Geography: Pros and Cons of Free Trade

Few can contend that the world is more interconnected and interrelated more than ever. This web of interdependency is primarily made possible by trade, and in the twenty-first century, a large and significant portion of trade is conducted on a global scale. Furthermore, while the majority of people agree that free trade can benefit both parties in terms of economic development and an increase in overall production, many critics have voiced their fears of the negative consequences that may result from a global trade environment with few barriers or limits. Proponents of free trade argue that benefits far outweigh costs and that the primary gain is efficiency of production achieved through comparative advantage and specialization. Others also claim that free trade promotes democracy, and any measures that work towards creating trade barriers results in expenses that will ultimately be passed on to consumers. Increased competition that eventually fuels innovation is another notable benefit to free trade. Therefore, ideally, all these different factors work together in producing economic growth and an improved quality of life for citizens of both nations.

While it’s quite obvious that free trade has various positive aspects, a growing number of skeptics have voiced their concerns in the rising debate over the negative consequences and costs of an open market with few restrictions or limitations. Perhaps the most well known argument against free trade is the threat it poses to domestic jobs and infant industries. Other concerns that are of increasing importance in today’s world are environmental and labor standards that may be adversely affected by laissez faire policies. Furthermore, some individual nation states or those with political power feel that their economic and political sovereignty are threatened by global organizations that regulate worldwide trade. These critics question the statement that all parties are better off with free trade and disagrees that the costs and benefits are equally distributed among wealthy developed nations and industrializing countries.

Perhaps one of the most important benefits from free trade is the ability for nations to specialize in producing the items they are most efficient at producing. Different countries have unequal distributions of natural resources, different environments, levels of education, size of workforce, amount of capital, and so on. Therefore, the bottom line is that different countries are better suited for producing different things. A country will then produce what it is most efficient at producing relative to other countries and trade for products it is less proficient at manufacturing. As a result, overall production or output will increase, and a country’s economy as well as it’s people may benefit from a greater variety of goods at cheaper prices. Therefore, when opportunity costs are compared, the countries should focus their attention on producing the product they have the comparative advantage in, and market forces usually ensure that all nations involved share in the advantages of increased production and efficiency.

Another argument for free trade is that when governments create high tariffs or trade barriers, the cost is passed down to consumers who ultimately have to pay a higher price to obtain a good they could have obtained for much cheaper. It is estimated by researchers at the University of Central Arkansas that it costs U.S. consumers $60,000 or more to buy U.S. made clothing for each job saved by protectionism while the gain in profits and wages is much less than $60,000. U.S. consumers also spent an additional $110,000 for every job saved in the auto industry due to tariff protection. Therefore, these barriers result in higher prices for consumers who are forced to purchase more expensive goods that are domestically produced.

In addition to increased efficiency and lower prices, free trade also escalates intense competition in terms of costs, profits, and quality. Competition is especially more rigorous in today’s global environment where a company not only has to compete with domestic firms, but also faces threats from foreign companies. This desire to obtain greater profits by decreasing cost and increasing efficiency of production results in innovations that may include time-saving technology or better methods for manufacturing. Therefore, free trade fosters global competition for lower prices, cost-effective production techniques, and a greater emphasis on quality and performance.

All of the above arguments support the assertion that free trade has many benefits to countries involved as well as to their citizens. It promotes economic growth to the nation as a whole while improving the quality of life for its workers. Furthermore, because the nation is becoming more prosperous, some serious social problems such as unemployment and illegal immigration may be alleviated as well. In Omhmae’s The Rise of the Region State, he claims that region states welcome foreign trade and investment because it increases productivity and improve quality of life. “They want their people to have access to the best and cheapest products. And they want whatever surplus accrues from these activities to ratchet up the local quality of life still further…” Therefore, when weighing the positives and negatives of free trade, a country must take into account all the benefits in the daily lives of its people that will be a direct result of unrestricted trade.

In almost every situation, there usually always are opposing views with equally convincing arguments, and the topic of free trade is no exception. Perhaps its main criticism is that it threatens domestic jobs or industries. In today’s global economy, small farm owners or businesses have the daunting task of competing with large international firms who have more access to labor and capital. As a result, it is nearly impossible for them to compete in terms of price and productivity. Furthermore, a growing number of domestic workers find themselves displaced because their firms are able to pay lower wages to those in third world countries and eventually moves production overseas. If a company produces in the United States, minimum wage laws require it to pay its workers about seven dollars per hour. On the other hand, if the firm moves production to Malaysia, it might only have to pay a worker one dollar per hour. Thus, it’s only common sense that the firm would lay off its domestic workers in order to cut costs and gain profit.

Another issue that critics of free trade emphasize is the lowering or the neglect of environmental or labor laws. In the pursuit of profit among an extremely competitive setting, environmental and labor concerns are often pushed aside or downplayed in order to cut costs. Furthermore, if a country is at a competitive advantage because of their negligent environmental and labor laws, other countries with high regulations may shift their production to countries like Mexico, whose policies may be more lax. The concern is that countries will be willing to sacrifice safety, health of its people, and conservation in order to gain greater profits. In fact, the North Atlantic Free Trade Agreement (NAFTA) was highly contested because it completely ignores work standards, labor rights, and environmental affairs. Thus, many countries that do care about environmental standards and working environments find themselves in a dilemma as jobs and foreign investment flows to countries with lower regulations.

In addition to concerns over job loss and the environment, some countries object to free trade because of their fear of losing political, economic, and even cultural sovereignty. Many political leaders see international organizations that regulate trade as a treat to their rights to make decisions about their own countries. They see free trade as a force that strips the country of the ability to determine its own courses of action or policies. Furthermore, some countries also resent the invasion of foreign cultures that threaten long-standing traditions. Many fear that globalization actually means Americanization, creating a homogenous world as a result of cultural imperialism. Therefore, in order for the complex system of trade to run smoothly, it is necessary that countries cede some of their sovereignty in order to comply with international regulations.

Even though free trade is supposed to be beneficial for all, the consequences of its drawbacks are not evenly distributed. It seems that in recent years, the poor seem to be bearing more of the brunt of the costs associated with trade while the wealthy are reaping most of the benefits. According to Robert Wade, global inequality is worsening as the poor are getter poorer and the rich richer. Perhaps in negotiating deals between two countries, the more powerful is in a better position to demand favorable provisions. As a result, the growth in developed countries is much faster than economic development in third world countries (except east and southeast Asia). Free trade also has unequal consequences for the individual nation. Trading internationally can leave some people, especially blue-collar workers, worse off, even as it makes the country better off as a whole. Thus, the playing field is never fully equal to begin with because negotiating parties have different resources and needs.