To What Extent Can Free Trade Be Viewed as Beneficial to Economic Development?

Topics: International trade, Economics, World Trade Organization Pages: 5 (1423 words) Published: May 13, 2013
To what extent can free trade be viewed as beneficial to economic development?

Trade is one of the oldest types of economic activities known to mankind. Through decades of refining and developing, the traditional method of trading goods has evolved into exchanges of products and services. In the 18th century a British economist, Adam Smith, defined the first principle of unrestricted trade or ‘free trade’. Free trade states the possibility of exchanging goods or services without government interference, tariffs or taxes.

Free trade raises competition and increases efficiency all over the world. Countries open up their borders by free trade agreements and establishing open trade routes. It expands national borders and increases the movement of goods and cultures, creating greater good variety. One of the greatest benefits of Free trade is that it leads to specialization. Specialization is the method of producing the goods that you are good at. For example India’s warm climate has the opportunity to grow fruit where as Canada’s environment is better at specializing in the industrial markets. Correspondingly, through free trade efficiency is generated. For example, it prevents Canada from building greenhouses and losing time and money growing fruits that are not as tasty. When productions are efficient, goods can be sold at their cheapest possible amount. In addition, efficiency raises competitiveness. Foreign trade leads to the possibility of cheap goods as each specializing country provides the cheapest goods. In order for companies to stay beneficial they will have to be extremely competitive. This can be done for example by investing in new technology to make production even more efficient. Less developed countries will be forced to keep up and development has to speed up in order to compete. However, foreign free trade makes it possible for less Developed Countries to get those technologies they were not able to produce themselves. Moreover, through the competitiveness, monopolies will not be as likely to occur. Companies have to be cautious about raising their prices and lowering production. For all these reasons free trade does benefit the economy. Quoting Harvard economics professor N. Gregory Mankiw, "Few propositions command as much consensus among professional economists as that open world trade increases economic growth and raises living standards." (Mankiw) One example of rapid economic growth because of trade is china. China went for being a third world country to the second largest economy in the world in only a short period. This would not have been possible had it not been for free trade and consequently all the trade that the world has developed with China. (United States census bureau)

However, there are some arguments that oppose free trade. When our economy experiences a recession, as it has in recent years, free trade is criticized. Some economist argue that trade is responsible for recent weakness in labor market. In 2001, not long after the North American Free Trade Agreement (NAFTA) was signed, 2.4 million jobs were lost in the domestic economy between March 2001 and October 2003 (BLS 2003). Several Firms and companies use the opportunity outsource and offshore as free trade makes this possible. Monthly wages in less economic developed countries are much lower then in the western world, the taxes and regulations are also much lighter or even non-existent. Therefor free trade helps the poorer countries by creating jobs but an enormous amount of domestic jobs has been lost. In his 2006 book "Take This Job and Ship It," Sen. Byron Dorgan (D-ND) decries, "... in this new global economy, no one is more profoundly affected than American workers... in the last five years, we've lost over 3 million U.S. jobs that have been outsourced to other countries, and millions more are poised to leave."(USLP) Free trade also impacts state sovereignty. Nowadays world organizations like WTO, IMF and World Bank...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Essay about Is Free Economic Interchange Beneficial?
  • Essay about Free trade
  • Economic: Free Trade and Trade Liberalization Essay
  • to what extent can development be sustainable Essay
  • to what extent is economic growth beneficial for global economies? Essay
  • Economics
  • The development of Thailand’s economic model and trade pattern Essay
  • Term paper of economic development

Become a StudyMode Member

Sign Up - It's Free