The free trade which result in countries that specialize in the production of certain goods efficiently and preferred than other countries which defined comparative advantage. To put simply, a country will import goods and services that they cannot produce while they focusing on certain products. Smith, Adam (1904) stated they prefer to buy commodity from foreign countries as they offering much cheaper than they make it by themselves. Free trade give benefit to many companies in another country to gain experience in producing for foreign markets. In fact, it gives an opportunity to consumers in choosing a wider variety of goods and services. Plus, it also will increase purchasing power for businesses. Under a policy of free trade, specialization will increase wealth, production of goods as well maximizes the labour.
For instance, China is very rich in growth for textiles and apparel while on the other hand UK industries grew rapidly in machinery, transport equipment and electronic. This proof that trade between China and the UK being highly complementary. Bilateral trade exchange began in the 1950s whereas China is the UK’s largest investment source while UK’s is China second largest trading partner. It reached by $785bn by 2015, which approximately $596bn is from exports, accounting for 75.9 percent. With that, it provides consumers with a variety of goods that they can gain from different countries as well with cheaper prices (Chen, 2017).
Another example, Middle Eastern countries such as Qatar are very rich in reserves of oil but without trade, there would be not much benefit in having so much oil. Japan on the other hand, has very few raw materials, So, if they intend not to trade with other country, Japan would be very poor (Economics Help Website, 2010). So, it will benefit them if they began to trade with each other. Besides, it gives an opportunity to farmers for having a fairly-paid wage for their job promoting good farming, as a lot of fair-trade produce is also organic. The highest level of production is from specialization. In fact, each nation can consume the amount of the good that it wants to consume through trade. Consequently, nations become more efficient because of they maximized in their own production. The advantage of economies of scale will lead to lower prices for consumers. Free trade will balance the needs, supply and demand plus allowing the trade become easier. Within a nation, it can be a positive vibe for development.
Some of the researchers frequently oppose free trade because it will increase job outsourcing.Many countries employed foreign employees to help them with local marketing, contacts and language. In result, there will be high unemployment in their home country. Besides that, free trade will encourage manufacturers to hire foreign labour with cheap prices indirectly rob the opportunities of local labour to get a job. Other than that, outsourcing is time consuming when a company waste their time in training foreign employees who don’t understand rule and policies of the company. According to the article written by Kimberly Amadeo, free trade give a huge impact on American workers. American worker believes that security is another big issue that a company will confront when hiring foreign workers. There will be a potentially high risk for Information Technology security breaks such as their business process secrets will be exposed.With that, in 2016 presidential campaign Donald Trump once said he would bring the job back by renegotiating with NAFTA. He threatened to impose tariffs on imports from Mexico and China, so that the price of the products from those countries will become higher and difficult to compete in America market.
But, basically tremendous advantaged of international free trade have flowed from U.S free-trade agreements which cover U.S, Mexico and Canada. NAFTA was executed between these three countries as they have a common border and high potential as economic leaders of the region. The first formally North American Trade Agreement (NAFTA) was conducted in January 1994. In terms of the agreement, trade restrictions such as tariffs, non-tariff and quota barriers were scheduled to be eliminated within 5 years of period (Hashemzadeh, 1997). When NAFTA was fully implemented, manufacturers in US gave uncontrolled access to the growing market in Mexico for high technology product while giving consumers in US a lower price on goods. With that, NAFTA is expecting to raise productivity by shifting jobs to the most efficient sectors in the economy. Besides, Mexico also got the benefit from good capital inflow and outflow and creation of better job at higher wages. It has increased the foreign direct investment in Mexico through NAFTA. According to NAFTA Now website, “Mexico has received US$156 billion from its NAFTA partners between 1993 and 2008 and become one of the biggest recipients of foreign direct investment among developing the market.
However, economic arguments oppose free trade because they said that free trade only give benefit to the wealthy within countries. Companies that produce well in less-developed countries will impose a lower wage on the labour. So, the rich become richer and the poor become poorer. According to Bunzl (1999) it is difficult to see those in poor countries improve their lot and thus narrow the gap between rich and poor, globalisation therefore only serves as a productive, low-cost method for TNCs (Transnational Corporations) to gain an advantage of low taxes, weak regulations and vulnerable labour during penetrating the economies of developing countries. Everything getting more complicated day by day. For instance, products being exported from the poorer countries. However, with labour being paid less than their fair wages in the poorer nations, the richer nations still the one that dominated the wealth.
Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations, Edwin
Cannan, ed 1904 . Library of Economics and Liberty, Retrieved November 11,2017 from the World Wide Web: http://www.econlib.org/library/Smith/smWN13.html
Chen, S, (2017). China-United Kingdom free trade area. Journal of Chinese
Economic and Foreign Trade Studies, 10(1),111-126. Retrieved December 12,2017 from http://www.emeraldinsight.com/doi/full/10.1108/JCEFTS-11-2016-0032
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assessment of job gains and losses from expanded trade with Mexico International of Social Economics, Vol 24, No 10. Emeraldinsight.com. Retrieved December 2,2017 from http://www.emeraldinsight.com/doi/full/10.1108/03068299710184886
Bunzl J.M (1999). Criticisms of Current Forms of Free Trade – Global Issues,
Globalissues.org. Retrieved December 2, 2017 from http://www.globalissues.org/article/40/criticisms-of-current-forms-of-free-trade
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Smallbusiness.chron.com. Retrieved December 10, 2017, from http://smallbusiness.chron.com/effects-north-american-trade-agreement-3845.html
7. DISCUSS THE LINK BETWEEN TRADE AND ECONOMIC GROWTH
There was a strong interrelationship between the development of free trade and global economic growth. To achieve successful growth, the periods of five years or more years during an average of economic growth in country rise to 4 % or more after regulating inflation. In today century, there was many countries have made a great achievement towards prosperity just in a short time. For example, in the second half of 20th century, Republic of Korea has made an amazing progress when they taking the advantages of opportunity in inventing new technology and an open world market. The growth of the economy in the Republic of Korea hit to the peak when they started to trade with another country. Same goes to China which recently was known as the most populated country in the world. The sustained growth in China was one of the fastest in the world plus China will become the second largest economy in the world within ten years.
Basically, based on free trade, global citizens were given a freedom to maximize their economic interests as consumers, distributors and producers without the interference of governments. Thus, the globalization of economic forge entrepreneurship, economic growth and innovation within a global society.
According to the article from Baruti Libere Kafele ,we can say that the rise of job created than job lost may define there’s a link between free trade and economic growth. In the United States, manufacturing output has increased by 40% in the past 20 years. The economy in the United States produced twice as many products as they have done in any year since 1984. So, essentially it shows a good relationship between free trade and economic growth.