2011). The estimates showed that imports totaled to $980 billion whereas the exports accumulated to $905 billion. Basing the argument on these statistics to analyze the impact of US in this deal, it is clear that there was a considerable progress in the TPP11 local firms as raw materials could be accessed at affordable prices as a result of waved Tariffs and Quotas (Fynn, et al., 2011). This meant that the final products were affordable and both local and foreign consumers will be willing to buy.
On the other hand, local producers in the TPP11 will have a large market for their domestic products. Considering the case of mining sector in the Australia, US being one of its major export zones for its iron, ore and gold, the removal of trade barriers (Tariffs and Quotas) are a bright signal that the producers in this sector will be more than willing to explore the market and distribute their products (Baier, et al., 2014). Increased markets will mean an upsurge in the cumulative profits and which in turn means expansion in the sector of production. This is a positive impact to the TPP11 local producers.
Bearing in mind that US was a major consumer of the TPP11 goods and services, the decision made by Donald Trump to pull out will have catastrophic effects on the local consumers and producers of TPP11 partners. The heavy block will be felt immediately after the reintroduction of major Trade barriers as they used to be before the treaty (Krueger, et al., 2012). Considering the case of Australia Mining sector, bearing in mind that US has been a major market for its Iron, ore and gold, the introduction of the trade barriers will make it hard for the miners to export these products to US (Adamson, 2014). This is considering the small profits likely to be gained and the willingness of the US local consumer industries to purchase the products at high prices. This will result to a decline in production sector in the TPP11 due to the resultant decline in the market and the imposed barriers.
As a result of US decision to reintroduce the trade barriers following its withdrawal from the treaty, TPP11 obviously will react on this decision by also introducing the Tariffs and Quotas on the US based products (Petri, et al., 2011). Due to this local domestic industries and consumers products received from US will increase in prices. This will lead to unaffordable goods and services which will mean an increase in consumer spending. Additionally, the TPP11 domestic industries relying on raw materials from US will have to adjust the prices of their final products due to the increase in the prices of the raw materials. This will also result to unaffordable domestic goods leading to increased consumer spending and dragging the economy growth (Baier, et al., 2014).
In simple economic scrutiny, when all dynamics in exception of the price of the product are assumed constant and examine the correlation between numerous worth levels and the full amount that would hypothetically be bought by clients at each price level, this cost-quantity combinations can be schemed on a curve referred to as a demand curve (Blanchard, et al., 2015). Prices are conspired on the vertical axis whereas quantity is plotted on the horizontal axis. Fluctuations in the price of a product can be seen along a fixed demand curve. Supply curve on the other hand shows the correlation between the prices and the quantity of goods produces the manufacturers will be willing to produce at various prices holding all other factors of production constant. Fluctuations in the price of a product can be traced along a fixed supply curve. (Ramsey & , 2015)
Elasticity denotes to the amount of responsiveness in both the supply and demand in relation to fluctuations in price. In a more elastic curve, small changes in price causes huge changes in quantity spent whereas in a less elastic curve, it takes large changes in price to cause a change in quantity taken. (Blanchard, et al., 2015)
Basing the argument on the US agricultural sector and Australia mining sector, there was a considerable level of responsiveness in the both curves in presence and later withdrawal of US from this treaty. To begin with, before the TPP12 entering and putting the treaty into practice (Muth, 2014), there was a considerable limitation due to the available Trade policies. This limited the market for the locally produced goods and services. On putting the treaty into practice the markets for local produced goods and services expanded and this lend to domestic producers willingness to produce more goods to maximize their gains. This meant a positive response on the elasticity of the supply curve. (Salop & Scheffman, 2013)
Agricultural sector in the US increased their levels of production due to increased prices for their products due to the removal of barriers which limited their market before. Similarly, this step recorded an increase in Australia’s mining sector as a result of increase in the prices of their main exports to the US (Salop & Scheffman, 2013)
In the scenario of demand, the wave of the Tariffs meant a decrease in final consumer good prices. This in effect led to consumer willingness to buy goods leading to a positive response in the demand curve. (Salop & Scheffman, 2013)
The impact of tariffs and trade restrictions on businesses, buyers and the government changes over time. Higher prices for goods in the short run led to reduction in the levels of consumption by individual buyers and businesses. During this time, businesses made high profits, and the government increased its revenue income from duties (Rodriguez, 2012). In the prolonged period, businesses recorded a decline in efficiency as a result of lack of competition, and a reduction in profits following the emergence of product substitutes. For the government, the long-term impact of these subsidies was an upsurge in the demand for public sector services, since the resultant increase in prices in foodstuffs left a less disposable income. (Krueger, et al., 2012)
Tariffs raise the prices of imports. This affects buyers in the country applying the duty as higher imports. When trading accomplices hit back with their own particular tariffs, it increases the cost of working together to export businesses (Rodriguez, 2012). Some investigators trust that duties cause a weakening in item quality. Institutions search for methods to slice creation overheads to represent tariffs. Tariffs are more forthright and simpler to oversee than quantities. This renders it less demanding for trading accomplices to tame them down or wave them (Fynn, et al., 2011) (Alesma & Tabellin, 2011).
