Pros and Cons of Trade Liberalization - Coursework Example

Abstract

Trade liberalization has played an important role in boosting the economic growth of countries across the world. Perfect case studies can be drawn from America and China, whose trade relationship has worked in their favor. The standards of living have improved in the two countries as well as their economies. Employment has stabilized and with the elimination of barriers in the business environment, the ease of doing business has improved tremendously. This paper seeks to identify the benefits and disadvantages of free trade while highlighting the role of trade in, trade liberalization. Of great importance is the direction offered to policy makers by this paper for their consideration, while making decisions on the implementation of free trade.

Trade Liberalization

The world is going through myriad changes that are motivated by a wide range of factors. Some of these changes revolve around the global trade and how countries manage their import and export business. Over the years, the pattern of trade across the world has been greatly affected by countries that have had divergent opinions on whether trade should be made free or protected. For trade protection, trade barriers such as taxes on all imports and exports are erected and this reduces the ease of doing business in such an environment. Trade liberalization aims at improving the ease of doing business in a country by eliminating barriers to trade. By reducing trade barriers, trade liberalization promotes the exchange of goods and services between and across nations. Nations who embrace trade liberalization agree to lower or totally eliminate custom duties at their entrance and exit zones while minimizing licensing rules.

Some of the policy makers believe that the promotion of free trade between countries will always have a positive impact on their ease of doing business. Further, free trade between nations will lead to an increase in the availability of goods in the market, a move that will eventually boost the economic growth of these nations (Fukuyama, 2016). However, other policy makers argue that free trade between countries should never be promoted as it attracts consequences that are too hard to bear for any country. First, free trade can lead to unemployment as countries move to consume imported goods. Secondly, trade liberalization can be detrimental to a country’s population health as cheaper goods that may not have gone through the usual health safety checks flood the markets. From this observation, it is imperative to conclude that economies are entirely dependent on the ease of doing business. Subsequently, economic growth is inspired by many factors such as technology and most importantly, trade.

Benefits of Trade Liberalization

On trade liberalization, consumers are the ultimate winners. This is explained by the free trade leads which lower prices because of a wide range of goods and services in the market. In addition, local companies benefit from free trade due to the spreading of risks and resources, a move that leads to high returns. Essentially, free trade promotes competition that leads to the production and generation of quality goods and services, hence the belief that the consumer is the ultimate winner. Consumers are able to make choices ranging from a wide range of available cheap goods. Trade interactions between countries boost investments. Nations that trade together experience a simultaneous economic growth. The impact of trade agreements can always be felt in the economy and the citizens’ standards of living.

Most of the American Presidents did not support, in their manifestos, trade agreements with other countries. They disregarded free trade and were seen to support the protection of trade liberalization. Outgoing US President, Barrack Obama, trashed the idea of trade agreements in 2008. However, before the just held election, President Obama has led America into signing trade agreements with other nations from the East in what has been perceived, by Economists, to be a promotion of free trade between the nations (Irwin, 2016). Of great importance to this paper is how free trade has affected America’s economy in the past and led to the availability of cheap and quality goods from China.

In what is viewed to be a risky move by analysts is President Elect Donald Trump’s decision to protect trade liberalization in America by slamming a 45 percent tariff all imports from China. His policy revolves around the death of industrialization in America, which has been caused by the availability of cheap goods from China. President Trump’s decision is meant to discourage America from importing goods in China and concentrating on improving their own. However, economists warn that this may have a negative implication on America’s economy, which in the recent past has grown as a result of the trade agreements with other nations.

Trade liberalization improves quality in production. As local companies are competing with their counterparts in the global sphere on non-cost factors, they tend to focus on other product features such as design and quality. Further, free trade breaks through monopolies set by local companies and due to external competition, prices go down as companies shift their focus from cost to product features. This increases the global output of goods and services as companies are compelled to exploit scarce resources effectively. Eventually, free trade guarantees improved standards of living for consumers, across the world, and allows them to save or invest money that could have been used in buying goods and services.

The global economy has allowed countries to eliminate poverty and enhance growth in their economies. As a result, standards of living in countries that contribute to the world economy have improved over the years. Of great importance to the world economy are the developing countries who now contribute close to a third of the cumulative world trade. However, poor countries have had their own share of problems due to their limited contribution to the world trade. Further, countries that are not reviewing their trade barriers always find their economies in difficult situations.

There is a need for countries to develop policies that expose their economies to the world, as this will guarantee a sustainable economy and improved standards of living. Interestingly, trade liberalization has benefited developing countries and especially those with poor economies such as in Africa and Asia. Free trade has opened up America’s economy to the world, a move that has largely benefitted the average consumer in America. It is estimated that China in 2008 added $250 to the bank account of every consumer who purchased any of its products. Coincidentally, American companies have largely benefitted since their country joined the World Economy. For instance, free trade between America and Mexico in 1993 opened up opportunities for America’s automobile companies who reaped $10 billion from the sale of cars and their parts. Twenty years later, the value had risen to $70 billion hence writing on the wall about the benefits of trade liberalization.

