The main contents of this chapter include all of the following: The benefits of free trade, why do we need trade agreements, trade agreements and institutions, economic and political impacts of trade, the bottom line. | Chapter 16 NAFTA, GATT, WTO: Are Trade Agreements Good For Us? Chapter Outline THE BENEFITS OF FREE TRADE WHY DO WE NEED TRADE AGREEMENTS TRADE AGREEMENTS AND INSTITUTIONS ECONOMIC AND POLITICAL IMPACTS OF TRADE THE BOTTOM LINE NAFTA, GATT, and the WTO NAFTA: North American Free Trade Agreement An agreement between the United States, Canada and Mexico to have substantially free trade. (Some tariffs and quotas are permissible under certain circumstances.) GATT: General Agreement on Tariffs and Trade A multi-nation agreement specifying conditions under which tariffs, quotas and non-tariff barriers are permissible. WTO: World Trade Organization An organization designed to settle trade disputes. The Benefits of Free Trade Free trade makes each trading partner better off than it would have been without trade. Countries export goods to other nations because the producing country can make the good at a lower opportunity cost than the importing country. A Simple Example Number of workers . | Chapter 16 NAFTA, GATT, WTO: Are Trade Agreements Good For Us? Chapter Outline THE BENEFITS OF FREE TRADE WHY DO WE NEED TRADE AGREEMENTS TRADE AGREEMENTS AND INSTITUTIONS ECONOMIC AND POLITICAL IMPACTS OF TRADE THE BOTTOM LINE NAFTA, GATT, and the WTO NAFTA: North American Free Trade Agreement An agreement between the United States, Canada and Mexico to have substantially free trade. (Some tariffs and quotas are permissible under certain circumstances.) GATT: General Agreement on Tariffs and Trade A multi-nation agreement specifying conditions under which tariffs, quotas and non-tariff barriers are permissible. WTO: World Trade Organization An organization designed to settle trade disputes. The Benefits of Free Trade Free trade makes each trading partner better off than it would have been without trade. Countries export goods to other nations because the producing country can make the good at a lower opportunity cost than the importing country. A Simple Example Number of workers produces Amount of Output High Tech Low Tech High Skill Low Skill High Skill Low Skill US 1produces 1 2 produce 1 1 produces 4 1 produces 3 Mexico 3 produce1 4 produce 1 1 produces 3 1 produces1 US exports high-tech products to Mexico and Mexico exports low-tech products to the US and both are better off than if they produced the goods themselves. Why Do We Need Trade Agreements? It is logical to ask “if trade is so good why do we need an agreement to engage in it?” The answer is that a country can make itself better off by engaging in Strategic Trade Policies designed to get more of the benefits from trade in a country than would exist under free trade. Countries that do this increase the gains from trade to themselves but it is less than the losses to everyone else. Example of Strategic Trade Boeing vs. AIRBUS Boeing had significant market power in the production of airliners prior to the existence of AIRBUS. Britain and France gave AIRBUS protection against Boeing’s exports to European
