Effects Trade in the World Economy - Term Paper Example

Introduction For years, it has been d that the free trade invading world markets created debates and discussion with regards to the imposition of it. There are those who attest to its usefulness with regards to low prices of commodity on the basis that before, most of the imported goods by several countries were too expensive due to different tariffs and taxes that are being imposed by the country where the imported goods brought. In the given premise, those goods are now being sold double or triple the price from its point of origin. Due to the cost of it, those imported items are regarded as valuable items. However in present times, where majority of the countries are exercising and adopting free trade, the imported products does have a huge decline on its cost to the extent of being much cheaper than locally produced good. If this is the case one might agree that this kind of occurrence is beneficial to the importing country since the country will have the luxury of obtaining different imported goods at a lower cost which is sometimes has a high quality than locally produced goods. Though it sounds good for some, there are those who claim that such a practice contains negative effects and implications to the economy, particularly, the exporting country. In this case, one might ask, why is there such an objection where in fact, the importing countries would be having imported goods and these goods would be available to the majority of the people due to its low prices. Free Trade, defined Before plunging into a deeper perspective, as the aforementioned premises are just tip of an iceberg, defining the meaning of free trade in economy's perspective is needed in order to be guided and for the analysis in obtaining a stand with regards to free trade issue. Wikipedia (2007) defined free trade as "Free trade is an idealized market model, often stated as a political objective, in which trade of goods and services between countries flows unhindered by government-imposed tariff and non-tariff barriers. Nearly all modern non-Marxist economists support the statement that free trade is a net gain to both trading partners and that the gains from free trade outweigh the losses." In this case, trading comes into picture; therefore, there are exchanges of goods from one country to the other. Meaning, the importing and exporting countries must have goods to be categorized as those goods that can be included in the free trade. In this case, there are mutual understanding between importing and exporting countries on what goods and services coming from the importing and exporting countries and vice versa should they not impose taxes. If we are to analyze, tough the (importing) country looses several amount of money due to free trade, that country would also be exempted on tax to the goods they have exported to the latter. In this case, it may look that the said trade agreement does not have any negative implications on the economic side since the proposed profit from tariffs and taxes were altered by savings that the agreement has generated. Alleged Benefits of free trade After taking into the definition, looking into the positive aspect and side with regards to free trade is also important in order to know the (supposed) benefits that a certain country could get. Froning (2000) further stressed that free trade, though in its early beginnings is influencing the global market nowadays. She stressed "Free trade policies have created a level of competition in today's open market that engenders continual innovation and leads to better products, better-paying jobs, new markets, and increased savings and investment. Free trade enables more goods and services to reach American consumers at lower prices, thereby substantially increasing their standard of living. Moreover, the benefits of free trade extend well beyond American households. Free trade helps to spread the value of freedom, reinforce the rule of law, and foster economic development in poor countries. The national debate over trade-related issues too often ignores these important benefits." If this is the case, why is it that there are those who opposes this kind of trade agreement. Analyzing the fact from the given statement would bring to us in a hypothesis that free trade could help stabilize the economy. However, what is in within the provisions of a free trade that majority tends to disagree with its provision And why do these people claim that the said trading activity would only jeopardize and put the economy of a certain country in a malady These are the questions which revolve and come out into the picture whenever free trade becomes an issue. Negative implications of Free trade Basically, if we are to analyze, these people would not be able to have these sentiments if they have not seen any irregularities with regards to the provisions of free trade. In contrary to the claim that the free trade agreement has made the economies in the world soaring high, Haslam (2002) pointed out the differences and negative implications of this kind of practice. ""Free trade" policies simply allow corporations to freely access cheaper labor markets. Manufacturing facilities are moved to poorer nations - which have miniscule wages, often terrible working conditions and far fewer environmental regulations. Often these conditions result from direct interference