Free Trade and Government Regulations
By definition, free trade is an approach to eliminate discrimination against imports and exports. Traders in various economies can by choice trade with no tariffs, subsidies, quotas or prohibitions on trade commodities by a government. Trade is an art that has been in existence for centuries and in the modern world, here there will be a projection on free trade and role of government and their regulations (McGovern, 2018).
From a political perspective, a free-trade policy can be the nonappearance of trade policies. Ideally, governments with free-trade agreements (FTAs) do not abandon import and export taxation entirely, so, the idea of free trade is not necessarily free. However, in modern international trade, very few FTAs lead to free trade that is technically completely free.
In free-trade agreements, economies involved experience faster growth rates. It enables companies and industries to focus on manufacturing goods and services with comparative advantage that is noticeable. According to Kerremans & Switky, 2018, free trade agreements are one of the most efficient ways to open foreign markets to traders and has its own pros and cons
Pros of free trade
- Expansion in economic growth. For the U.S, Trade Representative Office estimates that the North American Free Trade Agreement (NAFTA) heightened economic growth by 0.5% per annum.
- With protection on trade removed from businesses in the planet, local industries are encouraged to become global competitors hence promotion of dynamic business climate.
- Reduction in government spending. After the trade agreement removes subsidies that many governments put on local industries, those funds can get better use.
- After a free trade agreement that has terms on ease of investment, investors get attracted to a country hence direct foreign investment. This aids in adding capital for expansion of local industries and promotion of domestic businesses.
Cons of free trade
- Reduced tax revenue for a lot of smaller countries that suffer from revenue deficit lost from import tariffs and fees waived.
- Theft of intellectual property. Most developing countries lack laws to protect patents, processes or inventions, due to this, they have their ideas stolen and afterwards having cheaper domestic knockoffs of their products.
- Poor working conditions. Most multi-national companies and international organization outsource jobs to markets that are emerging worldwide, this may be done without enough labor protections and results in workers being subject to demeaning factory jobs in poor conditions.
The underlying principle is that governments should work round the clock and execute anything in their capacity to ease free trade with its trade partners while ensuring that the interest of their own citizens are not tampered with. The government is responsible in scrapping of tariffs, currency restrictions, and other barriers and adjusting import and export fees to specific trade partners for mutual benefits (Rodrik, 2018).
In conclusion, free trade is beneficial to countries and their economies generally, with countries like the U.S and the E.U leading the way, more countries should do away with barriers and restrictions and embrace free trade regionally or internationally, to promote free trade.
References
Kerremans, B., & Switky, B. (2018). The political importance of regional trading blocs. Routledge.
McGovern, E. (2018). International trade regulation (Vol. 1). Globefield Press.
Rodrik, D. (2018). What do trade agreements really do? Journal of economic perspectives, 32(2), 73-90.