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The Folly of Free Trade

Essay by   •  December 13, 2011  •  Essay  •  657 Words (3 Pages)  •  1,401 Views

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Nowadays, the theory of free trade became not just a model of economic development, but rather obvious and the only true system of laws and dictums. However, the existing threats make a clear statement that it is time to create a new model that would meet the needs of both the nation and business. There are three main threats that are generated by free trade, such as unequal national competition, low-wage competition and interruption between demand and supply. Despite the classic approach that all market participants benefit from free exchange, it works only under equal conditions. If each nation creates its own rules, then the free trade across boundaries only make destruction and instability by creating unequal conditions for competition. Due to wage competition among markets, industries and business moved to cheaper countries, where wages and living standards are much lower. This leads to a decline in production and growth of unemployment. Furthermore, the importance of supply and demand is no longer taken into account, which leads to the fact that the nation are eager to conquer foreign markets, while not focusing on domestic markets. Because of these negative effects of free trade volatility and disruption affected the global market.

The idea of free trade is based on numerous myths. The first myth is that international trade is governed by comparative advantage. In practice price and wage competition among different countries govern the foreign trade. Another myth is that exchange rate adjustments keep international trade in balance. But the decline of national currency will not balance a trade; it will make the country poorer by cutting real wages and decreasing buying power. Next myth is about becoming competitive by cutting costs. Unfortunately, it is impossible for high-standard living countries to compete with foreign production at extremely low wages. Once starting to cut costs, the company will face the challenge of constant increase in savings and cuts that could lead to collapse. There is also a myth that low-cost products are efficiently produced. But this statement is only possible if the quality is equal and all players act under the same rules. Moving manufacture to low-labor-cost economy could save finances but will not mean efficiency. One more myth argues that level playing field is enough to make free trade work. However few nations will prefer to take someone else's rules as a threat to their interests, especially when it is more profitable to exploit such markets, like U.S. market. The statement that developed markets should give unlimited market access to less developed countries (LDC) is also a myth. Such policy does not bring any benefits to both LDC and U.S.

It would be much more effective if developing countries will create their own economic patterns. Moreover, there is a myth that changes in global economy are desirable and inevitable. But not all nations want to be involved in one global economic

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