Free Trade

7 Key excerpts on "Free Trade"

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  Prospects and Challenges of Free Trade Agreements

  Unlocking Business Opportunities in Gulf Co-Operation Council (GCC) Markets

  • Doren Chadee, Banjo Roxas, Tim Rogmans(Authors)
  • 2014(Publication Date)
  • Palgrave Pivot

    (Publisher)

  2 The Political Economy of Free Trade

  Abstract:

  This chapter has two goals. The first is to review the theoretical arguments why Free Trade can be beneficial for a country from both an economics and institutional perspectives. The second goal is to explain how, despite the potential benefits associated with Free Trade, countries still have a number of policies in place which restrict the free flow of goods, services and capital. We review a number of these restrictive policies and show the extent of the benefits which are likely to arise as a result of their elimination through a Free Trade agreement (FTA). Lastly, the chapter concludes with a discussion of some of the limitations associated with bilateral and plurilateral (FTAs) in realising the full benefits of such agreements

  .

  Chadee, Doren, Banjo Roxas and Tim Rogmans, Prospects and Challenges of Free Trade Agreements: Unlocking Business Opportunities in Gulf Cooperation Council (GCC) Markets . Basingstoke: Palgrave Macmillan, 2015. DOI : 10.1057/9781137479884.0008.

  2.1 The economics of Free Trade

  The debate over the advantages and disadvantages of international trade dates back several centuries. Today it is well accepted that countries stand to gain through trade because the advantages often far exceed the disadvantages. Free Trade refers to a situation where citizens of a country can freely buy and sell goods and services with other countries without any restrictions. Under such conditions, countries can specialise in those goods and services in which they have a comparative advantage and trade the surplus production for other goods and services which other countries can produce more efficiently. According to David Ricardo’s theory of comparative advantage, a country should specialise in the production of goods and services in which it has a lower opportunity cost, and it should import goods and services in which it has a higher opportunity cost of production. Specialisation leads to more efficient allocation of resources and results in higher output and lower costs. A country’s economy stands to benefit even if it imports a product which it could produce domestically if it does not have a comparative advantage in the manufacture of such a product. The gains from trade arise because of specialisation and the efficient allocation of resources.

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  Trade Facilitation in the Multilateral Trading System

  Genesis, Course and Accord

  • Hao Wu(Author)
  • 2018(Publication Date)
  • Routledge

    (Publisher)

  Anti-globalization campaigners are vocal in their criticism that globalization concurrently has caused negative side-effects, such as inequality, marginalization of small and vulnerable economies, shrinkage of traditional industries and damage to the environment. While some may contend that ‘it is the best of times’, it could also be ‘the worst of times’ 1 in the eyes of others. Nevertheless, ‘[t]oday globalization is fact of life, so the question is less about whether or not we like globalization – it is more about how we should respond’. 2 At the dawn of the new millennium, world leaders declared that ‘the central challenge we face today is to ensure that globalization becomes a positive force for all the world’s people’. 3 As Margaret Thatcher conveyed, ‘there is no alternative’. The calls for Free Trade Free Trade (also known as ‘trade liberalization’) is the enduring and dynamic engine that has driven globalization forward. 4 Liberalizing trade entails eliminating restrictions and barriers on the exchange of goods and services between countries. Among the restrictions and barriers, tariffs and non-tariff measures (NTMs) are the most salient. In the modern world where countries are tightly connected by international trade, if we are committed to steering globalization towards a promising trajectory, we should accelerate the momentum of Free Trade. At least, what generations of theorists have advocated is still worth heeding. The notion of Free Trade can be traced back to the Grotian tradition. Hugo Grotius, in The Free Sea (1609), articulated the rule of international law as the foundation: ‘it is lawful for any nation to go to any other and to trade with it’. 5 On Free Trade, he wrote in Commentary on the Law of Prize and Booty (1605): Freedom of trade, then, springs from the primary law of nations, which has a natural and permanent cause, so that it cannot be abrogated

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  Foundations of Real-World Economics

  What Every Economics Student Needs to Know

  • John Komlos(Author)
  • 2019(Publication Date)
  • Routledge

    (Publisher)

  In short, the simplifications of the standard trade analysis overlook the main social, political, and ethical challenges of coping with the effects of factory shutdowns and wage realignments as a consequence of trade liberalization. Humanistic economics would prescribe not only that “the U.S. as a whole” benefits from trade but that no one in the U.S. is hurt as a consequence of international trade. In other words, the losers should be fully compensated by the winners. Then trade would be Pareto optimal. Without substantial protection, neither the Asian tigers nor China would have been able to compete with the technologically advanced nations and their growth would have been stifled.

