The Pros and Cons of Free Trade Agreements - Coursework Example

Student’s Name Instructor’s Name Course Date Introduction Free trade agreements have encountered increasing controversy following the concerns raised by organizations, their employees, and other stakeholders. From the global trend, it is evident that free trade agreements will be a precondition for successful economic recovery (Baier and Jeffrey 2). Increasing market access has turned out to be one of the pros of free trade agreements on the part of employment relations stakeholders such as employees of organizations, the managers of the organizations, and employee representatives. Increased market access implies the access to a large pool of customers therefore increased demand for products. However, the aggressive market entry policy caused by free trade agreements poses a significant challenge to the stakeholders since organizations have to lower their prices or adopt other competitive strategies in order to retain their market share. The essay discusses the pros and cons of free trade agreements in order to explain whether such agreements are beneficial to employees, managers, and their representatives. The Pros of Free Trade Agreements As mentioned before, increased access to markets suffices to be one of the benefits of free trade agreements. Members of the agreement are able to access the markets of other members thereby exploiting on the market inefficiencies existing in such markets to their advantage. Free trade agreements yield economic growth, higher living standards, increased productivity, increased innovation, infrastructure development, promotion of peace, and stronger institutions (Drozdz and Algirdas 41). Each of the mentioned merits contributes positively towards the wellbeing of employees, managers, and their representatives. For instance, increased access to other markets creates additional market opportunities. Firms can exploit such opportunities to their advantage by maximizing on the sales and competing favorably. The result would be an increase in their productivity that would in turn increase their sales revenue and wages of their employees. An increase in the wages and salaries of employees implies a consequent increase in the sum that employees remit to their representatives such as unions. This would result in a chain effect that would improve the living standards of employees. Almost similar to opening market access, it is also evident that free trade agreements create trade (Drozdz and Algirdas 41). Such agreements are substantial in the creation of trade that could not have existed in its absence. Such agreements would ensure that only efficient manufacturers of products supply their products in the free market. Consumption would also switch from high cost manufacturers of products to low cost manufacturers. The effect of trade creation on managers, employees, and their representatives is two-fold. Assuming that the organization in question is a low cost producer or offers low cost services to its customers, it is evident that the organization and its employees and managers would consider free trade agreements to be significant in its continued growth. Free trade would imply an increase in the demand for its products. The increase in the demand for products in the market and the successful maintenance of its share in the local market imply that the organization would benefit from the free trade agreement. The benefit emanates from the fact that the free trade agreement is a catalyst of economic growth. Free trade agreements are also beneficial to organizations that utilize modern production methods. In order for the agreement to be beneficial to the firm and its employees, it is mandatory that the firm should employ modern production methods in its production processes. One of the measures would be specializing in goods where the markets provide a lower opportunity cost. A firm that specializes in such products will take advantage of the market opportunities and record substantial growth in its sales and revenues. Increased employment opportunities are the other benefit of free trade agreements. The additional employment opportunities emanate from the increase in exports realized by organizations following the expansion of the market (Semmel 9). If the organization is able to compete favorably in the free market, it is evident that the free trade agreement will be beneficial to the employees, managers, and their representatives through increased compensation packages. Free trade agreements also improve the investment climate (Amadeo 1). In the event that there is free access to a large market, investors would find it easy to set up new businesses. Increased investment would also spur the growth of the organization thereby having a positive influence on the welfare of the employees and managers of the organization. Free trade agreements also make it possible for firms to exchange raw materials thereby providing an avenue for mutual welfare gains. An organization would be able to capitalize on the advantage in the event that the local market exhibited unfair distribution of resources. The organization can also decide to capitalize on increased output and economies of scale if it operates under a free market. The increase in the size of the firm’s market because of international trade results in increased productivity and lower average production costs. The ultimate effect of reduce production costs and increased productivity is increased production. When a firm increases its production, the effect trickles down to employees and managers by increasing their welfare. The increased in welfare emanates from higher rates of income on the part of the managers and employees of the organization. The Cons of Free Trade Agreements The aggressive market entry policy has a negative effect on firms that are unable to cope with the competition (Drozdz and Algirdas 43). Free market creates an open market for many other firms to avail their products in the market thereby requiring firms to employ competitive strategies to continue operating in the market. One of the strategies entails reducing the prices of products. In the event that the firm is unable to compete favorably with the other firms in the market, price reductions could compel the firm to incur huge losses thereby threatening their survival in the market. To such firms, the free trade agreement would reduce their revenues thereby reducing the amount of income received by the managers and employees of the firms. The free trade agreements can also reduce the welfare of the managers and employees through trade diversion. The agreements create trade for firms that are able to compete favorably in the market through lowering their prices or implementing strategies that are unrelated to price. However, firms that cannot compete on other strategies besides price reductions face the risk of losing their market share. Free trade agreements also have the potential to create trade imbalance in a market. The imbalances threaten the survival of local firms (Bhagwati 1). It is evident that different markets require different balances of products and services. As a result, subjecting a market to free trade would create an unnecessary imbalance of the products and services required in the market. The trade imbalance could compel local firms to reduce their prices thereby having an adverse effect on the economic growth of the affected companies. The result would be a decline in the revenues generated by the firm that would also reduce the earnings of employees and managers of the affected organizations. Free trade agreements also subject the organization to fluctuations in the global economic conditions. In the event of an economic downturn, employees and consumers encounter the challenge because of the susceptibility of their organizations to the global market environment. As the free trade agreements contribute towards the economic growth of multinational corporations, it is evident that employees and managers of local firms encounter the negative aspects associated with the agreements. Structural unemployment is one of the worst effects of free trade agreements to unfortunate organizations that depend on the local market for their revenues (Drozdz and Algirdas 43). Increasing imports in the local market implies a reduction in the demand for the products offered by local firms in the market. Local firms would have to reduce their workforce in order to reduce the costs of running their businesses. Unemployment indicates the loss of jobs and source of income for managers and employees thereby reducing the welfare in the society. The Verdict In reference to the issue, I think that free trade agreements are beneficial to organizations, their employees, and other stakeholders. The open access to other markets is one of the significant benefits of free trade agreements. Open trade enables large corporations to export their products to foreign markets thereby spurring economic growth on the part of the organizations. On the contrary, local firms that are unable to compete favorably in the market and their stakeholders consider free trade agreements to be an impediment to their success in the market. Conclusion Free trade agreements are beneficial to firms that capitalize on their capabilities. However, the agreements seem non-beneficial to firms that operate in the local market. Multinational corporations consider free trade agreements to be beneficial since such agreements enable them to avail their products to foreign markets at significantly reduced costs. Because of the economies of scale associated with multinational corporations, free trade agreements spur their economic growth thereby increasing the earnings of managers and other employees. However, local firms are unable to compete by lowering their prices since the strategy impacts negatively on their profitability. Local firms are unable to capitalize on the economies of scale, as it is the case with large firms. Works Cited Amadeo, Kimberly. “Free Trade Agreement Pros and Cons”. The Balance (2017). https://www.thebalance.com/free-trade-agreement-pros-and-cons-3305845 Baier, Scott L., and Jeffrey H. Bergstrand. "Do free trade agreements actually increase members' international trade?." Journal of international Economics 71.1 (2007): 72-95. Bhagwati, Jagdish N. Free trade today. No. 2003. Princeton University Press, 2003. Drozdz, Jolanta, and Algirdas Miškinis. "Benefits and threats of free trade." Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu. Ekonomia 14.201 (2011): 40-48. Semmel, Bernard. The rise of free trade imperialism: classical political economy the empire of free trade and imperialism 1750-1850. Cambridge University Press, 2004. Read More