Is Free Trade Desirable? Essay

1622 words - 6 pages

The free trade debate has been a long and very much politicized one since its conception, with people split up into camps such as "Economic Liberalists" and "Neo-Mercantilists". Whether or not to impose a free trade system between countries has caused much fear and confusion within the public. Will free trade be beneficial to all or will it cause unemployment in developed countries? Will it cause entire domestic industries to crumble under the pressure of cheaper foreign products or will it lead to more productive domestic markets and new jobs in booming export industries? Will it lead to a so called 'race to the bottom' in which countries compete for the most lax environmental standards and low wages so as to attract investment, or will it increase workers rights and wages in developing countries and encourage better environmental standards for all countries? These are just some of the issues looming the free trade debate.Economic Liberalists argue that free trade would be beneficial to all countries if each country exports goods that it has the comparative advantage in producing, and imports products that they do not specialize in producing. Thus maximizing profits in they're own specialized exports and obtaining other goods cheaply from other countries. However, as Clive Hamilton observes (2002:61) the comparative advantage theory makes many assumptions that do not hold in reality. Assumptions such as the non-existence of unemployment, perfect competition and the overlooking of implicit cost such as pollution and damage to the natural word make this theory in applicable in the real world. Even so this theory remains the basis for pushing free trade in the global market.Hamilton also stipulates that producing just what appears to be a country's "comparative advantage" is not always the route to the highest profits. For example, in the 1950s the percussor to the World Bank advised South Korea to produce what was in its "comparative advantage"; rice and silk. However South Korea ignored this advice and instead went on to invest in industrial markets like the automotive industry and today is generating huge profits as a result of this (2002:48). This suggests that free trade would lock countries down into producing goods that it appears to have the "comparative advantage" in while locking them out from realizing potential in other, previously unexplored markets. Many free trade advocates also put forward the case that free trade encourages competition.Ellig argues that "By exposing domestic companies to diverse overseas competitors, free trade creates pressure to improve quality" (2000:20ff). This stipulates that the introduction of less expensive quality goods from other countries will cause domestic companies to re-think strategies and operate more efficiently to compete with the foreign product. Thus improving the domestic market for that product. Hetzel also discusses this in his article The Free Trade Debate: The Illusion of Security Versus...

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