Costs and Benefits of Free Trade and Globalization

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Table of Contents

Introduction
Benefits of free trade and globalization
Costs of free trade and globalization
Recommendations
Conclusion
Works Cited

Introduction

The general economic argument for free trade and globalization centers on the increased material growth brought about by trade to almost every state. In spite of the strength and numerous experimental studies that support this argument, many people are still opposed to free trade and globalization.

Opponents of free trade and globalization posit that economists support it since it helps in price reduction and products diversification while life entails more than these do (Bhagwati 84). This paper will focus on some of these benefits and costs. In addition, it will give recommendations on strategies that can help in enhancing free trade and globalization.

Benefits of free trade and globalization

One of the benefits of free trade and globalization to participating countries is that it helps producers have access to international market. In most cases, domestic companies produce goods in small quantities due to constraints in the local market. Free trade and globalization gives these companies an opportunity to diversify their markets thus reaching a wider customer base.

Hence, it helps in increasing their production and profitability. Furthermore, free trade and globalization promotes specialization (Bhagwati 91-97). Companies focus on areas that they are best conversant with thus manufacturing quality products. This not only helps in increasing their sales volume, but also enhances production efficiency, in an organization.

On the other hand, specialization has led to production of quality goods and services, which meets consumer needs effectively. Therefore, free trade and globalization has not only benefited business organizations but has also been of significant benefit to consumers. In the US for instance, consumers benefit from lower prices and wide varieties of products in the marketplace (Bhagwati 98).

Nations participating in free trade benefit from shared technological expertise. Developing countries are the ones that substantially benefit from this. Free trade and globalization helps developing countries import sophisticated production machineries from developed nations. Besides, they acquire experts from these countries who train them on how to use the equipments (Bhagwati 101-112).

Previous centrally structured economies, which failed to reap from the numerous benefits of free trade and globalization due to their politically endorsed separation from market economies, currently desire to reap these benefits by reintegrating with the global marketing structure.

Free trade and globalization enlightens, enriches, and civilizes (Bhagwati 112). Free trade and globalization expose people to different cultures. This in return helps in enlightening artists and educators.

By interacting with others, educators and artists gain insight on how they can creatively articulate their knowledge to meet varied needs of their people. In an environment where only a small group of intellectuals has leisure and wealth, educators and artists address only the intellectuals needs.

Art forms are unpopular to the intellectuals and knowledge that does not serve their interests does not flourish. However, since free trade and globalization create a widespread wealth, it paves room for the increase in opportunities and tastes that influence and support education and art (Bhagwati 113-117).

Opposing views

The growth of free trade and globalization has triggered mixed reactions among the Americans. Data collected about trade and globalization paints a contradictory and sometimes mixed picture. Some Americans express their cynicism that free trade and globalization benefits most Americans, while others support it (Grisworld 65).

Since 1920s, Americans have expressed fears about foreign investment from countries such as Japan fueled by free trade and globalization. One of the reasons why some Americans are opposed to free trade and globalization is because it is hard to discern the benefits accrued from embracing it. However, they easily discern the costs of adopting free trade such as closure of steel factory in North Carolina.

Benefits associated with free trade and globalization, in most cases, is hidden from view in spite of them being substantial and real. For instance, Americans do not see the numerous job vacancies created by many small businesses that crop up to cater for foreign-owned companies or American exporters (Grisworld 71-77).

Moreover, they do not discern the vast amount of money they save due to reduced prices caused by free trade and globalization.

According to critics of free trade and globalization, the move leads to global cultural homogeneity. According to them, embracing free trade and globalization would lead to numerous cities adopting similar cultures. That is, due to free trade and globalization, Paris France would resemble Texas making the two cities unexciting (Grisworld 81).

This in return would discourage people from travelling since they would not be guaranteed of witnessing new things in the cities they visit. The opponents assert that to embrace cultural diversity, states ought to discourage free trade and globalization.

Costs of free trade and globalization

Just like free trade and globalization has numerous benefits, it also has numerous costs. Countries that promote free trade, subject their domestic industries to stiff competition. Normally, products obtained from foreign companies are offered at lower prices waging competition to domestic markets.

At times, domestic companies are forced out of the market since it becomes hard for them to produce and sell their products at prices lower than those of foreign products (Urata 20-27).

This in return leads to numerous people in the affected country loosing jobs, which is one of the arguments given by individuals opposed to free trade and globalization in America. Free trade and globalization discourages the survival of young industries, and to safeguard them, governments impose measures to protect young industries from competition.

In spite of the huge benefits of free trade and globalization, it leads to increased health risks. Free trade leads to an increase in number of international travels and transfer of goods such as agricultural products from one region to another. This, in return, helps in spread of viruses and pathogens.

