International trade, also known as free trade refers to the exchange of goods and services across international bounders. In order to foster and facilitate the flow of trade and investment between trading partners with the intention of achieving economic growth and development. Historically, Economists have long faced a conundrum on the significance of the benefits and downsides of free trade. Moreover, whether free trade would benefit the country more or if other measures such as protectionism can make a better case and should be implemented instead. This is important as trade not only moulds our economy but determines the kind of world we live in.
Introduction Free trade becomes a familiar word in today's economic world. Many countries in the world started to apply free trade not just to give what people, especially business people demanding for, but also to fit into the international world, or countries that already applied free trade. Developed countries like The United States of America already applied free trade as a part of their foreign market constitution. America supports the existence of free trade because free trade is the best way to open new market, the international one, to the local businesses who want to export to other countries The main reason a country like The USA to support free trade is the efficiency in the economy and to increase the national welfare. In the production sector, free trade will make a country produce more goods with the same amount of resources.
Free trade helps communication and bolsters the exchange between different corporations leading to more co-operation and innovation which has resulted in much more innovative products which are helping to combat climate change. Researchers widely agree that trade is responsible for more than 75% of technology transfers. It is similar to the approach of multi-national corporations (MNC 's), where technological expertise is exported to the host country to increase production and efficiency. The co-operation between corporations tend to emphasize on more environmentally friendly production methods leading to better and more eco-friendly goods to be produced. Another possible way of looking at it is the increased transfer of modern (and thus cleaner)
In the case of protectionism, the winners are domestic producers and unskilled workers in the import competing industries and the losers are the consumers. In the case of free trade the winners are the consumers and export industries and the losers are domestic producers in import competing industries and unskilled workers. An important point to be noted here is that the workers who work in protected industries are also consumers in that economy and will be affected by the higher prices of goods and reduction in trade. Since trade benefits consumers in terms of reduced prices of goods, the workers who earn a low income due to a decline in the aggregate demand for domestically produced goods in the import competing industries will also be relatively well off. This shows us that both free trade and protectionism have pros and cons and have different effects on different factors of production in an economy but the bottom line is the benefits from free trade exceed the benefits of protectionism and hence we can argue that the threat of unemployment or decline in real wages does not provide a valid argument for governments to employ protectionist
Free trade is an international trade policy that lowers trade barriers such as tariffs and quotas, stimulates trade activities between countries and limits government intervention. It encourages the free flow of goods and services between nations without any discrimination. Under free trade, countries trade and produce based on their abilities and expertise, extensively promoting international trade. Hence, free trade increases the world's efficiency in production and resource allocation. Free trade policies are generally characterized as follows: Implementation of David Ricardo's theory of comparative advantage and division of labor.
What is free trade and fair trade? Free trade has no specific definition, but as sales of goods and services are being purchase and sold unrestrictedly between nations without forcing any limits such as tariffs, duties and quotas. Besides, this trade is a win-win proposition because it allows the countries to focus on their main competitive advantages which is maximizing economic output and fostering income growth for their citizens (Investopedia 2012). Moreover, the key advocate of free trade include organisations such as the WTO ‘World Trade Organization’, IMF ‘The International Monetary Fund’ and the World Bank. Whereas, fair trade is defined as even-handed partnership between marketers of all parts of the world.
Fair Trade and its Benefits 'Fair trade is a method to business and to development built on dialogue, transparency, and respect that seeks to create greater justness in the international trading system. Fair trade supports farmers and craftspeople in developing countries that are socially and economically marginalized. These producers lack economic chance and often face steep hurdles in finding markets and customers for their goods '. (Anon, n.d). 'So, fair trade is primarily addresses goods produced in developing countries and sold to developed countries '.
Proponents of free trade often say that free trade is beneficial for any nation-state for a very simple reason. It allows workers to specialize in goods and services that they produce more efficiently than the rest of the world and then exchange them for goods and services that other countries produce at higher quality and lower cost. Indeed, free trade has been the source of prosperity in many countries over the past decade. However, in recent times, the issue of whether free trade is beneficial or not has once again reared its head and became a hotly debated subject, largely in the context of developed economies such as the United States of America (US) which saw thousands of workers lose their jobs as the economy failed to restructure
Free trade zones creation will significantly improve the United States’, Canada’s and Mexico’s Gross Domestic Product, (GDP). This is because all trade barriers will be eliminated between the three nations. Consequently, the law of comparative advantage will be greatly utilized as each country tries to produce commodities which have the lowest cost. This leads to an increase in the living standards of the citizens in the countries that encourage free trade zones creation. For instance, Chile’s statistics shows that its poverty level decreased from forty five percent in 1987, to fourteen percent in 2006, (45%-14%), as a result of falling trade barriers.
They drive the vision and trade policy orientation into liberalism, including Free Trade Area, because trading provides many benefits, such as providing job vacancies that could reduce the number of unemployment. Furthermore, trading helps the producer of products and services obtain resources, especially scarce resources in their countries, provides revenue by exporting, and so on. Nonetheless, the development of free trade policy does not operate excellently, because of the liberalism policy of economy concerning some countries. It has caused some negative impacts, including a discrepancy between developed countries and developing countries especially in this globalization era. Therefore, trade protectionism began to be applied in various countries to minimize the negative impact of international trade.