Trade Barriers: Arguments For and Against

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Table of Contents

Introduction
Arguments for
Argument against
Conclusion
References

Introduction

For the past two decades or so, the world has experienced rapid expansion of the economy. Economists attribute this growth to the progressive increase in international trade. The rise in international trade has been a result of technological advancement in the world and the conjunct efforts to reduce the existent trade barriers. Although some of the developing countries have changed their trade policies and opened their economies to benefit from the opportunities of international trade, majority of the countries have not.

While the United States and the European Union continue to deliberate on liberalization of the international trade, notably their domestic markets remain closed to both labour intensive manufactures and agricultural products such as textiles. Poor countries have comparative benefit in these products. In addition, trade barrier’s removal by the developed and industrial economies would enable the developing countries to grow and prosper to the level of first world nation status.

Arguments for

Trade liberalization encourages local firms and industries to export their products. By reducing the cost on exports in the developing countries, most of the companies in these countries will be able to export their products to the international market.

Again, by opening their market for products from poor countries, industrialized countries would encourage more industries and firms to venture into their market. Most of the developing countries produce agricultural and labour intensive products such as textiles. Since the developed countries have closed their markets for these products, the industries in the developing countries cannot export (Maclean, 2006, p.234).

Export provides industries with more market for their products. More market further provides the industries with opportunities to grow. As a result, more industries in the production of these products would rise. This in turn would result into industrialization of the developing countries.

Economists impute development in the first world countries to the industrialization and true to these ascriptions, industrialization results into growth in infrastructure and increase in production. Growth in infrastructure enhances the chain of distribution such as transport, distribution and sales. Consequently, more industries would grow and expand. Since the removal of barriers to trade promotes export, the poorest countries would therefore upgrade to the level of the developed economies.

Removal of trade barriers enhances competitiveness among the local industries. As aforementioned, trade liberalization promotes export in the local industries; therefore, export enables these industries to penetrate the international market. However, to compete successfully in the international market, these industries should provide high quality products and services (Blaine, 2007, p.78).

To achieve this objective, the industries should restructure their management and the manufacturing processes to suit the technological environment of the 21^st century. International market composes of the technologically developed and leading industries.

Therefore, the low-level industries from the poor countries would advance in order to compete and control a considerable market in the international market. For development to occur, industries should produce high quality products for the market. Improved product’s quality ensures that the industry commands considerable market both locally and internationally.

Competitiveness would enhance development in two ways; first, these companies would have good reputation among the consumers and therefore increase their demand in the market. Increase in demand would result in high returns to these industries. As a result, the general economy of the country would grow and hence development.

Secondly, through restructuring, these industries would improve their manufacturing processes and such improvements dictate for adoption of high technologies. Subsequently, these countries would experience technological advancement and hence development. Removal of trade barriers would promote not only the economic growth but also technological advancement in these countries and therefore upgrading their level to that of the first world economies.

Removal of trade barriers creates employment opportunities in third world countries. Since the creation of the General Agreement on Tariffs and Trade (GATT) in 1947, several countries like Vietnam, Uganda, and the Asian countries have opened their economies for international trade. Statistics from these countries show a significant reduction in unemployment. Liberalization in economy creates employment in various ways.

First, it opens markets for more industries into the local market implying that more industries will be available for job opportunities to the locals. Secondly, as noted earlier, liberalization enhances technological development. Technological growth in turn improves the skills of the local people enabling them to secure lucrative jobs in these industries and elsewhere. Finally, the removal of trade barriers would encourage small-scale investment in the developing countries.

Small-scale investments, SMEs, are forms of self-employment to the local people. The investment in turn would create more opportunities for the community and hence creation of more jobs. Employment improves the living standards of people. First, since the environment provides opportunities to both skilled and unskilled personnel of the population, various classes of people upgrade their status.

Through employment, for example, people in the low class of the society would upgrade to the middle class and so on. Secondly, the improved quality of products within these economies would in effect improve the living standards of the people. In developed countries, unemployment levels are insignificant.

