1. Unit 5, Lesson 14 Trade Barriers and Trade Agreements AOF Business Economics Copyright © 2008–2011 National Academy Foundation. All rights reserved.

2. Not everyone supports free trade Many governments seek, to some degree, to protect their economies from the impact of global competition (protectionism) Three primary arguments against free trade: Protection of domestic jobs National defense Infant industry development Why might labor unions be against free trade, but multinational business executives for it? Unions tend to oppose free trade Multinational businesses tend to support free trade

3. Free trade can hurt instead of help National defense poses a problem for free trade: Specialization may undermine a country’s ability to defend itself in wartime Antagonists could withhold critical materials (steel, oil, rubber) Do the benefits of trade outweigh the risk of an unsafe world? Global Trade vs. National Defense

4. Economic development in some developing countries may conflict with free trade Infant industry promotion Countries have incentives to promote the development and diversification of their economies At an early stage of growth, small local companies cannot compete against established multinationals Should a government help its own small business grow bigger?

5. Protectionism has many tools Countries have many ways to erect barriers to trade: Tariffs Quotas Voluntary Export Restraints Non-Tariff Barriers Whom does protectionism help and whom does it hurt? Consumers Producers

6. Trade agreements increase international trade Countries enter bilateral (between two countries) and multilateral (among many countries) trade agreements Goal is to decrease tariffs and other barriers to trade North American Free Trade Agreement (NAFTA), European Union (EU), and World Trade Organization (WTO) For what reasons might the United States have signed its first major trade agreement with Canada and Mexico?