Market Failures

In my view, I consider free trade to be the biggest market failure in the U.S. economy. Economists argue that free trade eliminates unfair trade barriers thus improving the economy in both the developing and developed nations. However, in the U.S., free market is to some extent giving foreigners an unfair advantage.

A major effect of the free trade in the U.S. is the loss of jobs.  Foreign countries are providing cheap labor than the U.S. in the interest of reducing cost, manufacturers and service providers in the U.S. are turning to foreign countries for cheap labor. Big corporations such as Apple inc. have their assembling plants in China where they can pay much less as compared to U.S. In addition, the internet has made it easy for foreign workers to work for U.S. companies. The problem has been aggravated by the time difference. As people sleep in the U.S., a software engineer somewhere in India will be busy developing software for a U.S. company. Again, imports from developing countries are much cheaper than domestic goods. This has led to much imports leading to closure of some of the domestic manufacturers and producers. The idea of free trade has increased competition to undesirable levels. This idea of free trade has led to the current unemployment rates in the U.S.

This failure can be addressed by restricting international trade. This can be managed by imposing quotas, tariffs and using other non-tariff methods. By imposing a ceiling on the imports and taxing the imports, the import will be much expensive as compared to domestic products. In addition, the non-tariff barriers such as subsidies may reduce the unemployment problem.


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