"Trade is not really a zero-sum game, where those who win do so at the expenses of others; it is, or least it could be, a positive-sum game, where everyone can be considered a winner. "
Joseph E. Stiglitz
In standard, free trade can be an instrument with the aid of which countries can increase output of the resources, develop their specialization in a certain product, and for that reason increase volume of production. Sovereign expresses and its different regions can benefit enormously by producing goods where they have an edge, while exchanging them on the products that they are not able to produce as effectively as the other countries do.
Indeed, trade can be an engine of growth, but still we have to answer a great deal of questions to understand whether trade liberalization is wonderful for economic performance, and whether it will lead the growing countries to help expand economic development. We ought to look back again to the history of trade, get lessons from it, and answer the central questions. What's the foundation for international department of labor? What exactly are the factors that determine competitiveness of the country on international trade industry? Is trade liberalization harmful for the developing countries or not, and what's the simplest way to allow them to achieve an economical development?
Participation in international trade brings a whole lot of benefits to the expanding world. It helps to join other countries in the development of knowledge and technology, effectively use the resources, to supply the country with an array of products from the other countries, also to apply the structural changes throughout the market in a short period of the time. Can the growing countries do it in such short periods of time? It took ages and years for the developed countries to generate what they have finally. Is their experience well suited for all of those other world? Are they driving the "good policies" to be able to help the developing world, or they are simply "kicking away the ladder" to conserve their own riches? Let us start to see the two main points of view on these questions. . .
Is trade liberalization good for monetary performance?
We can identify two mainstreams in international financial relationships - liberalism and protectionism. The first who developed theoretical and sensible approaches of protectionism were mercantilists. Politics of high tariffs, restrictions of imports, and financial support of newborn industries occurred in XVI -XVIII in many now developed countries. During the politics of protectionism industries of many developed countries broadened, and THE UK, France, Germany, USA and other developed countries got their leading positions in the market. In the XVIII century mercantilism was strongly criticized by Adam Smith, and later by David Ricardo. They presumed that other countries achieved their highest level of development and prospered only when they took away all the obstacles and applied politics of free trade. Before the WWI trade had been developing with a higher speed. It was quite easy at that time due to secure currencies, relatively free move of capital and labor, and macroeconomic steadiness. Between WWI and WWII attempts to liberalize trade were not that successful, but following the World Battle II the questions pertaining to trade liberalization made an appearance in the center of plan, many international trade organizations surfaced, and lots of agreements were signed.
In our days and nights countries are increasingly more involved into the free trade: developed countries obviously see the benefits from free trade for themselves and they're trying to implement different politics ("good policies", "good institutions", free marketplaces) for growing countries to be able to foster financial development. Economic books has a variety of works written by different economists regarding positive and negative ramifications of international trade on financial growth. For example, Ha-Joon Chang in his publication "Kicking away the ladder" reviews the annals of different now developed countries and argues that we now have a great deal of myths regarding the policies that have been employed by the governments of these countries on their way to monetary development. Especially, he mentions the monetary plans of both Britain and the USA, which now seem to be really worried about world free trade and beginning marketplaces. During different historical times different instruments of protectionism were used by these countries: newborn industry safeguard, export subsidies, export quality control by their state, tariff and nontariff barriers, etc. Looking back again to different historical cycles we can see that today's developing countries are employing protectionism much more less that developed countries performed in the last times. For example, the World Loan company argues that the common tariff on companies for expanding countries is high enough, set alongside the one industrialized countries used before, however the productivity gap increased which means that developing countries need to use higher tariffs to be able to promote economical growth because of their industries.
As soon as the developed countries reached the necessary degree of development they started using so called "pulling-away exercises". "When NDC's reached the most notable, they used all kind of practices to "pull-away" from the follower countries. Insurance policies deployed were, of course, different based on the political status of the latter-colonies, semi-independent countries bound by unequal treaties, and impartial competitor countries. Britain was especially aggressive in protecting against development in the colonies. "(Ha-Joon Chang "Kicking the ladder away") Yet another important point arises from the annals of institutional development. It needed a significant long period of time for the developed countries to generate their institutions, but now they are pushing developing countries to the "global standards", demanding reforms in 5-10 calendar year period, which isn't that real and actually maybe even unsafe. Chang in his work also states that developing countries were growing economically much faster when these were using "bad policies", alternatively when they are employing "good insurance policies" right now. Sketching lessons from record then we can suppose that developed countries are simply just trying to prevent further development of other countries and save their own wealth.
There are a lot of arguments among the list of economists regarding the question of injury that free trade may bring for domestic industries. No doubt, it is wonderful for consumers, because they're getting goods for lower prices, but local industries will eventually lose their profits anticipated to lessen prices of imported goods. This can slow down further development of domestic market sectors, lead to deindustrialization and specialty area mainly on raw materials in a long run; though in a brief run it can increase money cash flow from exports, help pay debts and reduce deficits. The strategy of exporting and liberalization of trade is not always suited to the countries with transition economy, since it can lead to further gap in life level (poverty) and scientific progress. Indeed, it can be really hazardous for the growing world to start their market segments without finding the right policy, ideal for their specific situation inside the country, but countries will benefit as well.
An example of USSR shows us that politics of active government intervention and dirigiste politics doesn't have a positive influence on economy as well; on the other hand we've an export oriented policy, plan of integration with the world market of Japan and East Asia, which brought those to fast economic growth.
A lot of arguments in favor of free trade can also persuade us that free trade can be an engine of economic growth and countries may benefit enormously. Joseph E. Stiglitz in his publication "Making Globalization Work" brings us a great deal of quarrels of results of free trade, especially for the producing world. It looks like right now we still haven't received all the benefits out of it, because different instruments of unfair trade remain being employed by the developed countries.
Free trade maximizes competition, which brings about the increase of end result, therefore prices fall down which has a confident impact for consumers. Openness may lead to economical expansion, reduce of poverty, increase of health and education level, liberalization of labor markets can bring huge remittances to expanding countries; development of establishments in a short period of time and it can help close the space in knowledge and resources between developed and producing world, by giving developing countries with an increase of opportunities. In today's globalizing world countries with a shut overall economy are under the risk to stay much behind the developed world, stay undeveloped.
To trade or never to trade is not really a question any more - it is obvious that countries need to trade in order to promote their financial performance. The condition that people should take into account is how we can make trade fairer for everyone and whether these specific insurance policies are suitable for each and every country. Certainly, those countries whose market sectors tend to be more developed are voting in favor of free markets, trade liberalization and lower tariff obstacles in order to get rid of extra creation and wide open new market segments for themselves. We can make this work without harming toddler industries of developing countries. Trade liberalization can have a positive impact as well as negative, specifically for developing world and we should be concerned to maximize positive impact, and take the most out of it.
"Allowing developing countries to look at the guidelines and institutions that are more desirable to their stages of development also to other conditions they face will enable them to increase faster. This can advantage not only the growing countries, but also the developed countries over time, as it'll improve the trade and investment opportunities open to the developed countries in the producing countries. " (Ha-Joon Chang "Kicking away the ladder")
- Ha-Joon Chang "Kicking Away the Ladder"
- L. Alan Winters "Trade Liberalization and Poverty. THE DATA So Far"
- Ajit Singh "Special and Differential Treatment. The Multilateral Trading System and Economic Development in the Twenty-first Century"
- Joseph E. Stiglitz "Making Globalization Work"
- Moon "The theoretical and Historical Origins of Trade Issues"
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