Comparative Economic Systems - Essay Example

FREE TRADE Over the years, global trade has become more and more diversified. Many different countries across the globe have moved swiftly to exploit the prospects of free trade. The rise of free trade is significant to the economic welfare of any given state. Countries that embrace free trade have access to open markets around the world. With low import-export restrictions, international trade has increasingly become a revolutionary practice. Today, promoting free trade is a global affair. However, the prospects of free trade are not without a costly side. The essence of free trade is to enforce non-discriminate practices that monitor, regulate, and control both imports and exports. In the global context, promoting free trade means opening up global markets. In other words, markets increasingly become liberal as protectionist activities reduce. The idea is to offer global trade players an equal environment within which they conduct their business. Notably, governments are the primary enforcers of free trade in the international trade environment. In streamlining free trade across the globe, governments come up with policies or programs that formulate and implement oversight authorities such as World Trade Organization and the European Union. These bodies enforce trade agreements and relationships, thus ensuring compliance to the set rules and regulations. For the European Union, the mandate of the body goes beyond the trade factor. However, the economic aspect of the union is critical to the realization of free trade within and across member states. The realization of global free trade is not an easy process. This is because diverse and dynamic factors affect trade activities within and across domestic, regional, national, and international levels. In today’s global economy, there are many different operational trade agreements and treaties. This shows the extent to which international trade players are willing to embrace and subsequently practice free trade. David Ricardo’s comparative advantage theory is influential in international trade (Daniels, Radebaugh, & Sullivan, 2012). This theory sets out the advantages of international trade based on the production factor. In light of the theory, trade is important because it allows producers across the globe to capitalize their production strengths while benefiting from the strengths of another state in the same regard. This theory informs the basis of free trade, where stakeholders seek to maximize their trade welfare through liberal or more open markets worldwide. Trading goods and services without barriers is important in the global setting. This practice should be promoted globally. Over and above comparative advantage, a number of theories back up international trade. The prospects of international trade further necessitate the installation of open markets for the benefit of participating parties. For example, the theory of factor proportions addresses both the import and export sides of international trade (Carbaugh, 2012). In this respect, free trade is the essence of international trade. National competitive advantage is a critical factor in the international trade environment (Reuvid & Sherlock, 2011). The use of resources, technology development, availability of infrastructure, and industry growth affect the ability of any given state to compete at the global level. By embracing free trade, partners in trade capitalize on their competitiveness and subsequently import or export products and services throughout the world. Moreover, unregulated access to markets and market information encourages the proliferation of free trade (Wessel & Davis, 2007). Trade agreements between free trade partners provide a fair environment within which participants have unrestricted export-import movements. Free trade sees the abolishment of import tariffs, thus making movement of exports and imports easier. The idea of free trade is to venture into markets that previously exhibited barriers to entry. Therefore, promoting free trade should be a global practice due to the available opportunities, advantages, and benefits. A look into Bangladesh’s textile industry reveals the benefits of free trade. Although this country is one of the poorest in the world, her textile industry is outstanding at the international level. With the quota system in place, Bangladesh enjoyed a preferential access to key Western markets (Bhattacharya, Smyth, & Vicziany, 2004). When free trade finally reached the scope of poor countries, Bangladesh was seemingly on the losing end. However, this country would prove that free trade did more good than harm. Following the successful implementation of free trade principles in Bangladesh, the country’s textile industry hit an all-time high in terms of export revenues (Daniels, Radebaugh, & Sullivan, 2012). After 2005, Bangladesh’s textile business grew and development at a faster rate compared to the previous years. A number of factors informed the success of Bangladesh’s export trade in the post free trade era. To start with, cost-effective labour was readily available throughout Bangladesh. This made the country’s products reach global markets at favourable prices. Importers of textile products from all over the world have increasingly sought to diverse their supply chains as far as imports are concerned. Over and above the labour cost factor, Bangladesh is an ideal trade partner in that regard. The fact that Bangladesh is distinct from China in terms of international trade makes the country a perfect target for supply-based diversification (Fox, 2005). Moreover, support industries in Bangladesh form a reliable inputs base for export manufacturers. With free trade, Bangladesh