Pros and Cons of Free Trade Agreements and Foreign Investments

MINI ESSAYS
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(Amadeo, 2019) Free Trade Agreements With Their Pros and Cons/free-trade-agreement-pros-and-cons-3305845
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(Amadeo, 2019) defines Free trade agreements as ‘treaties that regulate the tariffs, taxes, and duties that countries impose on their imports and exports.’
Pros
* Increased economic growth – the member countries experience economic growth by sharing into the advantages brought by other countries.
* Lower government spending – government can save on the subsidies and tax break it offered local businesses to remain operational hence reducing on its expenditure.
* Foreign Direct Investment – More investors will flock to other countries and hence some countries receive high capital inflow.
* Expertise& technology transfer – multinationals spread their expertise to other countries. Other countries benefit from technology, expertise and resources developed by another.
Cons
* Increased job outsourcing – businesses will gravitate to where labor is cheap. Thus, many businesses may relocate to other countries. This also comes with poor working conditions.
* Theft of intellectual property – some countries with poor IP enforcement creates a good environment for IP theft. Inventors may not enjoy the full potential of their inventions.
* Crowding out domestic industries – the domestic industries suffer competition from well-established businesses with higher capital. Mainly, farming is affected in developing countries aggravating unemployment and poverty.
* Degradation of natural resources – companies with higher capital may accelerate exploitation of natural resources in host countries with poor environmental protection policies.
* Destruction of native cultures- Exotic cultures assimilates local indigenous cultures. Multinationals tend to bring with them exotic cultures.
* Reduced tax revenue – free trade may narrow tax base especially if the government gives very generous tax breaks to encourage foreign investment under free trade. Crowding out of domestic industries also narrows the tax base.
Why is trade protectionism not the answer to free trade agreements?
(Kolodkin, 2018) Understanding Direct Foreign Investment /what-is-foreign-direct-investment-3310374
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(Kolodkin, 2018) cites that IMF defines FDI as ‘an investment made to acquire lasting or long-term interest in enterprises operating outside of the economy of the investor.’
* Kolodkin argues that FDI is important because it ‘is a major source of external finance which means that countries with limited amounts of capital can receive finance beyond national borders from wealthier countries.’ The author cites that China has risen to be an economic superpower because of FDI and exports.
* The author argues that the US is a relatively safer option for FDI because of the size of its economy and its resilience. He however notes that it is also affected by global trends such as the 2008 economic meltdown.
* The author observes that many countries have specific policies on FDI to avoid undue foreign influence or economic imperialism. The author cites a ca...