Liberalism and Free Trade
The Liberal trade theory is considered one of the most influential international trade theories to date and is implemented by most key states and international economic organizations. The liberal theory is based on the premise of a free market approach where there is to be minimal or no political interference from governments to ensure maximum growth and efficiency, this premise is said to be market-centric. This believe advocates that “what markets work best as mechanisms for allocating resources (both domestically and internationally) if state intervention in market processes is kept to a minimum” (Broome, 2014, s. 22) (Khorto, 2014:2)
The result of this belief is that states will only intervene through the provision of improved infrastructure and policy, with regards to legal framework to ensure the optimizing and efficacy of market operations. Furthermore liberal trade theory is characterised by its belief in co-dependency, liberals believe interdependence is key as it strengthens relations between state actors in the international sphere. Furthermore with the manifestation of the concept of free trade, defined as the “absence
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Furthermore, concerning the liberal premise of free trade which is grounded upon comparative advantage (CA) theory, liberals believe that the use of CA by countries will assist in an increase in stability and efficiency. This because “if a country specializes in the production of goods and services in which it is relatively efficient compared to its competitors it will be better off. (O'Brien & Williams, 2010, s. 151) (Khorto, 2014:3). This means that even the economically weak countries can obtain benefit from the free trade system, due to more efficient use of their resources. (Khorto,
The United States free trade agenda includes policies that seek to eliminate all restrictions and quotas on trade. The advantages of free trade can be seen through domestic markets and the growth of the world economy. T...
With so much focus on the positive elements of free trade, the negative aspects of an open system are often overlooked. However, they do exist, and protectionism is needed. Consequently, safeguards are built into the system. States look out for their own good, whether that is through the use of escape clauses or the choice of the optimal forum for dispute settlement based on the precedent they do or do not want set. This paper argues that protectionism is valuable and inherent in the current system; however, not enough. Powerful states exploit weaker states, and “free trade” exacerbates the problem. I will first discuss why free trade does not work. Then, I will explain how the current system enables the inherent protectionist attitude of states. Finally, I will analyze the fairness of the system.
These three economists share the thought that free trade is the best answer to achieve economic growth because of a few things. Hume explains that free trade is good because “manufactures will continuously move production to the place with the least expensive labor”(Hume pgs. 281-285). He is saying there is always a developing country that has cheaper labor force so it is easier to move production there. Because this trade is cheaper in another place companies, to save money need to move their business production there and then send it back to the country of origin. “One reason that inexpensive labor is beneficial is that it allows poor nations to produce commodities more cheaply than wealthy nations where labor is expensive.”(David Harvey)This
In the acclaimed novel, The Choice: A Fable of Free Trade and Protectionism, author Russell Roberts, an economist and writer, tells a fictional story that enlightens readers to the wonders of the economic system. Russell provides an insightful, thought provoking story that illustrates protectionism and free trade, while making the concepts and arguments easy to comprehend.
Neoliberalism, also called free market economy, is a set of economic policies that became widespread in the last 25 years. The concept neoliberalism, have been imposed by financial institutions that fall under the Bretton Woods such as the International Monetary Fund (IMF), World Trade Organization (WTO) and World Bank (Martinez & Garcia, 1996). One of the famous economists published a book called “The Wealth of Nations” in which he said in it that free trade is the best way to develop nations economies (Martinez & Garcia, 1996). He and other economists also encouraged the removal of government intervention in economic matters, no restrictions on manufacturing, removing borders and barriers between nations, and no taxes (Martinez & Garcia, 1996). The main goal of the economic globalization was to reduce poverty and inequality in the poorest regions. However, the effects of the neoliberal policies on people all over the world has been devastating (MIT, 2000).
While free trade has certainly changed with advances in technology and the ability to create external economies, the concept seems to be the most benign way for countries to trade with one another. Factoring in that imperfect competition and increasing returns challenge the concept of comparative advantage in modern international trade markets, the resulting introduction of government policies to regulate trade seems to result in increased tensions between countries as individual nations seek to gain advantages at the cost of others. While classical trade optimism may be somewhat naïve, the alternatives are risky and potentially harmful.
In their article, The Imperialism of Free Trade, John Gallagher and Ronald Robinson address the relationship between free trade and European imperialism in the 19th and 20th centuries. Gallagher and Robinson refute the traditional idea of the relationship between imperialism and free trade as being one of two elements in conflict, and instead pose the alternative theory that free trade was simply a tool of European imperialism. This proposition about the nature of the relationship between free trade and imperialism is hugely important in that it addresses types of European imperialism that are frequently overlooked and uncovers the vast amount of influence that European powers exerted even without the presence of traditional formal
All nations can get the benefits of free trade by being specialized in producing goods they have a comparative advantage and then trade them with goods produced by other nations in the world. This is evidenced by comparative advantage theory. Trade depends on many factors, country's history, institution, size and. geographical position and many more. Also, the countries put trade barriers for the exchange of their goods and services with other nations in order to protect their own company from foreign competition, or to protect consumers from undesirable products, or sometimes it may be inadvertent.
The Law of Comparative Advantage was introduced by David Ricardo in 1817 in his book ‘Principles of Political Economy and Taxation’. According to this classical theory, a comparative advantage exists for a country when it has a margin of superiority in the production of a certain commodity over others. Comparative advantage results from differing endowments in the factors of production like technology, natural endowments, climate, etc. among different countries. Therefore, each country exports the commodities which it can produce at a lower opportunity cost or, in other words, lower marginal cost of production and imports the rest. This would ultimately be beneficial for all countries engaging in free trade as each would gain through its specialization
Free trade is a form of economic policy which allows countries to import and export goods among each other with no government interference. In recent years there has been a general consensus in economist’s stance on free trade. They view free trade as an asset. Free trade allows for an abundance of goods with increased varieties and increased availability. The products become cheaper for consumers and no one company monopolizes an industry. The system of free trade has been highly controversial. While free trade benefits consumers it has the potential to hurt manufacturers and businesses thus creating a debate between supporters of free trade and those with antagonistic positions.
In order for international trade to work well, governments must allow the world market to determine how goods are sold, manufactured and traded for all to economically prosper. While all nations may have the capability to produce any goods or services needed by their population, it is not possible for all nations to have a comparative advantage for producing a good due to natural resources of the country or other available resources needed to produce a good or service. The example of trading among states comprising the United States is an example of how free trade works best without the interve...
The behavior of an economy is reflected in the behavior or nature of the individuals and firms that make up the economy. So by studying how the individuals and firms act we can be able to understand the economy. We begin our study of free trade by understanding the four principles of individual decision making.
Firstly, what should be noted here is that international trade has been providing different benefits for firms as they may expand in different new markets and raise productivity by adopting different approaches. Given that nowadays marketplace is more dynamic and characterized by an interdependent economy, the volume of international trade has grown substantially in recent years, reducing the barriers to international trade. However, after experiencing the economic crisis that took its toll in 2008 many countries adopted a different approach in terms of trade barriers by introducing higher tariffs in order to protect domestic firms from foreign competition (Hill). Secondly, in order to better understand the implications of the political arguments for trade it is essential to highlight the main instruments of trade policy (See appendix 1).
Again, the realists believe that free international trade works best when a hegemon dominates the global market. I agree because hegemony enhances the global economy by providing the relative distribution of power in several countries. Since every country has its own function in the system, the hegemonic power is mandatory to sustain the world economy and international trade.
Tussie, D., & Aggio, C. (n.d.). Economic and social impacts of trade liberalization. Retrieved from http://www.unctad.info/upload/TAB/docs/TechCooperation/fullreport-version14nov-p106-119.pdf