Free trade is an economic system where all the taxes, tariffs, quotas and regulations on the import and export of goods & services are removed. A country following free trade policy will allow exporters to trade as in domestic trading.
It’s a common theory that free trade benefits everyone involved as it brings producers (service/product) for a healthy competition. Providers can win only when making better and cheaper products. The conclusion of this competition will give an edge to a country that has advantages in making them cheap and better than other countries. This way both countries can save money, receive better products and focus their resources on their own comparative advantages.
Though the concept sounds very interesting and promising for upbringing financially backward countries, this system has got some serious unanswered questions within it, which I have put forth here.
1. What happens when a country has got NO comparative advantage or the financial strength to compete with a developed nation’s product/service?
a. Discussing this question we will come to understand that Free trade will lead to monopoly of services and products.
b. Free trade will also enable best of quality & price initially but towards the future when a product gets saturated there won’t be any room for improvement for a competitive product to evolve for replacement.
2. What kind of contribution can Free Trade give in abolishing corruption and improving the lifestyle of working class?
a. Improving lifestyle is directly proportionate to annual income of households. Free trade will open up luxury items usually accessible only to rich, to middle and the poor class (this is achieved because of economies of scale). But there is a big question whether goods like medicine will be available at a cheaper cost as economists foresee monopoly.
b. Free trade will create an industry revolution through which wages will get hiked, commodity prices will reduce which will directly increase the wealth (whose wealth of course “Rich will get Richer” and poor wont realize what kind of trouble they are going to get in for a while).
c. Free trade will openly give way to more corruption as far as I have understood, as bigger organizations will be forced to produce commodities at a cheaper price they have to eradicate smaller players by buying them out or imposing troubles through government which will anyway give way to corruption on a bigger level.
3. Though European Union and United States talk about Free Trade is it really happening in reality?
a. In reality, there is no true free trade regime that exists or has ever existed. The closest that has ever been achieved to a free labor market is inside the European Union, where citizens of the member-states are permitted to move and seek work within the Union's borders at will.
b. All states within EU even those trading within the terms of "free trade treaty," continue to employ some trade restrictions or impositions on imported products. There are a variety of items that are barred from export, such as IP or patented technologies.
c. As a matter of fact free trade is an issue of relative degree rather than absolute qualification.
4. Can Free Trade be applied as explained in theory?
a. Free Trade policy critics have pointed out that free trade economics, in all countries advocating free trade regimes, have trade barriers in place to protect their industries. In fact, nearly all examples of successful industrialization and economic development employ a mixture of focusing on comparative advantages while using trade protections.
Economist and Political Philosopher Alexander Hamilton was a protectionist, seeking to nurture the early industrial potential of the Northeast and Mid-Atlantic from British competition.
Economic philosopher Adam Smith suggested that the countries planning to adapt free Trade policy should focus on their comparative advantage in agriculture which is the best way to avoid disaster from Free Trade.
Ref: https://mises.org/etexts/freetrade.pdf
It’s a common theory that free trade benefits everyone involved as it brings producers (service/product) for a healthy competition. Providers can win only when making better and cheaper products. The conclusion of this competition will give an edge to a country that has advantages in making them cheap and better than other countries. This way both countries can save money, receive better products and focus their resources on their own comparative advantages.
Though the concept sounds very interesting and promising for upbringing financially backward countries, this system has got some serious unanswered questions within it, which I have put forth here.
1. What happens when a country has got NO comparative advantage or the financial strength to compete with a developed nation’s product/service?
a. Discussing this question we will come to understand that Free trade will lead to monopoly of services and products.
b. Free trade will also enable best of quality & price initially but towards the future when a product gets saturated there won’t be any room for improvement for a competitive product to evolve for replacement.
2. What kind of contribution can Free Trade give in abolishing corruption and improving the lifestyle of working class?
a. Improving lifestyle is directly proportionate to annual income of households. Free trade will open up luxury items usually accessible only to rich, to middle and the poor class (this is achieved because of economies of scale). But there is a big question whether goods like medicine will be available at a cheaper cost as economists foresee monopoly.
b. Free trade will create an industry revolution through which wages will get hiked, commodity prices will reduce which will directly increase the wealth (whose wealth of course “Rich will get Richer” and poor wont realize what kind of trouble they are going to get in for a while).
c. Free trade will openly give way to more corruption as far as I have understood, as bigger organizations will be forced to produce commodities at a cheaper price they have to eradicate smaller players by buying them out or imposing troubles through government which will anyway give way to corruption on a bigger level.
3. Though European Union and United States talk about Free Trade is it really happening in reality?
a. In reality, there is no true free trade regime that exists or has ever existed. The closest that has ever been achieved to a free labor market is inside the European Union, where citizens of the member-states are permitted to move and seek work within the Union's borders at will.
b. All states within EU even those trading within the terms of "free trade treaty," continue to employ some trade restrictions or impositions on imported products. There are a variety of items that are barred from export, such as IP or patented technologies.
c. As a matter of fact free trade is an issue of relative degree rather than absolute qualification.
4. Can Free Trade be applied as explained in theory?
a. Free Trade policy critics have pointed out that free trade economics, in all countries advocating free trade regimes, have trade barriers in place to protect their industries. In fact, nearly all examples of successful industrialization and economic development employ a mixture of focusing on comparative advantages while using trade protections.
Economist and Political Philosopher Alexander Hamilton was a protectionist, seeking to nurture the early industrial potential of the Northeast and Mid-Atlantic from British competition.
Economic philosopher Adam Smith suggested that the countries planning to adapt free Trade policy should focus on their comparative advantage in agriculture which is the best way to avoid disaster from Free Trade.
Ref: https://mises.org/etexts/freetrade.pdf
