Free Trade

One of the most significant decisions that countries have taken has been to join the global free market. The essay differs on the free market's winners and losers. Since World War II, the formalization of trade institutions has favored some free market winners. Institutions such as the World Trade Organization and the General Agreement on Tariff Trade have facilitated multilateral trade discussions such as the Uruguay Round. The consultation resulted in the removal of trade obstacles in cross-border transactions. Exports of third world countries have increased exponentially and the growth of inter-industry and inter-firm trade that have become powerful instruments to the global political, economic trade.

The essay also reflects that the losers of the free market have been due to the regulations and policies of the international organizations that govern the liberal trade globally. WTO has been criticized for favoring big economies who have tweaked the rules to support their countries. Developing economies have been on the losing end, and this has generated conflicts among the developing and large economic countries. The inception of the free market has become an evolution of the global political, economic market and has become a transforming factor for different countries.

The Winners and Losers of the Free Market

The evolution of mercantile policies and the great depression to global political economy trade relation during World War I brought about the inception of voluntary multilateral trade after World War II under the General Agreement on Tariffs and Trade (GATT). In the 90's GATT became a legalized framework for the establishment of World Trade Organization (Mortensen, 2012). Tarde tariffs, trade policies among industrial countries have reduced significantly. International trade negotiations and the Uruguay Round in 1994 reduced the average tariff of developed countries from 6.3% to 3.8%. Uruguay Round has contributed to the reduction of quotas, subsidies and voluntary export restraints in a variety of industries and has brought about the conversion of transparency on the trade barriers. The non- tariff barriers which include price controls, quantitative restrictions, voluntary export restraints and subsidies grew and became part of the reason for the decline in tariffs (WTO, 1999).

A free market is defined as a place where an exchange takes place in the society. The exchange is a highly complex and interacting latticework between two parties or a group. The parties trade tangible or non-tangible commodities, economic goods or non-tangible services. Goods and services around the world are made available due to the pricing system of the market. The free market becomes a platform for entrepreneurs who risk capital to spread and allocate their resources to meet the desires and satisfaction of mass consumers as efficiently as they can (Rothard, 1995).

Intra-industry trade and inter-firm trade have experienced tremendous growth since the inception of free trade. Intra- Industry Trade is the exchange of products and services from similar industries that offer the same output. The inter-firm trade involves the transfer of services and goods within the same company across the national boundaries. The trades have been associated with fewer conflicts and fewer displacement effects. It is said that intra-industry trade is a new authoritative source of interests in the liberal multilateral trade regime (Milner, 1999).

Domestic political economies are winners of the free market. The adoption of free trade by some countries leads to a growth of the tradable sector due to exposure and pressure of the international economic environment. Scholars have indicated that the liberalization of trade leads to better political cleavages and conflicts between more available and scare resources domestically. Openness multiplies the potential number of multi-national firms and exporters while increasing supporters of free trade and reduces import-competing firms as they close businesses due to foreign competition (Milner, 1999).

Developing or third world countries are winners in the free market because there is an increase in economic resource accesses. The resources include capital, labor, and land that are sometimes limited in some countries. The utilization of the resources increases the chances of more trade within and beyond the boundaries of the country. As a result, the country attracts outside investments from foreign firms and individuals. Investments in a developing country create job opportunities that utilize labor for the growth of the economy. Another reason why third world or developing countries are winners in the free market is that there are better foreign relations since free trade agreements are a source of political improvements in a country. It is achieved by countries interacting with the others in ways of better government policies and economic strategies that guide in the leadership of the citizens. Also, the relationships help with the improvement of military training and the growth of internal infrastructure within the country (Vitez, 2017).

Fair trade is a global political issue in the essence that current exchange relationships and moral dimensions extend across and beyond all international borders. There has been an increase in consumption of third world commodities that possess the fair trade label by the first world consumers. Individuals from the first world countries have become more comfortable users of the fair trade products knowingly, and by doing so, they express their solidarity to the processes and procedures of the third world countries. First-world consumers are influenced by private virtue rather than public duty while making their decision (Watson, 2007).

