9.1 Free trade and protectionism

TRADE

Free trade and protectionism. Is completely free trade possible? Is it fair?

Trade, as we know, is an activity of buying, selling or exchanging goods within a country or between countries. When speaking about trade it is necessary to bring in such term as globalization. Globalization, we focus on economic globalization, is the opening up of economies to flows of goods, services, capital, and businesses from the other nations that integrate their markets with those abroad. So it is the tendency for the world economy to work as one unit which is led by large multinational corporations operating all over the world. Of course as any process, globalization has both advantages and disadvantages.

It increases competition among producers and offers consumers a wider range of products and services at lower prices. On the other hand, it can damage local industries, as well as goods and services if they are not competitive enough and are not protected properly.

Protectionism means protection of domestic industries, it sets up high customs tariffs, regulates the access to the markets, establishes quotas to limit the quantity of a product to be imported, and other restrictions or regulations, requiring licenses or documents difficult to complete. All that limits import and competition, adding to importers’ costs.

Protectionism is often referred to as being a barrier to free trade.

The opposite term is deregulation. It allows corporations to benefit from it, but at the possible expense of people in that nation where deregulation means relaxation of environmental rules, health and educational services including control of natural resources and energy.

So it is clear that it can damage the country’s economy and of course infant industries.

Another problem is the notion of fairness and fair competition. Unfortunately, often the nations that promote free trade for all, want to practice protectionism for themselves.

Perhaps, completely free trade and competition are not possible today in the world, so both industrialized and developing countries form trade blocks to develop international trade and make it beneficial for them. Sounds ironic that some of these unions declare they promote free trade, while really they regulate it in their own interests (we remember World Trade Organization which is an international body concerned with promoting and regulating trade between its member states: it protects the right of its members to compete freely on the global market, but its regulations are not always favorable for members with a lower level of development).