free trade

S

swatiraohnlu

Swati Rao
Free trade can be defined as a market model in which trade in goods and services between or within countries flow unhindered by government-imposed restrictions such as taxes, tariffs, or subsidies. Free trade, while not an new concept, has emerged in the post Cold War world as a global possibility with the growing economic interconnectedness between countries. But is it beneficial? Does it have an overall, globally beneficial economic impact? Does it benefit all countries the same?
 
* Free Trade enables people to specialize and benefit from global productive skills Federal Reserve Chairman, Ben S. Bernanke, at the Montana Economic Development Summit 2007, Butte, Montana, May 1, 2007 - "At the most basic level, trade is beneficial because it allows people to specialize in the goods and services they produce best and most efficiently. For example, we could conceivably all grow our own food and provide our own medical care. But because farming and medicine require special knowledge and skills, a far more efficient arrangement is for the farmer to specialize in growing food and for the doctor to specialize in treating patients.

* Free trade will end the economic costs of protectionism Protectionism can be seen as the opposite of free trade. And, many studies conclude that protectionism has cost the world hundreds of billions of dollars annually in lost revenue as compared to what free trade could have accomplished.

* It is managed trade, not free that is the problem Some criticize the results of some modern attempts at free trade, such as NAFTA. But, others contend that such examples may not be a fair example of "fair trade" as it would be ideally constructed, but rather of a highly managed form of trade. Therefore, the failures of managed free trade up to this point should not be used too sharply as a condemnation of the potential of real "free trade" in the future.
 
* Free trade is better for consumers Free trade is generally known for decreasing prices by ensuring that countries and people specialize in their comparative advantages. Lower prices for consumers means that consumers can spend less on necessities, enabling them to spend more on other things in their lives, thus improving their standard of living.

* Free trade's consumer benefits outweigh the costs to some producers While some producers certainly do lose-out from free trade, all consumers benefit (in addition to many producers benefiting). The weight of these benefits outweighs the costs to producers that can't compete with foreign producers.

* Free trade has a strongly positive effect on US economy

* Free trade creates economically beneficial competition

* Free trade shifts work to more productive sectors Free trade creates productive domestic jobs when it trades internationally with other countries. The restrictions placed on buying other foreign goods that have less marginal cost of production only encourage production loss by sustaining industries that have high production costs.
 
* Protectionism is discriminatory When a country protects its industries, it favors its own people over foreign people. This in itself is discriminatory. Also, a country typically can protect itself in different ways against different countries, and can play favorites in this way. Protectionism, therefore, is inherently discriminatory.

* Free market economies self-regulate socially, ethically, and morally Martin Wolf, Why Globalization Works?. Yale University Press. 2004. ISBN 0-300-10777-3. pp 53. - "Intelligent critics are prepared to accept that a sophisticated market economy works far better than any other economic system. But they would proceed to complain that markets encourage immorality and have socially immoral consequences, not least gross inequality. These views, albeit common, are largely mistaken...All complex societies are unequal. In all societies people (generally men) seek power and authority over others. But, among sophisticated societies with an elaborate division of labour, societies with market economies have been the least unequal and the inequality they generate has been the least harmful."
 
* Free trade's notion of specialization is risky for countries - If a country specializes according to the principles advocated typically by free traders, it would put all of its eggs in one basket, exposing itself to risks in this way.

* Companies that out-source cheaper labor aren't investing enough in innovation Thea Lee and Ralph Nader, The case against free trade; Happily never NAFTER, there's not such thing as free trade. Earth Island Press, 1993 ISBN 156431694. Chapter 5, pp. 71. - "As for efficiency, it is not much to get excited about when the savings come from cheap labor rather than better technology or easier access to resources. In fact, as firms shift production to Mexico, lured by wages of $1 or $2 an hour, they lose some incentive to invest in cutting-edge techniques that improve productivity. For years, U.S. firms have been setting up "maquiladora" factories just over the Mexican border, and NAFTA would simply speed the trend."
 
* Globalization has worsened poverty Studies have shown that despite the increasing rate of the global economy expanding there have been a significant number of countries where there has been no growth recorded over the past thirty years. Numbers also confirm that absolute poverty throughout the world has been increasing.

* Free trade and investment risks rapid capital flight from developing countries. When massive amounts of capital can flow across borders via wire transfers, the potential for capital flight is created. This occurs when fears arise regarding a certain country and its markets. Investors from around the world may rapidly withdraw their investments, sending a country into financial bankruptcy. This is a major risk associated with free trade and globalization.

* Free trade worsens income inequality The gap between rich and poor countries has widened .Poor countries has lower incomes that developing and industrial countries positioning them at a high disadvantage when competing in a global economy.
 
1.Free trade is a system of trade policy that allows traders to trade across national boundaries without interference from the respective governments. According to the law of comparative advantage the policy permits trading partners mutual gains from trade of goods and services.
 
2.Under a free trade policy, prices are a reflection of true supply and demand, and are the sole determinant of resource allocation. Free trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by artificial prices that may or may not reflect the true nature of supply and demand
 
3.Interventions include subsidies, taxes and tariffs, non-tariff barriers, such as regulatory legislation and quotas, and even inter-government managed trade agreements such as the North American Free Trade Agreement (NAFTA) and Central America Free Trade Agreement (CAFTA) (contrary to their formal titles) and any governmental market intervention resulting in artificial prices.
 
Economics of free trade
Economic models

Two simple ways to understand the proposed benefits of free trade are through David Ricardo's theory of comparative advantage and by analyzing the impact of a tariff or import quota. An economic analysis using the law of supply and demand and the economic effects of a tax can be used to show the theoretical benefits and disadvantages of free trade.
 
I would just call the aspect of Free trade a gimmick. Let me put my thoughts here. Can anyone from Asian countries start a business directly in the European Countries. No possible because of financial constrains but I believe or rather think that this whole concept was brought into being just because none of the European business had this cost constrain previously. What none imagined was the Asians rising to the challenge and coming out of this disadvantage to be the leaders now
 
Free trade agreements (FTAs) have proved to be one of the best ways to open up foreign markets to U.S. exporters. Today, the United States has FTAs with 14 countries. In 2006, six new FTAs were implemented: with Bahrain, El Salvador, Guatemala, Honduras, Morocco, and Nicaragua. Last year, trade with countries that the United States has FTAs was significantly greater than their relative share of the global economy. Although comprising 7.5 percent of global GDP (not including the United States), those FTA countries accounted for over 42 percent of U.S. exports.
 
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