Marketers of the free trade primary objective is to influence consumers to purchase limited quantities as a way of affirming the claim of fair terms of exchange on behalf of the third world producers. Their goal is to challenge the conventional dynamics of product fetishism, which is a result of the way decisions are framed in consumption by categories such as the price, supply, and demand (Hudson, 2003). The success of the free trade is achieved by convincing consumers to change their automatic identification with the products in preference to the consideration of the social relation of the producer behind the product in the borders. Free trade campaigners focus their campaigns on the politics of consumption. A click on a third world producer website allows the first world consumer to meet a representative that helps in understanding more about the offers and gives them a glimpse of their world (Watson, 2007). The act of purchasing fair trade products is viewed as noble conduct, irrespective of the lifestyle differences, the buyers display solidarity by supporting the producers in an attempt to reward themselves a comfortable material existence (Christine, 2003).

However, producers from the third world face challenges when it comes to agricultural products. The fair trade campaigners have suggested that the World Trade Organization presides over agricultural subsidies that allow first world governments to skew the terms and conditions of international trade to favor their agricultural producers. The existence of the subsidies forces the third world producers to lower their prices to sell their produces (Christine, 2003). Monopolistic distributors of the first world countries can format structured terms of exchange to their gains.

Progressive legalization of trade rules increased the stability of participants expectations in the way transactions of goods and services are sold across the border, the taxation procedures on the payment of imports and exports and the rules and principles that reduce the support of the government for local industries in regards to the competition of foreign firms. The development of liberal post-war multinational trade enhanced the rapid growth of cross-border economic trade and integrated national markets for production and increased transactions of goods and services.

The concept of free trade lies in the principles of the contemporary system of global trade rules in theory. The statement assumes a state of the democratic peace theory in international relations. The democratic peace theory assumes that any country with an established democratic political system is less likely to engage in armed conflict with other democracies. An equivalent of the theory is the commercial peace theory in International Political Economics. Proponents of the global free trade argue that countries that integrate their manufacturing and service industries internationally to increase trade are less likely to go to war as a means to settle a commercial dispute. Expanding economic ties between countries deepen with trade hence the reduction of regional wars between the governments (Broome, 2014).

Under free trade system, the idea of armed conflict between states leads to high costs due to increased interdependence and openness. Businesses risk blocked access to critical domestic imports for local consumption or access to components required to manufacture finished products. Government face loss in economic costs of tax revenue, economic productivity, risk in high levels of unemployment and the reduced inward investments and increased capital outflows. Households face a risk in empty shelves of their favorite product from aboard in the supermarkets that are replaced with expensive local produced product. Conflict is not good for most businesses (Sperling, 2007).

However, some scholars have argued that interdependence and free trade creates conflicts. The increase of free trade might affect the international political systems. Therefore, it increases or decreases the political- military levels of the countries with conflicts. When trade produces more disagreements than stimulating trade relations, the liberalization of trade might have less openness in the future and increase protectionism (Milner, 1999).

In the liberal globalized economy, exporter states in the twenty-first century exercise a high degree of leverage on international trade regulations through their influence over the large domestic market (Drezner, 2007). However, exporters from the developed economic countries are subjected to rely on favorable global economic conditions to maintain demand for their product. Some of the world’s prominent exporters depend on trade for almost half of their domestic product. Countries with non-resource export sum up a high portion of the GDP, some of these countries include Germany (51 %) and South Korea (58%). The national economic development and growth are connected with global economic health and the performance of their trade partner’s economies. The United States economy accounts for 14% of export of the GDP. Hence, it strengthens the United States degree of global demand for their exports and directs them away from the volatility of trade that other significant economies lack. The exports and imports of the U.S account for nearly 11 percent of global trade flow in 2011 making major contributors to the world's economy (Broome, 2014).