outperforms many competitors at the global level. Access to markets without restrictions offers the country a fair share of international trade. Exports from Bangladesh reaches out to key Western markets with little or no trade barriers in the contemporary international trade environment. In light of Bangladesh’s experience, it is important to promote free trade globally. However, doing so comes with some critical trade-offs. Just as Bangladesh is free to export textile products to the Western markets, the country should equally welcome foreign goods and services. This means that other free trade players could undertake export-import business with the country. In this respect, it is critical to consider whether the benefits of free trade actually accounts for the ‘everybody’ factor. While free trade has undisputable advantages to all trade partners, the benefits of this practice do not extend to everybody. In other words, free trade has some negative implications that affect trade partners in diverse and dynamic ways. Even with a global advocacy for free trade, many countries still employ some level of protectionism to protect domestic enterprises and support employment at the local level (Fox, 2009). The degree of protectionist activities vary from one country to another, but the common denominator is that these practices are evident. With observations that reveal governments or states will not let go of protectionism, it is evident that the benefits of free trade do not encompass everybody. There is an aspect of vulnerability to take care of. Players in the free trade environment come from social, economic, and political areas that exhibit diverse and dynamic conditions. For example, free trade informs trade interactions between developed, developing, and underdeveloped countries. As much as free trade promotes fairness and non-discriminate approaches to trade, these countries have critical differences that place them at different levels of benefit as far as free trade is concerned. Take the example of Bangladesh or any other poor country in the world. The potential of such a country to do business with the European Union or the American open markets is limited. Developing and underdeveloped countries have little, if any, to offer to free trade giant partners in terms of finished or manufactured goods (Conklin, 2010). The third world, therefore, is less influential in the global trade context. This leaves poor countries vulnerable to trade-based exploitation. This form of vulnerability is a negative implication of free trade, the benefits of free trade notwithstanding. If we consider a free trade interaction between countries such as Bangladesh, United Kingdom, China, and South Africa, the underlying benefits will hardly apply to everybody. Although China is a leading exporter globally, the quality of the country’s goods has been challenged on numerous grounds. For the United States and the United Kingdom, goods produced are of high quality but undoubtedly expensive. Even with such observations, these countries trade under the same terms and conditions. It is possible for a country like China to dump its cheap and relatively low quality products in Bangladesh or any other developing country. Even with some level of protectionism, such practices could be inevitable due to the enforcement of the binding trade agreements. Over and above that, most poor and developing countries like Bangladesh and many other African and Asian countries have poor infrastructure and dysfunctional industries. With free trade, developed countries can move swiftly to import raw materials from poor, developing, and underdeveloped countries (Howell, 2007). Consequently, developed countries manufacture raw materials into finished goods and export them to countries from which they obtained raw materials. In this respect, the benefits of free trade are undisputable, but everybody within and/or across the free trade environment does not reap them. In conclusion, free trade liberalizes and opens up markets for both goods and services. This move is beneficial because it allows trade partners to engage in business without discriminatory trade practices. Advocating and promoting free trade, therefore, is fundamental. However, the benefits of free trade have their limits. Social, economic, and political differentials influence free trade in diverse and dynamic ways. Free trade has undisputable key benefits to participating parties, but these benefits exhibit critical trade-offs that curtail the accommodation of the ‘everybody’ factor. References Bhattacharya, M., Smyth, R., & Vicziany, M. 2004. South Asia in the Era of Globalization: Trade, Industrialization and Welfare, London: Nova Publishers. Carbaugh, R., 2012. International Economics, London: Cengage Learning. Conklin, D. (2010). Comparative Economic Systems: Objectives, Decision Modes, and the Process of Choice. Cambridge: Cambridge University Press. Daniels, J., Radebaugh, L., & Sullivan, D., 2012. International Business: Environments & Operations, London: Pearson Higher Ed. Fox, M., 2005. Competition Law and the Agenda for the WTO: Forging the Links of Competition and Trade, Pacific Rim Law and Policy Journal, 4: 1. Fox, M., 2009. Toward World Antitrust and Market Access, British Journal of International Law, 91: 1. Howell, C., 2007. Is there a Third Way for Industrial Relations? British Journal of Industrial Relations, Vol. 42 (1). Reuvid, J., & Sherlock, J., 2011. International Trade: An Essential Guide to the Principles and Practice of Export, London: Kogan Page Publishers. Wessel, D., & Davis, B. (2007). Pain From Free Trade Spurs Second Thoughts: Mr. Blinder’s Shift Spotlights Warnings of Deeper Downside, Wall Street Journal, March 28. Read More