It is apparent that the world economy is being driven by global trade among different nations. As a matter of fact, powerful economies like United States of America and China have ventured into mercantilism and subsequently emerged as market leaders. Pointless to say, wealth obtained has reinforced the latter to establish powerful trading networks. During the enchantment of industrial revolution, the two superpowers were able to secure enormous wealth.
This has played momentous role in establishing prominent commercial links. However, the two states have not made it by themselves since they have collaborated with other countries in creating favorable trading environment. Nevertheless, both bilateral and multilateral trade has impacted various nations both positively and negatively bearing in mind that some have emerged to be economically powerful at the expense of others.
In the short run some countries may be negatively affected by trade, why?
There is no single trade pact that may equally benefit both trading partners. Actually, some countries have been susceptible to scum due to several factors. However, the crumple has been spectacular bearing in mind that several countries have tried to protect their economy. The most significant reason for the decline in trade is due to fall of commodity prices and low volume. Currently, in the world market, the fall of market prices has been terrifying. This has triggered the developing countries to concentrate on local consumer goods leaving little room for export.
It is evident that international banks have contributed to the fall of trade among various countries (Stiglitz par. 5). It is evident that, international banking systems have lessened the supply of trade credit hence affecting industrial outputs of the highly dependent countries. Nonetheless, interests of potent nations like China and USA have shaped the configuration of the world trade. In this case, globalization, free trade and current form of open market have been a huge gust to the scrawny states. Narrow political discourse in the international trade affairs has left the grievances of less powerful states unaddressed. They continue lagging behind hence performing scantily in trade activities.
Nevertheless, even the wealthiest countries like China and USA have currently experienced a remarkable bubble in their financial institutions. Though they had previously emerged as prominent competitors in the international trade, they have resorted to far-reaching bail-out even to their counterparts. It is worth to note that, as the incumbents tried to salvage their institutions they were forced to undermine the developing countries. This was achieved by privatizing their takings as they socialized on the market price of the trade merchandise.
In the long run do countries participating in free trade better off or worse off?
It appears that countries participating in free trade may not necessarily enjoy the full benefits of such trade deals since they are prone to risks such as trade disputes. The World Trade Organization (WTO) has for a long time supported the existence of free trade by establishing policies that have made it controversial for several countries who feel they have been underprivileged (Chmielewsk par. 3). Several states have criticized free trade practices that seem to jeopardize economies of individual countries.
Needless to say, free trade should imply that member countries ought to trade with minimal trade barriers (Colander 115). Such barriers involve over taxation, state regulation and imposition unfair subsides. However, the controversy here is on how to partition the benefits derived from economic transaction of member states. Countries like USA and China have ventured into free trade with other countries although trade relations have sometimes been unfavorable.
In real sense, free trade has hindered the positive economic growth of countries whose citizens rely on trade to earn a living. The principle behind this is that such countries increase imported merchandise tampering with internal businesses. This has been evident in Peru whereby United States has over-exported its products in Peru thereby interfering with local production and marketing needs. Economists argue that free trade is destructive to the environment since it is an activity that is free from quarantine by governments (Chmielewsk par. 1).
Currently, it has resulted into adverse effects like deforestation and massive pollution. Major competing states have undertaken destructive activities in the process of maximizing economic returns. For instance, a country like Peru has destroyed its forests in the process of pursuing farming to compete with United States.
By some accounts, free trade renders local producers in a disadvantaged situation since they lack social security. In this case, they lack safety nets that enable them to be able to sell their products during inflation period. In most cases, producers from states like USA and China are able to store their merchandise while they wait off peak seasons. Contrastingly, their counterparts have to make sales even in low season hence incurring huge losses. However, free trade can be beneficial if only that, developing countries have safety nets to enable producers to have a leveled playing meadow with those of developed countries (Chmielewsk par. 5).
Definitely, developed countries are never worse off in participating in free trade. Their manufactures and businessmen in such states have adequate safety nets hence they are able to trade even when the market trend is not promising (Colander 203).
Evidently, the traders are able to refrain from selling their goods at low-price seasons. Instead, they continue buying cheaply, goods from developing nations. In this case, the developed countries do not fetch mush profit hence they remain less in trade. Moreover, developed countries rely on manufactured good that are not competitive in terms of price unlike the less-developed that major on primary goods.
Trade between developing and developed countries is not balanced. Why? Look at it from the perspective of developing countries lacking safety nets. You can do more research about Joseph Stiglitz, who won a Nobel Prize, and his perspective on trade imbalance
Although there has been remarkable improvement in trade in developing countries, the same has been coupled with significant rise-out between trading partners (Khor par. 4). In fact, most of the developing countries’ economies rely on agricultural products for trade. It is against this backdrop that their marketability is prone to competition and therefore increasing the sensitivity of their pricing. In other words, prices easily changes with demand while those of manufactured goods are relatively constant. Some of the well established economies have improved their manufacturing portfolio and therefore are capable of accelerating their economic growth (Khor par. 4).
This makes them to remain viable even when it comes to trade policies. The latter may be adjusted at the expense of the less-developed countries. It is worth to note that developing countries keep on seeking financial aids/grants from their counterparts in order to safeguard their domestic industries. The fact that most of these financial advances are offered at exorbitant interest rates implies that developing economies often have lower investment power in international market.
Conversely, world distinguished economist Stiglitz asserts that there is need to have a new universal reserve currency (Stiglitz par. 1). Essentially, this will help in eliminating trade imbalances among trading partners. The economist emphasizes on globalizing world market through free trade whereby prices of goods will be reduced so that developing countries can equally benefit from trade agreements.
He challenges dominant states including China and USA as he proposes for equivalence in buying and selling mechanics (Stiglitz par. 5). It is imperative to note that having a unified currency will eliminate vested interests of some powerful nations and therefore give a chance for less developed countries to make decisions regarding their fate. Evidently, stabilizing global trade affairs will ensure that developing countries get adequate safety nets in terms of financial aids and market for their products.
Moreover, Stiglitz observes that free trade is apparently the best alternative to spur growth in less developed countries and growing economies (Stiglitz par. 4). In fact, this will significantly eliminate trade barriers thus regulating their marketing dome. Indeed, free trade has minimized trade gap among trading countries in Europe.
Works Cited
Chmielewski, Tom. Negative Effects of Free Trade. 2011. Web.
Colander, David. Microeconomics. New York: McGraw-Hil, Inc., 2004. Print.
Khor, Martin. Serious effects of free trade treaties. 2005. Web.
Stiglitz, Joseph. Making Globalization Work“. 2006. Web.