"Free trade brings diffuse benefits but concentrated costs." What does this statement from the text actually mean? If you were an adviser to the president of the United States, would you recommend the creation of a Free Trade Area of the Americas? Why or why not? Provide an example in your answer.

Question

What will be an ideal response?

Answer 1

The ideal answer should include:
1. Explain what the statement means. For example, free trade tends to favor a substantial portion of the society (e.g., consumers, producers with comparative advantage) while also creating a small group of losers (e.g., producers without comparative advantage).
2. Discuss how you would advise the president. The discussion should take into account that the economic benefits of trade come with some political drawbacks. For instance, when a state begins to import goods that it had been producing domestically, its economy may be disrupted; workers may need to retrain and find new jobs, and capital may not be easy to convert to new uses. Thus, state leaders may feel political pressure to become involved in economic policy.
3. Provide an example. For instance, the Trump administration's 30 percent tariff on solar panels in 2018, while intended to save manufacturing jobs, was predicted to lead to an overall loss of jobs. The rising cost of solar panels created by the tariff could lead to lower sales, resulting in job losses in the solar panel installation industry.
4. Offer a compelling summary and effective conclusion.