In order for the developing countries to achieve this status, they should scrap these barriers to trade, to create more opportunities for their population. Such move would lower the unemployment rates in these countries to match those of the developed countries. Again, employment creates more skills in a population and enhances innovation, which results into industrialization, thus development.

Removal of trade barriers would also enhance greater efficiency among the local firms. Considerable evidence holds that “outward-oriented countries tend to consistently grow faster than ones that are inward-looking” (Yeats, 1997, p.14). In other terms, countries that have opened their economies for trade experience faster growth than ones that have failed to open their markets.

Economists attribute the growth to the efficiency in the local industries. By opening the market, these countries enable local industries and businesses to mingle with the world market leaders, which results into exchange of efficient marketing and production strategies. These strategies enhance efficiency in operation of the local industries.

As a result, these industries improve their performance in terms of production and service delivery. Improved performance of industries enhances quality of products, which in turn results into high demand of the products, both at local and international level.

Although developed countries dominate the international market, improved efficiency of industries in the poor economies would enable these industries to control considerable niche of the market. In the end, developing countries would experience overall development in economy.

Free trade reduces prices of products within the economy. Due to industrialization, most countries would be able to produce variety of industrial products thus improving the competition in the local market of these economies. In order to compete effectively, industries would lower their prices to attract more consumers. Opening the markets would therefore enable international industries to enter the local market and such entry would increase competition resulting into reduction in prices of the industrial products.

Low prices enable people of the lower class in the society to access the industrial products, hence improved living standards and this implies that poverty levels in the developing countries would reduce significantly. Poverty is one of the impeding factors for development in the third world countries and now that most of the people in these countries survive below the poverty line; one dollar a day, price reduction would leverage their standards of life.

Free trade increases income for a country. By scrapping trade barriers in the developing countries, more industries would grow both local and international. Industries operating in an economy pay taxes to the government depending on their production.

Since free trade would enhance entry of more industries into the local market, there would be more taxes to these economies, which would boost the income of these countries. The governments would therefore have enough finances to cater for pertinent development needs. For instance, there would be enough finances to grow the infrastructure like transport systems, communication and other social amenities.

This means that the dependence of these countries on borrowing from IMF, World Bank and developed countries would reduce. Heavy borrowing underscores the profound poverty in the developing countries economies but through increased income through free trade, the developing countries would repay the outstanding debts. Moreover, the increase in income, through free trade, would enhance reduction in poverty levels in the developing countries.

As poverty reduces, more citizens become empowered; empowerment enhances people to create more opportunities for development. Increase in income also promotes growth of more industries due to investment in infrastructure. Increased income would enable the government to invest directly into the development projects of the country. Direct investment into youth enterprise projects has proven one of the development strategies in the third world countries.

Free trade enhances greater product choice among consumers in the developing countries. Greater product choice relates to free trade in several ways. First, through industrialization, most industries would emerge implying that there would be variety of goods and services produced.

Consequently, the consumers would have a choice in the variety of products. Second, competition among industries would promote more production within these economies giving the consumers a variety of choices in the industrial market. Product choice enables consumers to purchase products of their interest and taste. Finally, there would be reduction in prices due to variety of the industrial products. Variety of products and services culminated by low prices enhance customers’ satisfaction at all levels of economic status.

Removal of trade barriers enhances sustained economic growth. Sustained growth in economy has been the major factor for development in the first world countries. Potential gains in the economy due to elimination of trade barriers are significant. Annual estimates of these gains range between US$ 200 and US$600 billion; consequently, the removal of barriers to trade would promote the growth in GDP of the developing countries in variety of ways.

First, with the growth in industries, the government income would increase as aforementioned and hence the development in these countries. Secondly, most local industries would venture into the international market, thereby increasing their returns. Increase in returns would lead to subsequent growth in industries and therefore development. Furthermore, sustained economy would reduce unemployment and hence poverty levels in these countries.