  Free Trade Is Not an Engine of Growth

  Free Trade is not a prescription for growth. Comparative advantage and gains from trade pertain to welfare in the static sense under special circumstances and are not at all relevant to economic development. The reason is that tariff reduction increases consumer welfare but says nothing about economic growth (Figure 13.1 ). While, production of textiles decreases, there is no axiom that another sector will expand. So long-term growth is another issue and depends on the usual factors (Chapter 11 ). No developing country—neither Germany nor the U.S. in the nineteenth century, nor Japan, Korea, Taiwan, Korea, Singapore, or China in the twentieth century—was able to catch up with developed countries without protecting its economy from competition from the most advanced country.10 In other words, the historical record indicates that Free Trade is hardly a formula for catch-up growth for developing economies.

  Even if international trade were to increase welfare and not cause unemployment, and if losers were fully compensated by the gainers, there is nothing in the theorem of comparative advantage that predicts that economic growth would accelerate in the wake of Free Trade. That depends on whether the gains are spent or invested. The Chinese were able to translate their gains into growth because they invested their profits, whereas the U.S. bought consumer goods that have no lasting growth effects. The cheaper shirts bought decades ago are no longer around, whereas the Chinese capital investments are still generating returns.

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  International Policy for the World Economy

  • James Oliver Newton Perkins(Author)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  As the difficulties in the way of further progress in the general freeing of world trade become clearer to all, it is naturally becoming more common for groups of like-minded countries to seek ways of freeing trade among themselves. For sometimes groups of countries can find mutually satisfactory forms of concessions that they can offer to each other, but which they would not feel to be a satisfactory form of bargain if the concessions had to be extended to the whole world.

  There are provisions within the General Agreement on Tariffs and Trade for the setting up of Customs Unions and Free Trade Areas; and members may make certain types of preferential tariff concessions to other members of groups setting up such regional areas of freer trade. The members of a customs union (such as the European Economic Community) work towards the complete freeing of their trade with one another and the setting up of a common external tariff against goods from the rest of the world—which under Gatt is supposed to be at about the ‘average’ level (in some sense) of the former tariffs of the constituent members. The members of a Free Trade area (such as the European Free Trade Association) seek merely to liberalize substantially all their trade with one another, but members may still retain their own individual tariffs on their imports from the rest of the world.

  The principal problems arising from such arrangements will be discussed in the following chapter: here the main reason for introducing the subject is to emphasize that when efforts to free world trade more generally come up against serious obstacles to further advance—as seems now to be occurring—attention is likely to be focused increasingly on efforts to liberalize trade over more limited groups of countries, so far as this can be reconciled with countries’ international obligations (under Gatt especially). If such arrangements are well chosen there is no reason why they should not promote the main aim (shared by all countries) of promoting the general expansion of world trade and incomes: but there is always the danger that any such limited arrangements may divert trade into less desirable directions (from the viewpoint of the world as a whole, and possibly also from that of some, or even all, the member countries of the regional groups).

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  Principles of International Politics

  • Bruce Bueno de Mesquita(Author)
  • 2013(Publication Date)
  • CQ Press

    (Publisher)

  We have seen that Free Trade, on average, provides cheaper goods and services to consumers. It also provides more abundant goods and services both in quantity and in diversity. Yet Free Trade has not been the norm throughout history. I have already hinted at why this is so. Free Trade is a public good, but the effects of trade involve both public- and private-goods components. Trade affects domestic producers and sellers differently from importers, exporters, and consumers, and government trade policies affect the wealth of each of these groups differently. So the distribution of wealth in a society depends, in part, on governmental approaches to trade. If trade is unrestricted, then domestic producers for the domestic market are at a potential disadvantage, and foreign exporters and domestic importers could have an advantage. Each, depending on how well tied in they are to the leadership’s winning coalition, will lobby more or less effectively for their private, coalition-based gains at the expense of those not in the coalition. In the US setting, for instance, that means that labor union interests will more effectively distort trade policies to protect labor when the Democrats are in office. Large US corporate interests, as reflected by the Chamber of Commerce, the National Association of Manufacturers, and individual corporate lobbyists, will more successfully distort trade policies to protect their interests when the Republicans are in office. In smaller-coalition regimes, the private goods component of trade protection will loom considerably larger than in a large-coalition setting such as in the United States.