by the US government, international financial institutions (such as the World Bank and International Monetary Fund) and/or the multinational corporations themselves. The idea that President Bush will be able to solely negotiate international free trade agreements - is downright terrifying. What the editorial calls "interference from Congress" is basically the way our country's Constitution is meant to work. Through our elected representatives we have some degree of democratic control on major policies. What Bush and this paper are supporting is almost completely undemocratic." Therefore, if we are to look into the other side of the coin, this kind of agreement is used to manipulate the economies of other countries as well as to outsource jobs that are cheaper than what a worker should get. Therefore, there are countries that would benefit in this system, however as they obtain success this would also mean that they would submerge the economy of their counterparts. Simple logic dictates, the more they tend to go up, the more their counterparts would go down. The forgotten argument If we are to look at the situation in present times, it s clear that majority if not all of the super power economies in the world are advancing free trade, stating their claim, presenting evidences and proof that it is about time to adopt this kind of system in all of the economies in the world. In this case, it is obvious that free trade is overstated and has over exposure of their side with regards to advancing free trade in the world market. However, these individuals failed to analyze the forgotten argument in this issue. It is also a question mark if these leaders do understand and has seen the negative effects of free trade. Bostaph (1994) pointed out that "the job-creating versus job-destroying potential of the agreement, the implications of the continuing U.S. export surplus with Mexico for U.S. and Mexican business interests, and the possible results of freer trade for Mexican and U.S. economic development in the future. Meanwhile, the main argument for free trade got lost in the public arena shuffle. The same is true of the current debate concerning the General Agreement on Tariffs and Trade (GATT). There is as yet no evidence that issues lying deeper than those seemingly related to national advantage or disadvantage will be discussed. The reason for this may be that the basic argument for free trade identifies no guilty winners or innocent losers in principle and so lacks the political ingredient that modern politicians need for plying their real trade-selling spurious cures for imaginary ailments in the body politic. It also may be that arguments about principles are necessarily a rare breed in a society increasingly committed to the ethics of plunder, rather than to those that enable the creation of wealth." Effects of Free Trade If we are to look into the present situation, the economies the third world countries becomes worst than ever while first world countries are becoming richer because of the scheme. In dealing with a third world country, Philippines is a perfect example for this. For years, the vegetable business in this country has flourished and has fed a lot of families because of its income. Particularly, the farmers on its mainland, Luzon, enjoy the distinction and bountiful earnings due to the vegetable business- that was history, before free trade enters. In contrary, when the free trade agreement was done, vegetables from China and other countries began to penetrate the market with a much cheaper price and much bigger than the usual locally produced ones. This prompted the local buyers to buy the imported products since it is much cheaper and bigger. This kind of occurrences killed the vegetable business in leaving 3 of 10 Filipinos hungry. Raghavan (2001) further stressed that "The majority of the people in developing countries are from farming families- small-scale farmers, with at best a few hectares of land and often much less. Most of the case studies bring out that these farmers and farming families are hit by cheap imports made possible by trade liberalisation.The cheap imports come from the developed countries, especially the US and the EU, and in some cases also from other developing countries for e.g. sugar imports into the Philippines from Thailand. The farmers are put out of business by this competition from cheap imports, which come from both commercial channels as well as through dumping by food sold below cost of production to dispose off surpluses, and usually cheaper than commercial imports." Effects on global jobs In this case it is clear that free trade affects the earning and living of the people who are considered as local producers. Having this kind of situation perhaps would eventually kill that certain industry and more likely, it would create unemployed individual. Speaking of individual it has also negative effects of the workforce and workers.Ross (2007) have stated that "Free trade allows countries to utilize the principle of comparative advantage and specialize in goods they are most efficient at producing. Comparative advantage occurs when one country can produce an item at lower cost than another country. There are many reasons for differences in production costs. The availability of natural resources is greater in some parts of the world than others. Technology is much more advanced in industrialized