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|Marketing International relations Foreign policy International business
Trade is a critical factor for economic development in a nation. Each nation depends on the tax imposed on exports and imports of the products to ensure that a government is growing economically. The economy of the nation is profoundly affected by the nature of trade, which increases financial circulation in a country. The government does not impose any form of monetary gain on the imports, which increases the rate of imports in a country. Among one of the common examples of free trade is the North American Free Trade Agreement (NAFTA), which cooperates with countries such as Mexico, the United States, and Canada. Despite the prevalence of trade, it is essential to consider the pros and cons of these sides.
According to Irwin (2015), free trade is defined as a formulated policy agreement between two or more nations, which promotes the imports or exports of goods and services across these nations. The concept of free trade acts as a treaty, which outlines the benefits of imposing free trade between these countries for economic and financial gain. However, where free trade is not imposed tariffs which are enforced taxes on a nation, are introduced to discourage the entry of services or products in the markets. Subsequently, these tariffs are felt by the final consumer of the product or service. Free trade, in this case, aims at eliminating the imposed tariffs to increase competition and innovation between the domestic and foreign companies.
Free Trade Pros
The development of a country is heavily attributed to the ever-demanding and growing trade. In this case, free trade plays a critical role in both the government and the local producers. Adam Smith, in his 1779 The Wealth of Nations, noted that free trade is a beneficial factor to all trading partners, especially considering the benefits associated with the business. Smith elucidates that a nation produces the required products and services at a lower price, where free trade is encouraged. Through this, the other nation benefits in acquiring the products at a lower price than it would have costed them in manufacturing them (Perelman, 2010). Subsequently, this increases trading possibilities and good social cohesion among the trading partners. According to Anderson, and Yotov, (2016), the primary factor that makes free trade to prevail is the increased number of quality products that consumers enjoy to have. The importing nation also benefits tremendously at receiving cost-effective products, which they cannot produce by themselves. As the concept of free trade grows, countries develop the art of specialization and perfection of their skills, which brings about comparative advantage.
Among one of the limiting factors of globalization are the increased custom fee and trade tariffs. Many organizations across the globe are limited due to increased duties. Subsequently, this reduces the market for many products outside their domestic market. As (Anderson & Yotov, 2016) noted, free trade opens foreign markets, not to mention the reduced market barriers. Local companies have the chance to expand in different divergent markets under the free trade treaty, which brings about innovation and business expansion.
As businesses expand, the final consumer is faced with a new choice of products that are displayed in a variety of means. The final consumer has the opportunity to enjoy products that were once cut off their market. Consumers enjoy products at a very reduced rate, which encourages them to buys more. Businesses operating under this form of trade provide consumers with an increased number of products that bring about job creation, as intermediaries are eradicated due to an increased variety of products.
Free Trade Cons
According to Bieler, Ciccaglione, Hilary, and Lindberg, (2016), the critics of disadvantages associated with free trade outweigh the pros, which result in several issues affecting both the economy and businesses. Whereas there are several pross associated with free grade, there is a negative side of the practice, which has always affected many developing nations.
Unemployment has remained to be one of the factors that are affecting many nations. Both developed and developing countries are facing it rough to solve the puzzle of unemployment, as the number is massively increasing. As companies expand under a free trade market, there is a possibility of unemployment in the local country. The increasing demand for quality and cheaper labor is a critical factor that is affecting the issue of unemployment. States are forced to outsource employees from their domestic nation to fill in most demanding top jobs as a way of ensuring that the quality of products is achieved.
Intellectual property (IP) has defined the growth of many businesses, especially in the western hemispheres. Subsequently, this has also increased the rate of innovation and the refining of the skills of the companies. As free trade increases and widens across many governments, the concept of the intellectual property fails to exist. Innovation is limited, as counterfeit products start donating the market. Even though free trade helps in generating and increasing the rate of quality in products, there is a higher degree of counterfeit goods.
There is a higher degree of substandard working conditions in different markets, which allow the employment of children to operate and perform heavy tasks. Even though the western hemisphere is profoundly concerned with employing underage, in some of the markets, especially the developing nations, there is a higher degree of using teenagers. Additionally, this creates unfair completion.
The is an array of a mixture when it comes to the broad concept of free trade. On one side, the practice promotes specialization and availability of products. Consumers enjoy a full pool of readily available products. Additionally, the consumer enjoys the benefit of having products at a lower price. On the other side, the downside of the trade practice encourages a variety of factors, such as the violation of intellectual property (IP). Companies do not fully benefit from their inventions, which discourages innovation in the market.
Anderson, J. E., & Yotov, Y. V. (2016). Terms of trade and global efficiency effects of free trade agreements, 1990-2002. Journal of International Economics, 99, 279-298. DOI: 10.1016/j.jinteco.2015.10.006
Bieler, A., Ciccaglione, B., Hilary, J., & Lindberg, I. (Eds.). (2016). Free trade and transnational labor. Routledge. https://doi.org/10.4324/9781315772516
Irwin, D. A. (2015). Free trade under fire. Princeton University Press. https://www.researchgate.net/publication/290445751_A_Review_of_Free_Trade_Under_Fire_by_Douglas_Irwin
Perelman, M. (2010). Adam Smith: Class, labour, and the industrial revolution. Journal of Economic Behaviour & Organization, 76(3), 481-496. DOI: 10.1016/j.jebo.2010.08.003
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