According to researchers, none of the countries in the world has ever developed without trade; therefore, it is justifiable that to attain sustained economic growth, which is the basis for development, developing countries should encourage free trade. Similarly, the developed countries should open their market for the products from the poorest countries. Agricultural and labour-intensive products are the major products from the developing countries.

Argument against

Although free trade possesses all the above-discussed benefits, its antagonists argue that it might have detrimental effects to the industries in the developing countries. Removal of trade barriers by the developing market would lead to the entrance by developed countries’ industries.

Such industries definitely have high competitive advantage over the local industries; moreover, due to their high technology in production and service delivery, these industries are more efficient (Mitchell, 1995, p.132) and therefore they (industries from developed countries) produce at considerably lower costs.

In addition, their products qualities are higher than that of the industries in the developing countries. As a result, their products would command higher demand and control majority of the market. Opponents to free market observe that these factors may weaken the local industries by loosing the market to the international industries, which retards their growth. Extremely, the condition may lead to collapse of the local firms and industries thereby severely affecting the development of these economies.

Moreover, free trade enhances entry of illegal industries into the market. Such industries disadvantage the consumers and the legal industries in that business. Illegal industries provide substandard products at low prices to the consumers; generally threatening their health and unhealthy population cannot perform, which leads to underdevelopment. Mitchell warns that, these industries also introduce unfair competition in the market (1995, p.110).

Since their products are substandard, they offer lower prices than the prices offered for quality product by the legal industries. Low-priced products attract more consumers and most consumers are likely to buy at lower prices. Chinese low quality products for instance, have edged out of market the high quality products’ industries in Africa. The overall result is therefore that local industries would suffer huge loses; most of the industries would close their operations as a result.

The continued close down of industries in Africa due to unfair competition by the Chinese companies indicates how detrimental free trade can be to the development of the local industries and the third world countries in general. According to opponents to free trade, therefore, the removal of the trade barriers, particularly in the developing countries, would disadvantage the local industries leading to the underdevelopment of the third world countries.

Conclusion

Despite the seemingly compelling arguments by the opponents to the free trade, removal of trade barriers would create opportunities for development of the third world countries.

Removal of trade barriers by the developing countries from their market encourages entry by the international market, which increases the competition in the market. Since local industries have to compete effectively with their international counterparts, they have to adjust their production processes and through such adjustments, these local industries increase their efficiency to that of the international market.

Increase in efficiency means production of high quality and low cost products. Price reductions increase the demand for products. Low cost products also increase the consumption, which in turn hikes the GDP of a country. By opening their economies, the industrial countries would encourage export of agricultural products such as textile in the poorest countries in the world. Export provides unlimited opportunities for development of these countries.

Through export, industries in the third world countries expand their market and hence their returns. Increase in returns result into expansion of industries and hence industrialization, the major driver for development. Although the arguments against free trade are practically true, industries in the developing economies should not use trade barriers to protect their existence. On the contrary, these industries should arise and compete with the developed industries from the first world economies.

Such industries should perceive the entry of the international firms into their market as an opportunity to enhance their businesses. In order to compete and benefit from the international competition, these industries should restructure their processes to match the high technologies of the 21^st century; processes used by the developed industries. In fact, such entry would reduce the high levels of unemployment in Africa and some parts of Asia.

Developing countries can only achieve the status of the first world countries if only they alleviate the high levels of poverty and free trade offers the best avenue towards that objective. Conclusively, removal of trade barriers would pave way for sustainable economic growth in the developing countries. Therefore, it is evident that removal of trade barriers would enable the third world countries to realize the status of the industrial countries.

References

Blaine, R. V. (2007). Trade barriers in Africa and the Middle East. US: Nova Science Publishers.

MacLean, M. R. (2006). EU trade barrier regulation: tackling unfair foreign trade Practices. UK: Sweet & Maxwell.

Mitchell, A. (1995). Trade barriers: protestations and performance. UK: Land & Liberty Press.

Yeats, A. J. (1997). Did domestic policies marginalize Africa in international trade? Directions in development. World Bank Publications.

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