The textbook refers to the following quotation from a Federal Reserve publication: "Trade is a win-win situation for all countries that participate." But many firms and workers oppose free-trade policies and protests against globalization have become a

Question

regular occurrence at meetings of the World Trade Organization. If trade is a "win-win" situation, why is there strong opposition to free trade and globalization?

What will be an ideal response?

Answer 1

Free trade between any two countries can be shown to make both countries better off by increasing the amount of goods and services available to consumers. Free trade gives incentives to countries to produce goods and services for which they have a comparative advantage. This allows for an efficient allocation of scarce resources. But devoting more resources to the production of one product means fewer resources are devoted to producing another product. Firms that produce these products experience a loss in revenue and profits and some workers are likely to lose their jobs. Even if other opportunities are available for workers they often require acquiring new skills and movement to another area of the country. There are net gains from free trade—gains exceed losses—but it is not surprising that those who are harmed oppose free trade policies.