Free trade and globalization have established a favorable platform for spread of diseases, which were once only prevalent in specific regions (Urata 29-32). For instance, spread of foot and mouth disease in European Union member states was intensified by free trade in meat among the member states. Had the member states not embraced free trade, they could be in a position to contain the disease, in a single country.

Free trade and globalization affects microeconomics negatively. Individuals transfer capital and resources from this level of the economy to other countries seeking to enjoy from lower costs imposed on raw materials and labor in such these countries (Urata 33-34). Besides, free trade affects macro economy. Markets become volatile due to increase in foreign investment.

Besides, it makes it possible for investors to inject into and withdraw capital from varied markets with ease. In case of financial market downturn, countries engaging in free trade suffer severely. Normally, countries engaging in free trade depend on each other financially.

Consequently, financial crisis emanating from one nation affects all the other countries. This was witnessed in Asia in 1998 where most Asian countries suffered financially due to the economic crisis in the region.

Opposing view

In spite of the above-mentioned costs of free trade and globalization, discouraging it may be detrimental to not only a country but also the citizens. Discouraging free trade and globalization encourages local industries to continue manufacturing less efficiently, thus making it hard for the respective country to witness increased economic growth.

A country suffers from economic stagnation (Milner and Kubota 107-114). Discouraging free trade deprives a country of the massive economic benefits associated with international specialization.

Contrary to the argument that free trade and globalization has contributed to unemployment, in the United States, it evident that, most of the Americans are currently employed in service-sector industries, which are emerging to serve either American exporters or foreign-owned companies.

These jobs pay well compared to the past manufacturing jobs (Milner and Kubota 115). Moreover, free trade has helped most of the America companies increase their production volumes. Currently, the country produces more planes, chemicals, and appliances that it produced in the past decade.

Recommendations

We are living in a world that is in the process of adapting to global free trade. It is hard to reverse this process without incurring unbelievable costs to future growth. The challenge is now to come up with a viable plan, which will help nations reap from the benefits of free trade and globalization, while at the same time cushion them from costs associated with the same.

The major hindrance to free trade and globalization among nations is fear that their local industries may suffer from completion waged by foreign products (Milner and Kubota 116-128). Hence, some countries shy away from participating in free trade to safeguard their local industries. Besides, some states impose stiff tariffs making it hard for other countries to enter into trade agreements with them.

The best way to establish free trade with other countries is to first identify the countries of interest. They have to have readily available market for the countrys products to ensure that the country benefits from the free trade (Milner and Kubota 130-135). Furthermore, the identified countries should be producing goods or services, which are required by the country wishing to engage in free trade and globalization.

Identifying the most appropriate countries, the country needs to meet them to come up with an agreement on how they will carryout trade among themselves. One of the matters that the countries ought to discuss is the types of and amount of tariffs and import quotas to impose.

The quotas and tariffs have to be put in a way that they do not discourage investors from engaging in the free trade (Milner and Kubota 137-140). For instance, the involved states ought to impose tariffs that will ensure products are sold at fair prices thus not affecting local industries.

Apart from imposing tariffs and import quotas, nations wishing to engage in free trade and globalization ought to establish fair trading rules to ensure that no country takes advantage of others.

Besides, to ensure that investors reap from the free trade, a country needs to educate its public about the benefits of participating in free trade and globalization, and help its people in identifying the available opportunities presented by the countries it intends to trade with (Milner and Kubota 141-143).

Conclusion

Free trade and globalization comes with numerous benefits and costs to trading nations. By engaging in free trade, nations reap from the increase in customer base, which allows local industries to specialize in one area, thus enhancing efficiency in production. In addition, countries benefits from technological spillovers.

Free trade and globalization exposes people to varied cultures thus enhancing civilization and enlightenment. Some of the costs associated with free trade and globalization include completion waged on local industries making it hard for them to grow.

Moreover, it exposes trading countries to health risks and may lead to financial hardships among the trading countries in case of financial recession. It is hard to discern the numerous benefits associated with free trade and globalization.

This underlines why most people are opposed to it. The best way to promote free trade and globalization is to come up with tariffs and import quotas that favor all stakeholders, as well as impose fair trading rules.

Works Cited

Bhagwati, Jagdish. In Defense of Globalization. Oxford: Oxford University Press, 2005. Print.

Grisworld, Daniel. Mad About Trade: Why Main Street America Should Embrace Globalization. New York: Cato Institute, 2009. Print.

Milner, Helen, and Keiko Kubota. Why the Move to Free Trade? Democracy and Trade Policy in the Developing Countries. International Organization 59.1 (2005): 107-143. Print.

Urata, Shujiro. Globalization and the Growth in Free Trade Agreements. Asia- Pacific Review 9.1 (2002): 20-34. Print.

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