International trade has the potential to greatly improve a countries welfare. Whether its through imports or exports, when a country trades they are statistically better off than those who do not. Trade promotes economic growth, efficiency, technological progress, and what ultimately matters the most, consumer welfare. According to the US Congress Joint Economic Committee, international trade has raised the average American's annual household by $10,000 or more. Trade also creates competition among businesses that create the same product that is being imported. This results in a reduction in price which allows consumers to buy more of the product. Trade not only benefits consumers but producers as well. According to the US Chamber of Commerce, 41 million jobs depend on international trade.
On the other hand, the grass isn't always greener because trade can also lower the real wage of a countries workers. By importing a cheap product, the real wage of workers domestically producing that product can decrease. This will only happen if the wage effect is greater than the consumption effect. In order for a household to have a net welfare loss, the decrease in wage must outweigh the increase of consumption. According to the specific factors model however, labor is able to move among industries. This means that those workers can find other work in industries that don't import a specific product.
I like the data points and the juxtaposition you have in your post. And I definitely agree with you: trade increases a country’s welfare. In the case of the specific factors model, an increase in the price of the good being sold or the specific factor, would increase the relative price of that good being traded, the laborers’ wages, and thus the overall welfare of the economy and consumers increases and potentially diversifies (depending on consumer preferences and imports).
ReplyDeleteI agree with the fact of how trade is such a necessity for the worlds economy and consumers welfare. I like how you pointed out that trade doesn't just benefit consumers but producers as well. That producers are a big part of international trade and capable of creating massive shifts in the economy just as consumers.
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