Managerial Communication Report

Free Trade Agreements: Are they good?

By
Maanas P. Bhatt

MANAGERIAL COMMUNICATION REPORT

TO: Professor Guy Wade
FROM: Maanas P. Bhatt
SUBJECT: Free Trade Agreements
DATE: April 17, 2016
What is Free Trade?
Free trade agreements are trade agreements set into place in order to make trade
regulations and criteria more beneficial for the parties at hand. Free trade agreements
basically takes away taxes/tariffs that countries normally have on their imports and
exports. Normally when trading with another country there is a certain tax on the good that
is trying to be brought into the country. This is to regulate/reduce competition for the
countrys native companies.
Ex. Michigan has amazing cherries and a cherry manufacturing company from South
America wants to come and sell cherries in America. The United States would allow it but
with a tariff on the South American company. With free trade agreements the United States
would allow the South American company to sell their cherries in the United States without
any tariffs.
Advantages of Free Trade
Free trade advantages are designed to help trade influx between the countries in the
agreement.
-

Without the protection of tariffs business are forced to innovate in order to have
the competitive edge on other companies.

Brings in great investments which provides needed capital for local companies
to grow. (About News)

Allows lower prices for good due to simpler and more efficient manufacturing
practices.

Exports have contributed to United States economic recovery:

Disadvantages of Free Trade

-

Corporations are more frequently outsourcing their manufacturing to other

countries because other companies are able to manufacture goods cheaper and
now compete in the United States without any tariffs to reduce the competition.
Meaning that the United States citizens are losing jobs to cheaper manufacturers
from another country.

Competition becomes unfair due to companies in different companies having

less strict laws on patents. This allows the foreign company to steal ideas, make
knock-offs, and sell them at a very cheap price compared to the original
company.

Without tariffs and taxes in place there is reduced revenue for the United States,
so new ways of replacing the revenue stream have to come about.

Manufacturing Outside of the United States

Here is a list of companies that have changed
their manufacturing routes away from the
United States:
-

IBM
Apple
Nike
Microsoft
AT&T
Google
Hewlett Packard
General Electric
Caterpillar
Wal-Mart
Oracle

The American people are losing job or being

forced to work over-seas because the
manufacturing process is way easier and
cheaper then to have a manufacturing plant
here in the United States.
The Backward Cycle
Everyone loves cheaper prices for their goods
but that comes at the cost of companies
outsourcing their manufacturing. When
companies outsource Americans lose their jobs

and complain about unemployment. On one hand people want lower prices for goods and
at the same time they want to maintain employment rates. Free trade agreements allow
companies to manufacture products in different countries for cheaper so that they can set a
lower price for the good in the States. The diagram above shows that outsourcing is
becoming a huge issue with the rapid increase.
Are Free Trade Agreements Good?
Free trade agreements are good for competition and foreign companies. The benefits from
free trade agreements come with the cost of outsourcing and unemployment. The bad
seems to outweigh the good for now. But the thing about outsourcing is that in the long run
those companies will move back to the U.S. because the foreign countries will eventually
develop and the cost of manufacturing will rise there. In the long run free trade agreements
will balance out the advantages to be more valuable when outsourcing reduces.

References
Amadeo, K. (2015, November 23). NAFTA Definitions: How It Works, Why It's Important.
Retrieved April 17, 2016, from http://useconomy.about.com/od/nafta/fl/NAFTA-Definition.htm
Amadeo, K. (2015, October 5). 7 Pros and 7 Cons of Trade Agreements. Retrieved April 17,
2016, from http://useconomy.about.com/od/glossary/g/Free-Trade-Agreements.htm
Amadeo, K. (2016, March 31). 4 Reasons Why International Trade Is Slowing. Retrieved April
17, 2016, from http://useconomy.about.com/od/Trade-Agreements/fl/International-Trade.htm
Amadeo, K. (2016, March 23). 6 Negative Effects of NAFTA. Retrieved April 17, 2016, from
http://useconomy.about.com/od/tradepolicy/p/NAFTA_Problems.htm
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http://www.policyalmanac.org/economic/archive/free_trade_agreements.shtml
Jilani, Z. (2011, April 19). CHART: Top U.S. Corporations Outsourced More Than 2.4 Million
American Jobs Over The Last Decade. Retrieved April 17, 2016, from
http://thinkprogress.org/economy/2011/04/19/159555/us-corporations-outsourced-americans/
List of Pros and Cons of Free Trade. (2015, January 27). Retrieved April 17, 2016, from
http://occupytheory.org/list-of-pros-and-cons-of-free-trade/
Matthews, M. (2012, July 20). Companies 'Outsource' Because That's Where The Sales Are.
Retrieved April 17, 2016, from
http://www.forbes.com/sites/merrillmatthews/2012/07/20/companies-outsource-because-thatswhere-the-sales-are/2/#352ce7a81459
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from http://usliberals.about.com/od/theeconomyjobs/i/FreeTradeAgmts_2.htm