CHY4U
Free Trade
(Michael C)
Throughout history, goods and services have been obtained by people in return for other goods and services. The idea of trading something between people has been around since the beginning of time, but has changed due to development in society. With governments having taxes on items sold or exchanged people were losing profits. So, Free Trade was put into affect by some countries. Free Trade is the allowance of goods to be exchanged or sold within or to another country without the limitations of government taxes or tariffs. There are still some restrictions, laws and tariffs in place, but to a much smaller extent than there were before the idea of free trade was put into affect.
To begin, The idea of Free Trade first originated in Imperial Spain in the 16th century. It was Spanish Theologian Francisco de Vitoria who set forth the ideas of Free Trade, but not the terms. The men credited with the development of Free Trade were two american economist Adam Smith (Left) and David Ricardo. Free Trade was popular with many as people behind the idea considered it the reason for economic wealth in prospering countries. Adam Smith believed that trade was the reason behind the economic wealth in Mediterranean countries like Egypt, Greece and Rome, but including other countries like China and East India. He understood that with fewer tariffs hindering profits there was more money to be made. Smith is commonly know for saying "If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of produce of our own industry, employed in a way which we have some advantage". It was Ricardo who shaped Smith's idea into an economic model. Ricardo emphasized the benefits of free trade by stating "[Countries] using most efficaciously powers bestowed by nature, it distributes labor most effectively and economically". Ricardo simply means countries using whatever raw materials or products it can grow or produce could use them in the most suiting manor. He relates that point to Portugal and England. Ricardo speaks of how Portugal can produce wine, which England can't, so through free trade Portugal can trade wine for a large surplus of cloth which England produces. It was after the Netherlands overthrow of Imperial Spain's rule that Free Trade became one of the most important questions as the Netherlands were pursuing the policy of free trade.
Colonial North America was one region to suffer from laws that had restrictions on trading as their trades were monitored by the British mercantile system through the Act of Trade and Navigation. Free trade in Colonial America came forth after the American Revolutionary War after the British put forward an act which blocked colonial ports. The Continental Congress decided to declare economic independence and opened up global trade ports. Some Americans were opposed to free trade as they feared opening up to a global market would force price reductions as other countries may be able to manufacture the same goods for a reduced price. According to Historian John.W. Tyler "Free trade had been forced on the Americans like it or not".
Based on this history, how has free trade affected companies and the world today? Free Trade Agreements (FTAs) have opened up markets today on a global scale. These FTAs allow companies around the world to export their goods to other countries more cost effectively due to the reduction in taxes and trade barriers that are in effect. Most countries today are a part of the World Trade Organization, which limits the tariffs and taxes, as well, many countries are involved in free trade areas which have lower trade barriers among countries who are involved. By allowing companies to trade with a fewer amount of restrictions companies are able to potential on a global scale. To put it as a visual the below figure shows when the government removes tariffs prices go down, price being P1-P2. This allows consumers to get imported goods for less.
The image on the left is a more modern day representation of free trade agreements (FTA) between the United States and other countries. Currently these are the only 20 countries that the United States has free trade agreements with, but there are negotiations in regards to the prospect of a Asia-Pacific trade agreement. As you can see, the United States has an estimated annual benefit of anywhere between 10-12 billion with South Korea, so you could assume if the Asia-Pacific deal involves China, the United State's economy would greatly benefit. It's estimated that if an FTA was agreed upon by both the United States and China, the United States would see an export increase of 400 billion dollars and national income would increase by over a 100 billion dollars annually.
Yes, free trade has benefited some countries and companies greatly, but there are many people who are against it. There are some people who are against free trade because they feel it brings about many consequences. From an economic stand point, people against free trade argue that it increases climate change, promotes wage inequality and supports sweatshops and child labor. Socialist are often opposed to free trade as they feel it exploits workers by capital. With other anti-globalization groups saying free trade doesn't benefit the poor or working class. Their reason behind this is that with different countries having different regulations involving work, companies can have products produced somewhere else as the regulations there may allow companies to have goods manufactured cheaper. Also, those against free trade say it's the cause of price reduction for certain goods. To explain it simply, two companies may have the same item for sale but one of them can sell it for cheaper due to manufacturing elsewhere, thus causing the other company to reduce pricing. This has the end result of companies moving their factories over seas as they can exploit poor labor laws. This essentially being one of the main reasons some people are against free trade as it causes infant businesses, businesses who are unable to compete with other established business, to struggle.
With all that being said lets talk about the future of Free trade. Free trade has continually evolved and expanded since it was first established in the 16th century. As the years go on companies are continuing to grow and reach out to form trade agreements with other nations and increasing their Global potential. Most companies are seeing profits grow by establishing FTAs overseas and will continue to expand. The overall positives that free trade can bring to the world easily outway the negatives that comes about with free trade. So, there is no doubt free trade will continue to expand and aid the global economy and businesses around the world.
Works Cited:
-https://en.wikipedia.org/wiki/Free_trade
-http://jrbenjamin.com/2013/08/07/david-ricardo-shapes-the-principle-of-comparative-advantage/
-http://elegant-technology.com/TVAfretr.html
-http://graphics8.nytimes.com/packages/images/newsgraphics/2011/1013-trade/1013-biz-TRADE2web.jpg
-https://ustr.gov/trade-agreements/free-trade-agreements
-http://www.wsj.com/articles/maurice-greenberg-and-fred-bergsten-the-u-s-needs-a-free-trade-deal-with-china-1418946345
-http://jrbenjamin.com/2013/08/07/david-ricardo-shapes-the-principle-of-comparative-advantage/
-http://elegant-technology.com/TVAfretr.html
-http://graphics8.nytimes.com/packages/images/newsgraphics/2011/1013-trade/1013-biz-TRADE2web.jpg
-https://ustr.gov/trade-agreements/free-trade-agreements
-http://www.wsj.com/articles/maurice-greenberg-and-fred-bergsten-the-u-s-needs-a-free-trade-deal-with-china-1418946345
Great job! I am impressed with your focus on the history, and your description of Smith and Ricardo's theories.
ReplyDeleteI appreciate your counter argument: "people against free trade argue that it increases climate change, promotes wage inequality and supports sweatshops and child labor. Socialist are often opposed to free trade as they feel it exploits workers by capital. With other anti-globalization groups saying free trade doesn't benefit the poor or working class" but wish you could have explained how free trade impacts things like climate change.