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The Dynamics of Free Trade

The state of free trade centers around several large regional pacts. As of 2008 less than 17% of global trade did not receive any form of preferential status. Global tariffs are also shrinking; average rates for Latin American countries was 13.1% in 1996 in 2012 that rate was 4.8% and other developing nations have also slashed tariffs. These preferential trade areas have also been shown to boost the trade of non-members, albeit at a lower rate. Trade still remains a contentious issue, however. Since those inside trade zones are the ones who craft the rules of admittance of members both the United States and China have been working to craft regional trade zones that exclude each other.


The Transatlantic Trade and Investment Partnership (a proposed measure) could boost American GDP by 13.4%, but would leave Canada (a proposed non-member) 9.5% smaller than it would otherwise have been. Depending on dynamics there can be winners and losers in free trade; however, the benefits of free trade are generally not to be ignored and lead adaptable economies to be better off.

Source: Game of zones

One Comment

  1. Sources? Is it credible that a modest change in trade rules with a subset of US trading partners will boost GDP by 13%?? — remember that the starting point (as you point out) is one of very low tariffs and related barriers, so TPP cannot bring about major reductions in barriers because those reductions were made long ago (most recently via the WTO)! This is our old story of diminishing returns: even if TPP does lead to more trade and/or lower prices for covered items, that merely represents a little bit of frosting on the free trade cake!

    In addition, what is the ratio of exports to GDP? Even if TPP brought major changes, is a double-digit increase in GDP commensurate with the role of traded goods in our economy?

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