  Trade restrictions can be achieved through lots of different means. They are not limited to tariffs. Imports can be restricted through tariffs or through nontariff barriers. Nontariff barriers are a more subtle way for governments to limit imports than imposing tariffs. Examples of nontariff barriers include environmental policy or health standards that exclude foreign-made products; quotas that restrict the quantity of an item that can be imported; restrictions on the immigration or emigration of people; or restrictions on the opportunities to move capital to wherever it can be most profitably invested.

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  Coping with Global Unemployment

  Putting People Back to Work

  • John Eatwell(Author)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  _________4_________ Free Trade, Unemployment, and Economic Policy Anwar M. Shaikh It is now widely recognized that a country’s ability to compete effectively in the world market can be vital to its long-run prospects. Of course, in the short and medium run a country can protect itself from international competition through a variety of devices. Outright protection in the form of tariffs, quotas, and even subsidies can help insulate individual industries or regions. Manipulation of the exchange rate can enhance the competitiveness of national industries vis-à-vis the corresponding world sectors. And manipulation of the interest rate can induce foreign capital inflows and thus help cover any existing trade deficits. But in the long run, it seems, the issue of international competitiveness must be faced squarely. Crucial questions are: how does opening up a country to international competition through Free Trade affect its levels of production and employment? Does Free Trade equalize competitive advantages, or does it worsen existing inequalities? Is laissez-faire the best way to participate in international trade, or is some degree of state support and management preferable? The questions are age-old ones, and they involve both theoretical and policy considerations. To answer them adequately, we must address the actual workings of the capitalist world market. This means examining not only the immediate effects of international trade, but also the longer-term consequences, the ones that assert themselves through a slow and steady alteration of the initial effects, or by giving rise to unexpected or even unacceptable side effects. Successful policy therefore requires a structural analysis of international competition and the world market

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  Globalization and the Myths of Free Trade

  • Anwar Shaikh(Author)
  • 2007(Publication Date)
  • Routledge

    (Publisher)

  Economic theory is to political reality what the ivory tower is to the real world. The experience of the past two centuries provides ample confirmation. Economic ideas about Free Trade have not shaped political reality but political compulsions have shaped the contours of economic theory. However, economic interests, whether perceived or real, have exercised an important influence on the political objectives of nation states in the world economy. In this pursuit of national economic interests, the use of the Free Trade doctrine, with its emphasis on efficiency and equity, has been flexible over time and across space.

  Economic theorizing about trade has always considered a world in which countries at similar levels of development are equal partners, thus ruling out the use of political power to foster economic interests. This abstraction simply does not conform to reality. It never did, as Joan Robinson (1974) wrote, even in Ricardo’s world. In the now famous example, Portugal was to gain as much from exporting wine as England from exporting cloth. This was not quite true even in terms of economics. Once we introduce capital accumulation into the picture, it is clear that Free Trade promised growth for England and stagnation for Portugal, for investment in cloth would be associated with increasing returns whereas investment in wine would be associated with diminishing returns. But that is not all. In the realm of politics, as Joan Robinson puts it:

  Portugal was dependent on British naval support, and it was for this reason that she was obliged to accept conditions of trade which wiped out her production of textiles and inhibited industrial development, so as to make her more dependent than ever.

  Robinson (1974: 1)

  It is patently clear that, despite the abuse of mercantilism, Free Trade was also about the pursuit of national economic power. Indeed, the moral stance adopted by the advocates of Free Trade was false insofar as the desire for affluence or plenty was motivated by a quest for economic power no less than by a concern for human welfare.

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