Top 10 Pros and Cons of Free Trade

Top 10 Pros and Cons of Free Trade

by / Comments Off / 4606 View / Jan 12, 2015

Have you ever thought about how goods, capital or labor move between one country to another? Free trade is the system in place to make this possible. If there was no system in place, it could lead to barriers and roadblocks that could make the trade process almost impossible. This need for a system to be in place led to free trade agreements between many different nations. Free trade now has a place in society and is a system that many believe offers a variety of advantages, but not everything involving free trade is seen as a positive.

Why Does a System Need To Exist?

There needs to be a system in place to make trade possible without potential limitations. If free trade was not the agreed upon system it is likely that trade between nations would be diminished due to taxes and tariffs. Almost all the past barriers of trade have been diminished due to this unique trade agreement. This means that restrictions involving the flow of currency and regulations on trade have been mostly done away with. All regulations that have been identified as harmful to trade have been made obsolete with the free trade agreement or system in place.

What is the Idea Behind Free Trade?

Free trade was first developed due to the need to get rid of past trade barriers. Making prices lower and allowing for increased competition is what free trade is designed to offer. Lower prices for goods and services are possible as a result of free trade. Now foreign companies have the ability to make inroads in markets that were once off limits. Not only are lower prices a result of free trade, but increased levels of innovation are also what free trade was initially designed to bring about. Making companies compete with foreign markets only allows for advances in technology and innovation that can spark change. The idea behind free trade was to make trade more attainable and offer a variety of benefits as a result.

History of Free Trade

Essentially understanding free trade can be made so much simpler by taking a closer look at the history. It is a part of an economic model that is designed to bring about freedom of private enterprise with very little government regulation. It takes away the governments authority to put regulations on trade. This basically means that trade is now free. As a result tariffs and taxes have been reduced over time and various free trade agreements have been signed by a large number of nations. One example is the free trade agreement between the United States, Canada and Mexico. This is known as the North American Free Trade Agreement.

What is the Debate?

Even though free trade was designed to bring about innovation and lower prices for services and goods, it is debated upon in many circles. There is still a debate about how much regulation and authority the government should have over trade. There is still a question as to how the government should be allowed to regulate business activities across national borders. This is an issue that is only gaining steam and both sides of this argument are incredibly passionate about their position. Not only is there an economic side to this social issue, but there is also a moral argument that can be made. The only way to gain a full understanding on the topic of free trade is to look at both the pros and cons.

Best Prices

One of the biggest benefits of free trade is that it allows for goods and services to be most efficiently priced. This means that since government taxes and tariffs surrounding trade have been removed, it allows prices to become more competitive and the lowest price possible is what consumers can expect as a result of free trade. Since government can’t put their own regulations and taxes in place, it allows for the largest possible scale on prices of goods.

Lower prices for goods and services can be viewed as a positive for society as a whole. Not only are prices driven down as a result, but innovation is also key to ensure that large-scale production is maintained. Companies have to keep expenses as low as possible and are reliant on innovation. More advanced technology is a benefit of free trade that simply can’t be fully understood.

Improved National Security

One opinion about free trade is that it allows for improved national security. This is done by free trade making some nations economically interdependent. If nations rely on one another for goods, services or capital, they will be much less likely to cause harm to these other nations. Armed conflict can often die down as a result of free trade and interdependent nations.

Market Capitalism

Another benefit of free trade is that entrepreneurs and businesses have the ability to choose who they want to partner with. There are no regulations in place that put up barriers from making this possible. Being able to trade based on preference without any acknowledgment of national borders is what market capitalism now includes. The capital that is then earned as a result of free trade is then used within the communities that the entrepreneur or business in question resides.

Hidden Costs of Free Trade

Many of those opposed to free trade point out that most of the benefits are offset by the hidden costs. Many agree that free trade allows for the profits to be earned by the largest corporations and the small enterprises ate the ones that suffer the most as a result of free trade. Foreign capital has the ability to keep potential young and small businesses from beginning. This means that competitiveness of small enterprise is sacrificed with free trade systems that are in place.

Interdependent Nations

Another downside to free trade is the interdependence that it breeds among nations. It undermines cultural diversity, because it makes many nations economically dependent on one another. For example, if a country as a large supply of a mineral it will most likely create a local economy that is dependent on harvesting that mineral. Once there is no longer a need for that mineral, the economy of this nation plummets drastically because it was dependent on other nations to buy this mineral. The entire economy of the nation can be demolished and it can collapse as a result. This means that free trade can sometimes leave some nations vulnerable to the point of collapse.

Unequal Outcomes

Another con of free trade is that it often leads to unequal outcomes among states. This means that some states can destabilize as a result of free trade and can lead to increased levels of violence against that nations that are prospering most.