A budget deficit is a pointer of cash related to wellbeing in which uses exceeds income. The term expenditure deficiency is most regularly used to denote to government expenditure instead of business or distinct spending, however can be associated to these elements. (Alesma & Tabellin, 2011)
The US decision to withdraw from the TPP agreement and imposing trade restrictions is likely not to eliminate its budget deficit. The TPP11 partners’ reaction obviously will be imposing taxes on the US products entering into those states (Alesma & Tabellin, 2011). As a result the US exporters who relied on the TPP11 as the main export zones will face limitations on exporting their products. This will mean that the exports will decline (Normandin, 2015). In order to eliminate Budget deficit, the exports should be more than the imports. Yet in this scenario both the exports and imports have declined therefore there will be no significant change out of this decision made by the Trump regime on the budget deficit. (Alesma & Tabellin, 2011)
Over time, the aggregate Australia government spending has gone up as a result of the various contending request put upon legislators and the impacts of campaigning by weight gatherings (Metin, 2011). The state has along these lines been bolted into giving monetary help to misfortune making organizations and businesses, for example, aircrafts.
Because of the state segment being moderately less proficient in providing open administrations, at that point an incentive for cash has progressed toward becoming lower and more should be spent altogether to give the cover that individuals require (Brauninger, 2014). Free market financial experts’ support a littler government segment with numerous exercises out-sourced or privatized to the private area to supply.
Increasing asset worth (Barba & Pivetti, 2015), especially in the Australia residential real estate, which has given mortgage owners a notion of increased riches ,and the aptitude to unlock that wealth via new monetary products such as loans based on household equity;
Rising financial literacy and the realization of the baby boomer generation that it would have to take more responsibility for funding a comfortable retirement (Barba & Pivetti, 2015)
A budget deficit indicates subordinate taxes and amplified Government expenditure, this will upsurge AD and this may lead to greater real GDP and inflation (Debelle, 2012).
As a result of reverse effects of household debt; growth will become slower than it would have been otherwise, and the chances of a financial crisis shifts. These effects will be stronger considering the fact that Australia has an advanced economy (Barnes & Young, 2013). Considering that almost half of the Australia government expenditure comes from the health care programs, a premium support payment structure should be adopted and this would make medical care efficient and save taxpayers money (Barba & Pivetti, 2015). These two programs being key drivers of spending growth over the past, Limiting unnecessary awards based on these two programs would encourage the beneficiaries to return to work if they are able. This will mean that the benefits will be only availed to those who need the assistance most (Campbell & Hercowitz, 2011).
Adoption of specific and dedicated operation to remove bad government spending’s will be a good idea since many of these programs are rampant in the economy of Australia. Government programs that act to the advantage of the special-interest clutches, particularly corporate welfare, should be on the chopping block front line (Campbell & Hercowitz, 2011).
Adamson, 2014. Ordinary deals Unmasking the Trans pacific partnership. Journal of American economics.
Alesma & Tabellin, 2011. Voting on budget deficit. s.l.:s.n.
Baier, Bergstrand & Blind, 2014. Economic determinants of free trade agreement. journal of international economics, Volume 45, p. 543.
Barba & Pivetti, 2015. Rising household debt, causes and its implications. Cambridge journal of Economics.
Barnes & Young, 2013. Causes of Household Debt rise. s.l.:s.n.
Blanchard, Oliver, Danny & Quah, 2015. Dynamic impacts of supply and demand curve disturbances. Journal of aggregate demand and supply.
Brauninger, 2014. The budget deficit, public debt and the economic growth. Journal of public economic theory.
Campbell & Hercowitz, 2011. The role of Household debt in an economy. Journal of Economic research.
Clinton, 2011. American pacific century. journal of American economics, p. 543.
Debelle, 2012. Household debt and macroeconomy. journal of economic implications.
Evans, Tesh & Young, 2015. The advantages of free trade agreements in an expanding economy.
Fynn, Baker, Kamniski & Koo, 2011. The US proposal on the Trans pacific partnership. journal of American economics, p. 43.
Gordon & Petri, 2016. Trading up in Asia, why US needs Trans pacific partnership for its economic growth. journal of American economics.
J.P, N., n.d. Welfare effects of tariffs and investment taxes. s.l.:Cambridge University Press.
Krueger, Anne & swaztiger, 2012. Free trade agreements and the customs union. journal of development economics, p. 453.
Lavy & Hannah, 2012. economic analysis of free trade agreements. journal of American economic revew, Volume 20, p. 345.
Metin, 2011. The relationship between budget deficit and inflation. Journal of international economics.
Muth, 2014. Derived demand and supply curves. Journal of Economics in oxford.
Normandin, 2015. Budget deficit persistence. Journal of international economics, p. 345.
Petri, Plummer & Zhai, 2011. The Trans pacific partnership quantitative assesment. journal of free trade agreement assesment.
Pha & Jong, 2014. The Trans pacific guardian. journal of Australian economics.
Ramsey & F. P., 2015. A contribution to the theory of demand and supply. Journal of economic balance.
Rodriguez, 2012. Effects of Quotas and Tariffs. callifornia: American public press.
Salop & Scheffman, 2013. Raising cost rivals. journal of American economics.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download