Free Trade and its Advantages and Disadvantages

Introduction

Through globalization, competition, specialization and access to technology, free trade and openness has allowed most countries to improve their growth enormously. Free trade has allowed and opened up a lot of opportunity for developing nations to improve their economy and to make provision for rapid growth.

The comment that free trade cannot work or be in the interest of the world's poorest countries due to them being at a competitive disadvantage in every sector is a little false, as free trade has shown to help some but not all such or similar nations. Free trade can help the poor increase their wealth and provide opportunity however, in today's world; free trade may also act as a hindrance to growth and lead to even greater poverty and resentment toward larger economies.

This report aims to argue both points that free trade can work in developing nations and be in the best interest of poor countries. However, there are many counter arguments against free trade and how ethical and political issues have damaged the vision and essence of what free trade should be about.

In order to understand both arguments, the essence of free trade should be defined. The likes of Adam Smith, David Ricardo along with other known economists define and believe that 'free trade' enables all nations to gain, leading to the most efficient use of world resources and thus maximizing world welfare. Smith and Ricardo believed that nations prospered and flourished because of increased trading and although policies of free trade have over the centuries battled with the likes of mercantilist, protectionist, isolationist, communist, populist and other policies, free trade is still the best arrangement for nations to prosper (Salvatore, D 2010).

Advantages of Free Trade

The International Trade Commission estimates that free trade agreements between nations would naturally increase their national GDP (Vitez, O 2009 - http://smallbusiness.chron.com/benefits-trade-developing-countries-3834.html. Viewed Dec 2012).

When industries have to compete with competition around the world, they are pushed towards innovation and efficiency. The belief is that entrepreneurs are more productive if they have to compete. Free trade increases access to technology which also increases overall development. Arguments to this point of view are aided by the opinion that the developing countries are able to adopt the technologies from abroad, whereas developed nations had to create the technologies themselves. Developing countries have far richer markets to which to export than was the case in the 19th century.

Columbian economist Jagdish Bhagwati, argues that free trade reduces poverty for two reasons. First, it creates direct "pull up" effect, as it creates demand for a country's good and industry and thus employs the poor and expands jobs. Additionally it creates more revenue for government that can be directly targeted towards anti-poverty programs (Vitez, O 2009 - http://smallbusiness.chron.com/benefits-trade-developing-countries-3834.html. Viewed Dec 2012).

Independent researcher Xavier Sala-i-Martin at Columbia University estimates that poverty has been reduced by 50 million people in the developing world during the era of free trade, since 1971. Hong Kong, Singapore, South Korea, and Taiwan have been liberalizing ...