Many developing countries struggle to influence the global trade negotiation and rules evolution to their benefit. The countries, however, have had success in shaping and changing processes of world trade rules; this is associated with the bargaining coalition among the developing states to increase their combined leverage over trade negotiations through World Trade Organization (Tussie, 2004). Small developing countries are thought of possessing less influence on trade and development of global trade regulations, hence are typically assumed to constrain their autonomy on policies to a higher degree than large economies.

Economic activities depend on political compatibility, economic transformations and legal frameworks that require legislative modifications. The practice of free trade globalization requires more regulations, rules and enforcement mechanism as much as the closed trade. Transformation in politics have enabled the growth of globalization trends and has ultimately become a reference to the competitiveness of a nation's economic activities in the global market. International competition is more market based rather than state-managed strategies in the domestic constituencies that protect them from harmful consequences of abandoning state policies. The establishment of WTO became a turning point in the neo-liberal globalism governance of trade. It's diversion from a ‘trade liberalization' project where compensation by the government was allowed to cover those that suffered from injuries due to the procedures and processes of free trade. Such payments are not allowed in the ‘neo-liberalization trade’ project (Chorev, 2005).

Citizens of a nation become big losers of the free market because their government cut spending on resources of social programs and reduce tax capital. Liberalization of the global market leads governments to relinquish some policies that help them in maintaining competitiveness. The constraint of using policies becomes troublesome since it limits the government ability to shelter its people from external vulnerability and erodes the public support for openness (Rodrick, 1997).

The 1999 ‘Battle in Seattle’ witnessed a disruption in the annual WTO ministerial conference by protests from the large- scale corporations and social groups that criticized the rules and policies of WTO. The developing public protests gradually led to a greater concession to developing countries interests. WTO has been criticized for entrenching iniquitous global trade policy standards and relations through legalization of rules, which favor the interest of larger developed economies over those of developing and low-income economies. The privileging of free trade rules has reduced trade relations between countries due to less fairness in trade regulations. WTO has received additional scrutiny on protecting the rights of the wealthy elite’s actors over the interest of the emerging and developing countries, such as local industrial workers.

Some of the losers of the free market include emerging market economies notably China and India. The entry of China in WTO year 2001 has been accompanied by high investment and the rapid growth of China's trade surplus with the USA. The USA has benefited from the decision of China to enter a system of trade rules within the World Trade Organization in that their exports to China have increased by a factor of six folds from 2000 to 20011. China exports to the USA rose from $ 100 billion in 2000 to $ 400 billion in 2011 representing a deficit of US export with $300 billion. The difference between the two economies has given rise to economic tensions between the two countries and has resulted in becoming one of the most charged issue in global trade politics. USA policy makers accuse China of currency manipulation and unfair trade practices that help the boost their export to the country. China becomes a loser because it’s not part of the regulators that make policies benefiting developing economies of the world (Broome, 2014).

Other losers of the multilateral trade regime are regulatory bodies and policy makers of a country due to the growth of illicit trade flows. Illegal international trade refers to the exchange of goods and services ‘that are criminalized by states in importing or exporting countries’ (Andreas, 2004). The trade flows of illegal items include the illegal logging and trade of endangered species, illicit trade in drugs, human trafficking and trade of ‘blood diamonds.' Some scholars and observers have implied that states are losing control of cross-border economic activities because of illicit trade globalization. The inflows of capital to the free market have become an integral part of the global political economy. However, some states have become complicit to tolerate the growth and development of criminalized trade.

Conclusion

Countries that have adopted the free market have benefited from its inception. Most countries have developed foreign relations that have helped in developing economic policies that have led to their growth and increased international investments. The links have increased revolutions in industries and the utilization of domestic resources in the growth of global trade.

For the free market to flourish, developed countries and developing countries should work together to agree on regulations and policies that benefit all of them and exploit avenues that could support small countries to tap into their potential to use and exhaust the resources around the world.

















References

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