The Role Of Free Trade In The International Political Economy

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Before delving into the arguments for and against free trade, it is crucial to understand what trade is and its context in the international political economy. First and foremost, free trade is defined as trade without regulation of voluntary exchange of goods, services or capital across borders. All trade and economic growth in the world relies on political structures, like the World Trade Organization (WTO) and its predecessor General Agreement on Tariffs and Trade (GATT). The WTO is the hub of an international political system under which governments negotiate, enforce and revise rules to govern their trade policies. GATT performed the same function between 1947 and 1994 (Oatley, 2014, p. 22). For the past few decades, the world has headed…show more content…
Free trade creates larger markets which inevitably leads to better economies of scale (the proportionate savings in cost from an increased level in production). Open markets allow for the most efficient use of productive resources and foster competition. Free trade thus leads to higher production, higher consumption and higher per-capita income (Rogowski, 2006, p. 2). One reason for this, and the one most often cited as the main reason why free trade is positive is comparative advantage. The Heckscher-Ohlin model of international trade argues that comparative advantage arises from differences in factor endowments (Rogowski, p. 3). Factors, in this case, being basic tools of production. It states that a country’s abundant factors will cheaper to export its scarce factors easy to import, or in other words, goods will be produced where it is cheapest to produce them (Oatley, 2014, p. 52). Countries like the U.S., for example, have lots of capital with little labor, while China is the opposite. These different factors shape the cost of production, as these countries abundant factors will be cheaper to employ than its scarce factors. For example, the U.S. has a comparative advantage in computers and not shirts because the U.S. is abundantly endowed with physical and human capital and poorly endowed with low skill labour (Oatley, p. 53). The principle of comparative advantage says welfare gains do not require a country to have an absolute advantage in anything. As long as it is better at doing some things than others, it gains (Oatley, p.

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