Free Trade Agreements

Definition: Free trade agreements are designed to increase trade between two countries. Free trade agreements spell out the tariffs, or taxes and duties, countries impose on their imports and exports. The most well-known, and controversial, free trade agreement is the North American Free Trade Agreement, or NAFTA. Many people argue that NAFTA is responsible for outsourcing jobs to Mexico. The U.S. Trade Representative Office estimates that NAFTA increased U.S. economic growth by .5% a year.

The biggest criticism of free trade agreements is that they are responsible for jobs outsourcing. Reducing tariffs on imports allows foreign companies to expand and hire workers. Low-cost imports make it difficult for U.S. companies in those same industries to compete, so they reduce their workers. Many U.S. manufacturing industries that couldn't compete did, in fact, lose business and lay off workers.

However, trade protectionism is not always the answer. High tariffs will protect domestic industries in the short-term. But, in the long-term, global corporations will hire the cheapest workers wherever they are in the world to make higher profits. The U.S. has many regional free trade agreements in addition to NAFTA.

The World Trade Organization (WTO) is the international body that helps negotiate and regulates free trade agreements. The most famous free trade agreement was the Doha Round Free Trade Agreement. It would have reduced tariffs for WTO members. However, the U.S. and EU would not lower their agricultural subsidies enough to satisfy the emerging market countries. Local farmers cannot compete with subsidized food prices from developed countries. China stepped into the void, signing free trade agreements with countries in Africa, Asia and Latin America to get access to their oil and other commodities.