According to Mankiw’s 1 of the 10 principles of economics (2007), trade makes everyone better off. Swapping goods and services with other countries benefits both countries because it allows for healthy competition and a wider variety of products. The government sets boundaries and restrictions as well as policies when it comes to importing and exporting goods and services. These regulations are put in place to maintain order as well as to benefit both countries and their producers; they allow countries to specialize in producing goods or services that have a comparative advantage. Free trade, which is without boundaries and or restrictions, is an idea that has its advantages and disadvantages. The North American Free Trade Agreement (NAFTA) allows the United States, Canada, and Mexico to trade with each other without restrictions of any type. One example of an advantage and a disadvantage is that NAFTA has helped eliminate poverty in Mexico by increasing income but farmers suffer because of the cheap imports from the United States. (Floudas, 2000). The intent of this paper to discuss the benefits and drawbacks to free trade, determining the goods and services to export, tariffs and quotas that restrict trade, and finally, what causes the U.S. dollar to depreciate in relation to foreign currency and the effects on the U.S. trade deficit.
Free Trade
Opponents of free trade argue that trade with other countries destroys domestic jobs. Those countries that lower trade barriers and open their markets enjoy a higher standard of living. Consumers have access to a wider range of higher quality products at prices lower than they would otherwise pay. The average person also benefits in terms of wages and job opportunities. When labor and capital flow freely to the most productive areas of the economy, workers are employed in better, higher quality jobs with higher wages. Although there are inevitable short-term transition costs in some sectors of the economy,...