5 Free trade agreement myths debunked & Canada’s newest FTA with South Korea

09/05/2014

FTA-with-South-Korea

FTA-with-South-KoreaThe old adage, “a good compromise is one in which neither party is happy,” is a lousy standard by which to judge whether or not two parties reach a good deal. When it comes to political matters, there is never a way to appease everyone, and politicians are faced with the difficult task of serving the best interests of their country while also keeping their own constituents happy enough to re-elect them.

Canada and South Korea ink monumental trade deal

Fortunately, in Canada when it comes to trade agreements there does not exist significant opposition to the basic principles of ‘free’. In South Korea, while such opposition does exist, support for the anti free trade movement usually means only sporadic outbursts in reaction to misleading documentaries appearing on prime-time television.  Koreans are otherwise a fairly well-informed group of folks.

“There are no jobs here because no one buys made in Canada anymore”

Still, from time to time we hear intelligent people bemoan free trade agreements. While I am certain that with time the majority of us will learn through experience that free trade improves life for us all, I’d like to shed some light on a few myths about free trade so we can all enjoy the benefits of freer trade without resentment.

5 Myths about free trade agreements

Myth #1: Free trade must yield a winner & a loser (which usually means one strong nation “exploiting” the weaker one).

In fact, understanding comparative advantage, you do not need to be a global leader in producing anything in order to benefit from free trade. A nation only needs to have an advantage in producing a particular good or service relative to the country with which they are trading.

Myth #2: Free trade forces us to consume cheap, low-quality goods.

This objection mystifies me. In fact, free trade does nothing but expand purchase options for consumers, usually resulting in less money spent for a larger basket of goods and services. For example: While living in South Korea I loved eating Korean rice, enough that I had no problem paying a lot more for it than I was used to paying in Canada. But not everyone can afford to eat Korean rice. Opening trade with other countries gives Koreans the opportunity to purchase different kinds of rice at a variety of price points leaving room for consumption of other goods with the savings.

Myth #3: Free trade is a boon to competitiveness because it puts local firms out of business.

Quite to the opposite effect, free trade requires businesses to adapt to shifting global demands. Policies that shield businesses from competition (over the long run) are at the expense of consumers that are paying inflated prices. Inflated prices means less money to spend on other goods and services. Additionally, competition promotes innovation within the industry, which advances production methods, product specifications, and creates new product classes, all benefiting the end consumer as well as businesses.

Myth #4:  Buying foreign-made goods is eliminating jobs & killing the economy at home.

For a small open-economy, this argument is inconceivable. Consider the size of the Canadian economy in proportion to the global economy. Unless you are solely manufacturing goods or services that are only of interest to Canadians, a moderate share of the global market is far more desirable than even a virtual monopoly over a Canadian market.

Myth #5: Free trade means becoming dependent on other nations; and that could be dangerous.

I once heard an argument that if a particular nation allowed imports of fruits and vegetables from other countries that their dependence on foreign food could later be used against them as a weapon of terrorism. Unless you’re country is run by a tyrannical dictator, it’s difficult to conceive that any nation could ever face such a plot from a united front of countries around the globe. But I thought it was such an imaginative theory that I should share it with you.

The recent free trade agreement between Canada and South Korea is great news

The trade agreement with Korea is a first for Canada in the continent of Asia. Since I myself have a great deal of affection for South Korea and its people (my son is half Korean), I am happy that our two nations can have the opportunity to work together in order to build stronger, more robust economies. Consumers will immediately begin to reap the benefits of lower prices and higher quality goods and services; and on an annual basis, Canada alone is expected to save hundreds of millions of dollars in hidden taxes.

Please feel free to share other myths about free trade!

 Disclaimer: The opinions expressed in this article are those of the contributing author, and do not necessarily reflect those of the Forum for International Trade Training.

About the author

Ryan Weaver

Author: Ryan Weaver

Ryan is a Marketing Analyst at Mentor Works and holds a B.A. in economics, as well as a M.Sc in management and several published works including two book publications. Ryan is actively engaged with business owners and executives to educate them about government grants and funding available to accelerate their growth and cash flow planning activities.

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