Free Trade vs. Fair Trade

Instructions:

Write an essay on Free Trade vs. Fair Trade (4 – 5 pages). Learn more about the issue, and take a position on it.  Present the issue to readers, and develop an argument for the purpose of confirming, challenging, or changing your readers’ views on the issue.

Write a focused paper and on the issue.  The writer presents the issue so the reader understands it.  Issues need more or less explanation and examples, depending on what the audience already knows.

Have a clear position.  The thesis is positioned effectively, usually at the beginning or end of the essay, and repeated for emphasis and clarity as needed.

Have plausible reasons and convincing support. The writer must provide reasons for supporting the position. The writer must go beyond simply asserting reasons, by including examples, statistics, expert testimony, and/or anecdotes to support the reasons.

Anticipate opposing position and objections. An effective argument for a position includes recognizing and refuting opposing arguments, as well as anticipating and answering a reader’s questions.

Writing Requirements

  • 3–4 pages in length, in APA format (excluding cover page, abstract, and reference list)
  • Use APA template and databases located in the Student Resource Center

Grading Criteria:

•           This assignment will be graded using the UOTP Writing Rubric

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Introduction

Trade has always been a crucial and a daily activity t in many nations since ancient times where people would trade grains for coins, clothes for livestock, shoes for coins and many more. The way people, societies, and countries conduct their trade have experienced a lot of changes throughout history.  Communities traded with neighboring communities, then came the aspect of trading services for goods and finally, nations started to trade with one another. Today trade is a very crucial factor that influences the economy of every country. Governments trade with other governments and merchants import and export goods with an aim to raise revenue and make a profit. As nations trade with one another, there has always existed a debate regarding fair trade and free trade. Baier indicates that free trade implies to business that exists to its natural cause free from taxes, tariffs and other imposed restrictions (Baier, 2007). In contrast, fair trade advocates for nondiscriminatory and equitable trading terms and prices for all the producers in most of the developing countries. As various proponents and commentators continue to argue which is the best form of trade between free and fair trade, this essay argues and confirms that free trade isn’t fair trade, which implies that free trade isn’t the best form of trade between parties and nations willing to do business with one another.

Convincing support 1: Free trade leads to the hounding of less competitive nations

It is a fact that both fair trade and free trade possesses respective advantages and disadvantages. Free trade subjects all businesses to an equal and uniform business environment. This implies that when a nation decides to get into an agreement with other countries to conduct free and unrestricted trade, private sector investors compete with other private sector investors from the other nations on equal terms. Suppose the nation is much more inferior and undeveloped in comparison to the other countries, it means that private sector investors from the weaker country will be competing on equal terms with much stronger investors. To the more impoverished country, it implies that the outcome of the trade is prior determined as the stronger investors will always bully the weaker investors because they all operate on the same ground. In such instances, the efficiency of trade is minimized. On the other hand, Magee indicates that free trade liberates business from governments interventions, but it remains to be a reality that nations will always have different technological an economical capabilities (Magee, 2003). This means that imposing equal trading measures, policies and opportunities to traders of different nations is unfair and inequitable.

Example

An excellent example of the impact of free trade and the issue of same business environment between trading nations as Ghosh indicates happened in Senegal (Ghosh & Yamarik, 2004). Senegal opened its market to the European Union in the year 1994. Before then, Senegal produced more than 73 000 tons of tomato concentrate. After engaging in free trade terms with EU, European Union exported a lot of tomato concentrate to Senegal such that by the year 1997, Senegal only produced 20,000 tones. Eventually, Senegal’s tomato concentrate and tomato processing industry stagnated while European Union dominated the market. This is because EU had access to better labor force and credit compared to Senegal. This could not be the case if Senegal had imposed tariffs and restrictions to regulate the level of importation of tomato concentrate. The price that Senegal had to pay as a result of free trade is the stagnation of its tomato industry. Therefore it’s a fact that nations that engage in free trade with countries that possesses stronger economic and competitive advantage will end up failing miserably.

  

Convincing support 2: Free trade invites foreign dominance

Without restrictions and government intervention in trade, nations, private sector investors as well as small companies have no potential and capability to defend and shield their production. Egger designates that the wealth of a nation can be indicated by how well a country decides to protect its industrial sector (Egger, 2013). If a nation exposes its industry sector to foreign powers, then the resultant impact of engaging in free trade becomes more negative in comparison to the resultant benefits. The reason being that more powerful and wealthier countries dominate the trade activities of that individual country.

Example.

An outstanding example of how free trade renders a nation to be incapable of controlling its resources and industry can be illustrated with a keen consideration of the European Mexico Free and Global Trade Agreement in the year 2000. The European companies promised Mexico regional and economic development which lead to the signing of the free trade agreement. However, after three years of the deal, overall GDP growth in Mexico was only one percent. Foreign investors controlled the Mexican economy. Magee indicates that essential service provision was dominated by the EU companies such that the Mexican rural areas remained undeveloped (Magee, 2003). The promise of economic development translated to bullying of all strategic sectors including banking, electricity, and water while Mexico only participated in the trade only by Oil exportation.

Convincing support 3: Pricier free trade

Baier claims that the price associated with free trade in most nations tends to be more expensive compared to the benefits gained from such trade (Baier, 2007). The wealthier countries get access to the market of less wealthy nations and eventually establish their corporate sectors. Due to lack of government protection and trade restrictions, the less wealthy countries lack competitive advantage and workforce shifts to the foreign companies. The nation eventually lacks local financial autonomy, living conditions become more expensive and the local workforce within the state becomes too cheap while the skilled workforce tends to be attracted by the higher wages of the foreign nation. Eventually, the country grows poor.

Example.

An exceptional example of how free trade may lead to more expensive and harsh outcome is the China and Thailand Free trade agreement. As per Thailand’s economic indicator in the year 2007, Thailand experienced inflation rates ranging from the year 2003 all the way to 2007. At the same time, the overall GDP growth rate diminished every year. Egger’s research indicates that after four years of the free trade agreement, Thailand had a150% decrease in their overall account balance while China enjoyed and experienced tremendous growth (Egger, 2011).

Conclusion

In general, this essay discusses and proves the idea that free trade isn’t fair trade as one of the counterparts in any free trade agreement ends up discriminated and disadvantaged in one way or the other. This leaves fair trade characterized by governmental restrictions to be the best option for any trade engagement as the marginalized trade counterparts will be protected from external dominance and exploitation by economically developed and stronger trade counterparts.

 

References

Baier, S. L., & Bergstrand, J. H. (2007). Do free trade agreements increase members’ international trade?. Journal of international Economics, 71(1), 72-95.

 

Ghosh, S., & Yamarik, S. (2004). Are regional trading arrangements trade creating?: An application of extreme bounds analysis. Journal of International Economics, 63(2), 369-395.

 

Magee, C. S. (2003). Endogenous preferential trade agreements: An empirical analysis. Contributions in Economic Analysis & Policy, 2(1).

 

Egger, P., Larch, M., Staub, K. E., & Winkelmann, R. (2011). The trade effects of endogenous preferential trade agreements. American Economic Journal: Economic Policy, 3(3), 113-43.