nations. Lacking education and technological machinery, the labor forces of most developing countries are not very productive (Espana 48). These factors, along with many others, lead to differences in domestic opportunity costs." Also, the specialization of one's job would be taken for granted as the latter further stressed that "Despite the advantages of specialization, many people believe that trade barriers are necessary in order to protect domestic jobs and wage levels. This is a view shared by possible Reform Party presidential candidate, Pat Buchanan. In his opinion, unrestricted trade hurts American workers by eliminating domestic jobs and depressing wage levels (Buchanan Reform). Several labor unions and other special interest groups aggressively lobby for tariffs in order to protect domestic jobs from foreign competition. While this idea may sound convincing, it is based on several fallacies. Tariffs and quotas do safeguard import jobs in the United States, but are a detriment to highly productive export jobs. Nations cannot restrict their imports, while maintaining their same level of exports. The purpose of exporting goods is to acquire funds in order to purchase imports from other countries. The imports are obtained at less cost than if they were produced domestically. Consequently, when the United States restricts imports, we make our trading partners poorer. They are unable to purchase our exports. Productive export industries, in which we have a comparative advantage, are forced to decrease production and layoff workers. In terms of the United States and Mexico, if the North American Free Trade Agreement (NAFTA) were not passed, Mexico would not be able, financially, to import goods from the United States. As a result, Americans who produced the exports would lose their jobs (Ross 2000)" These cases are just but a glimpse of what are the effects of free trade in the country. This kind of occurrences would continue to affect global economy. It seems that this agreement would only cater the needs and the interest of some people in power in order to have their surpluses be in the country which would eventually become a much cheaper product compared to the locally made and manufactured product. Scott (2003) uttered that " Since the North American Free Trade Agreement (NAFTA) was signed in 1993, the rise in the U.S. trade deficit with Canada and Mexico through 2002 has caused the displacement of production that supported 879,280 U.S. jobs. Most of those lost jobs were high-wage positions in manufacturing industries. The loss of these jobs is just the most visible tip of NAFTA's impact on the U.S. economy. In fact, NAFTA has also contributed to rising income inequality, suppressed real wages for production workers, weakened workers' collective bargaining powers and ability to organize unions, and reduced fringe benefits." Conclusion All in all, having free trade in world economy is like having a monster needing and searching to take all of the resources. The said activity if looked and taken into consideration is good but however, could cause failure of a certain economy due to the laid facts. After all, Global Policy forum 2007 claims that "Neoliberal ideology claims that international trade is an important factor for the development of poor countries and their integration into the global economy. Rich governments' promotion of these ideals has led them to develop an array of new trade agreements such as the FTAA and CAFTA. These bilateral, multilateral, and regional accords strongly affect people at all levels of the economy--from growers and workers, to processors and consumers --by regulating pricing, tariffs, export levels, and methods of production. Though supporters claim that trade agreements bring sustainable development and economic integration, this is not the case. Rich countries maintain protections of their own exports, while their competitors in poor countries agree to open their markets. Beneficial norms, such as human rights or environmental standards, are set aside. This leads to a "race to the bottom," in which the only priority is cost effective production, at the expense of workers, resources, and sustainability. Due to these failings, the agreements tend harm development and pull poor countries deeper into poverty." Reference. 1)Wikipedia (2007).17 April 2007. Free trade.19 April 19, 2007. < http://en.wikipedia.org/wiki/Free_trade> 2) Froning, Denise. 25 August 2000.The Benefits of Free Trade: A Guide For Policymakers.. 19 April 2007. 3)Haslam, James. August 2000. Free trade is bad for everybody. Vermont workers Center. 19 April 2007. http://www.workerscenter.org/docs/james_freetrade02.php 4)Bostaph Samuel. October 1994. The forgotten argument for free trade. Freedom Daily. 19 April 200.7. http://www.fff.org/freedom/1094c.asp 5) Raghavan, Chakravarthi. 16 February 2001. More losers than winners from WTO's "free trade" Thrid World Network 19 April 2007. http://www.twnside.org.sg/title/losers.htm 6) Ross, Kristine 2000. Negative effects of Trade Barriers in The United States.19 April 2007 http://www.iusb.edu/journal/2000/ross.html 7) Scott,Robert 17 November 2003 The high price of 'free' trade. April 19, 2007 < http://www.epinet.org/content.cfm/briefingpapers_bp147> 8) Global Policy Forum 2007. International Trade Agreements. 19 April 2007. < http://www.globalpolicy.org/socecon/trade/indexagreement.htm.> Read More