Disadvantages of Trade Liberalization

According to US President Elect Donald Trump, trade liberalization has negatively affected the American trade and ease of doing business in the country. President Trump thrashed his predecessor's move in pushing America to become a free trade economy. Specifically, he accused China, Japan and Mexico of literally killing the country’s economy by filling the country with cheap products that have compelled local industries to close shop.

In as much as trade liberalization can influence a country’s economic growth, it should not be overlooked. As a matter of fact, it is a threat to developing countries. Developing countries face the risk of extinction when they compete with their counterparts in developed countries. This poses a huge risk to newly established industries in developing countries that are yet to attain financial stability. In addition, developed countries are able to integrate business with their advanced technologies, hence possessing a higher competitive advantage over their counterparts in developing countries who have a limited access to technology. While doing business with the international markets, a country has to forego the risk of penetrating new markets. New markets are unpredictable and such, a country may incur losses.

According to Baier (2016), developing countries are always at risk of downsizing their workforce if it ventures into the world economy. On the other hand, developed countries are in a position to steer their economies through harsh conditions based on their financial strength. Therefore, it is important to point out that developed economies pose a challenge to third world countries with their cheap and quality products. However, it should be noted that the solution to unemployment is not withdrawing from the world economies and installing trade barriers. Unemployment due to competition from foreign countries can be settled through education and other sectors that directly affect the economy.

Free trade has myriad advantages but has been associated with the dumping of low quality commodities in developing countries. Some developed countries hide behind the free trade policy and because of competition; they end up disposing low quality commodities which retail at low prices so as to capture the attention of the foreign markets. Subsequently, trade liberalization works on the assumption that countries will fully cooperate with demands from either countries and will meet the expectations set by the policy. However, it is important to note that such conditions do not exist in a real time setting. Countries will always advocate for their interests to be met at the expense of their partner countries. Lastly, trade liberalization creates a mood for economic dependence between countries that support the free trade policy. It should be noted that overdependence could be disastrous in the event the two countries disagree on an issue.

Technology and Trade Liberalization

Technology has greatly contributed to the ease of doing across the world. Countries who have embraced technology record an improved economic growth over time compared to developing countries. For instance, Information Technology (IT) has improved the ease of doing business in America. With a computer and an uninterrupted access to the internet, an individual in London can transact and monitor the shipping of his cargo from China without moving around. As a matter of fact, physical movement has been eliminated by technology and this has contributed to economic growth across the world.

Technology has contributed to product innovation, a move that has over the years guaranteed consumers value for their money. Companies are now able to package and deliver products that match the expectations of their consumers. This has by far contributed to the effectiveness of trade liberalization in the world economy. Of great importance is how technology has been able to influence the trade patterns in manufacturing across the world. However, in countries that have supported trade liberalization, technology has not been able to penetrate and influence the manufacturing trends as the trade barriers in place prevent innovation from spreading (Repellin-Hill, 1999). Countries that have erected trade barriers cannot enjoy the gains that come with technology as they add an extra burden to businesses that have embraced technology. In this regard, it is important for countries to open up business in other countries to tap in and contribute towards the spreading of innovative ideas, a process that cannot be achieved through the export and import business between countries.

Has Free Trade Liberalized America?

International trade has contributed largely to America’s $12 trillion economy. As a result, myriad economies across the world continue to share America’s benefits of doing foreign trade. Trade liberalization in America has led to higher standards of living among its citizens that are drawn from well-paying jobs. Further, consumers continue to enjoy a wide range of cheap and quality products available in the market. Americans are now entitled to increased investment opportunities that have come with the saving culture. To the world, free trade has granted the average consumer in America, freedom to make decisions based on their expectations and boosted the economic growth in developing countries.

Contrary to President Trump’s argument that free trade has led to the death of trade in America, trade liberalization has contributed to America’s economic growth rate of 23 percent since 1990. Over the years, the wealth of the average American has grown immensely. The North American Free Trade Agreement that was signed in 1993 defined this improvement in the standards of living. As one moves from one State to the other, they can never miss an opportunity availed by foreign trade. Service industry in America accounts for 30 percent of its exports. When computed further, out of ten jobs, the service industry claims eight jobs. This means, about 40 million jobs have been created in America in the last twenty years.

Conclusion

America needs free trade more than before. The world is moving towards trade liberalization and so should America. While developing countries have maintained their tax, tariffs on all imports, America has promoted trade liberalization by reducing trade barriers over the years. Therefore, it is important to point out that free trade has granted freedom to the average consumers in America and eventually, encouraged the reinforcement of law.