The concept of comparative advantage enables nations, regions, and continents to carry out trading activities. Most economies in the current century are mainly concentrating on the production of profitable goods and services while they import the rest that cannot be manufactured economically at the local level. In other words, the availability of assets and other capital goods determines the production capacity of individual economies.
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This explains why some countries have surplus exports than others. In the long run, economies that are well endowed with both monetary and material assets may disadvantage other players who have minimal resources at their disposal. The latter is especially common in cases whereby both the rich and poor nations have to participate in a common trading block. To a large extent, there is a tendency to isolate poor nations from competitive regional or global trade. Hence, isolationism seems to be firmly taking shape or already deeply rooted in 21st-century economies. This trend calls for fairness across the board.
There is a need to regulate international trade so that all participants secure equal trading chances or opportunities. For instance, some emerging economies have found it cumbersome to export their goods to developed economies competitively. They export below the standard market rates. However, imports from overseas are valued above the standard rates. Trade wars should be avoided in the 21st century in order to spur economic growth and development among trading partners.
Level playing ground for all economies that participate in trading activities is crucial in the contemporary marketplace (Kim 235). To begin with, it is pertinent to mention that the popular free trade agreements that have been enacted in several regional economic blocs should be put into action. This can be attained by allowing individual nations to specialize in their own areas of perfection.
For example, the Japanese are known to be excellent in the manufacture of electronic products while the Americans have excelled quite well in the movie industry and manufacture of aircraft. If these nations can be allowed to optimize production within their own areas of specialization, then trade wars will be brought to an end once and for all. Why should Americans strive to export crude oil products while the natural oil deposits are inadequate? The global economic climate can indeed prosper much of the trade wars are avoided.
In any case, healthy trading activities can readily generate additional revenue for an economy. The same income can, thereafter, be used to expand the production of other goods and services and eventually to improve the overall quality of life or standards of living for citizens.
Nevertheless, surpluses and deficits are often inevitable in the presence of trading activities between two or more nations. The differences created by trading surpluses and deficits automatically lead to inequalities. Trading partners should seek to address such differences expeditiously in order to avoid the escalation of trade wars. The problem is that even the major players in international trade tend to believe that fairness can hardly be attained, and therefore, winners and losers are part and parcel of international trade. Such a belief system is misleading and may continue to aggravate trade wars in the 21st century.
Isolationism has also been worsened by the stiff global competition in the business world. Companies are striving at the national and international levels to be the best market players. Recent advances made in the growth and development of technology has equally contributed to terrific competition among trading partners.
Regrettably, weak or underperforming economies can hardly meet the global demands, especially in terms of the production of high-quality goods and services. Since poor nations cannot manufacture products of the same quality as those of the well-developed economies, they end up being isolated from the competitive face of global trade. This form of a trade war can be avoided or even eliminated completely if nations within the same economic scale or performance form the same economic blocs (Henckels 576).
As much as there are growth opportunities when poor nations trade with developed economies, the cost disadvantages outweigh economic benefits. In addition, countries that fall on the same economic scale are at a better state to grow at their own pace without necessarily engaging in unhealthy trade wars. Better still, isolationism can hardly be witnessed when free trade agreements are formed by member countries that fall within the same or similar economic level.
Trade wars are not the only way for business enterprises and individual economies to make meaningful profits. There are myriads of organizations that dominate the global market. Most of these companies are obviously found in the developed world.
Instead of taking part in trade wars, it is highly recommended for trading partners to embrace economies of scale in the course of a production. This implies accruing benefits as a result of producing and selling in large quantities. When merchandise is produced in mass, the related expenses are significantly lowered. Consequently, the cost advantages can be passed over to the final consumers.
The political will to amend major bilateral and multilateral pacts is still missing in several jurisdictions (Li 27). Most of the trade wars witnessed in the current century are mainly occasioned by an unwillingness by politicians to amend certain crucial pieces of legislation that govern trade agreements. For example, tougher laws should be put in place to restrict the exportation of contraband goods. Importing nations should not permit the markets to be flooded with cheap, low quality, or smuggled products (Kim 34).
The latter is highly likely to create unhealthy competition and the eventual collapse of domestic industries. For local enterprises to remain competitive, they may be compelled to engage in illegal production and sale of goods and services. Some of them even evade paying the required taxes so that they can remain profitable. The final outcome is a retrogressive trade war that cannot benefit an economy. It has increasingly become cumbersome to convince law makers to amend certain legislations that seem to impede free trade.
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When the necessary pieces of legislations are enacted, it will be possible for trade partners to abolish unnecessary trade barriers and also enforce relevant barriers for the sake of promoting free trade and minimizing instances of isolationism (Ravenhill 67). Trade war can be triggered by the presence or absence of some trade barriers. Hence, it is prudent for policy makers to assess all the active trade barriers and finally make determination whether the barriers enhance or hamper trading activities (Henckels 575).
Subsidies, tariffs and quotas have also been known to be major obstacles to trade. In some instances, a number of obstacles might turn out to be beneficial to certain trading partners. For instance, when high tariffs are imposed on all imported clothing materials, local textile industries are bound to flourish owing to imperfect market competition. However, high tariffs are harmful to the affected exporters who eventually experience reduced profits. In the latter case, trade wars can be easily fueled (Li 23).
Quota systems can significantly reduce trade wars because the quantity of goods to be imported is limited. As already hinted out, tariffs also shift the price of imported goods upwards (Rathbun 274).
Hence, manufacturers who export to destinations with trade tariffs and quota system may not reap significant profits. In such a case, trade wars are highly likely to be lowered due to poor trade motivation arising from minimum profits. Nevertheless, subsidies lower the cost of locally assembled or manufactured goods (Epping 104). Consumers can readily afford subsidized goods. Hence, subsidies can minimize trade wars that emanate from expensive goods.
Trade boundaries are also bound to lower the chances of trade wars in the 21st century. Such boundaries basically restrict certain goods from being imported. The main purpose for trade boundaries is to shield regional manufacturers or producers from market exploitation (Henckels 573). Local producers can have ample time to improve and stabilize their production levels when temporary restriction for imports is lifted.
To sum it up, isolationism has rapidly taken the position of free trade since the advent of the 21st century. While numerous trade wars exist in the modern economies, they can be avoided altogether in order to boost productivity and individual economies of trading nations. Some of the strategies that can be adopted to avoid trade wars include tariffs, introduction of removal of trade barriers, economies of scale, and subsidies.
Epping, Randy Charles. The 21st Century Economy–A Beginner’s Guide. New York: Vintage Books, 2009. Print.
Henckels, Caroline. “Overcoming Jurisdictional Isolationism at the WTO-FTA Nexus: A Potential Approach for the WTO.” European Journal of International Law 19.3 (2008): 571-599. Print.
Kim, Ki Hee. “Is Free Trade Good for Working Americans: Lessons from North American Free Trade Agreement.” The Business Review, Cambridge 15.1 ( 2010): 33-38. Print.
Li, Xueping. “Study on the Contest between Free Trade and Trade Protection in the Current Global Economic Recession: A Perspective of Public International Law.” Frontiers of Law in China 6.1 (2011): 17-34. Print.
Rathbun, Brian. “Does One Right make a Realist? Conservatism, Neoconservatism, and Isolationism in the Foreign Policy Ideology of American Elites.” Political Science Quarterly 123.2 (2008): 271-278. Print.
Ravenhill, John. Global Political Economy. Oxford: University of Oxford Press, 2011. Print.