Foreign trade is intricately regulated by governments globally. The extent of government regulation is increasingly becoming a matter of controversy and argument. The protest about trade has mainly been caused by the new trade agreements, the undesirable effects of domestic and the dilution of labor and environmental standards particularly in the developing states (Federal Reserve Bank of New York, n. d. ).
In this perspective, it is argued that bad economic policy will always reflect huge disagreement among various experts and is anticipated that when all economists give similar advice about the policies, the economic policies would be better (M, Friedman & R, Friedman, 1997). However, this is not the case; the economists often differ on the concept of international trade and the benefits international free trade has on the trading states and the world at large. The issue of tariffs seems to attract fierce debate among most economists.
Tariffs have since history affected countries in the free trade with the exception of the Great Britain which was exempted in 1846 after the Corn Laws repeal (M, Friedman & R, Friedman, 1997). Another exception was Japan where Japan entered the free trade following the Melji Restoration. Free trade under the British Rule in Hong Kong represents yet another exception (M, Friedman & R, Friedman, 1997. However, in other states particularly the developing countries, free trade has been seen as a thorn in blood hampering production possibilities frontier.
Free Trade affects Production Possibilities Frontier The most heated debate about free trade revolves around its effects on the production possibilities frontier. In spite of this contentious issue, most economists for over two centuries have persistently supported free trade as the trade policy of choice among nations. But this has not stopped the so called “practical” people from continuing to have fierce criticism over the issue of free trade.
The practical people have an inner belief that critical production industries have to be protected from the undue foreign competition (Blinder, n. d). However, free trade offers a range of production possibilities which the practical people can also observe. It may obviously not be discouraged for people to have their clothes washed and ironed in specialized and professional launders and paying handsomely for the service provided. Individuals who might believe in protectionism will only advocate for consumers to take their clothes to low quality launders that charge small fee.
But this concept would be considered loony and discouraged production (Blinder, n. d). It is common sense to utilize the companies which have intense specialization and professionalism and paying them good. Complete cutting off from these companies has severe effects to the production standards of any economy and the overall living standards. Adam Smith in 1776 made one logical argument about the effect free trade presented to production economies (Blinders, n. d).
He observed that when foreign countries supplied cheaper commodities than the importing country, it was logical to buy using the existing produce of the importing country’s produce to ensure that there is some mutual advantage. In a practical scenario, South Korea, Spain and other states produce shoes cheaply compared to the United States. Keeping off the cheap shoes will make some impact on the US and instead, the US people should be encouraged to pay for the cheaper shoes with the money they earn from the things they do better such as computer software writing (Blinder, n.
d). While this concept convinces a large number of economists, the case of a state like China which produces almost everything cheaply can pose threat to the production frontier possibilities in the US. This then should mean that the US people exclusively buy the cheaper items made in China and shun away from the US made items which cost higher penny. While this argument is reasonable, any action to support this way of production will lead to massive unemployment to the American people and labor production sector will largely be flooded (Blinder, n.
d). China will at the same time be massive beneficiaries of the system of free trade. Other Factors Which Can Expand Production Possibilities Frontiers Fortunately, there are several industries where people can work and this represents one of the factors which can expand the production possibilities frontiers. In case there was only a single industry, then American wages would be forced by the free trade to close down to the Chinese workers if in deed the Chinese workers were just as good as the workers in America.
Modern economies are made of diverse occupations and industries. Thanks to this varieties of industries. This means that if Americans invests more in areas it does best, there is no point where the American wages cannot be kept constantly above the wages for Chinese for a prolonged period even when the two states are allowed to freely trade. At the same time, technology is one of the factors that can expand production possibility frontiers. Technology improves productivity of the labor force which fundamentally determines the wage levels of states.
Trade policy does not affect at any time the wage levels and this provides new possibilities for production. American workers continue to be better educated, more skills, use more capital and of all, employ sophisticated technologies in production. These factors put America on top of the mark when comparing the wage levels of the US and China (Blinder, n. d). Even if there is free trade, the trade policy has minimal effect to the states like the US according to Adam Smith (Blinder, n. d). Argument For or Against Trade
A number of debates have been stepped up to defend or reject the issue of international free trade among states. But the debate on the manner in which a trading system should be free has been since old a matter of contention with various arguments and positions streaming in over time. In the United States, those who support free trade have a conception that consumers in free trade have numerous benefits and these proponents present several reasons in the support of their arguments. As the debate intensively boils, the advantages of free trade cannot be assumed.
The concept widely held by proponents of protectionism or free trade opponents has a number of fallacies. The reasons against free trade therefore cannot be substantiated. Others have argued that buying items made in America will protect their jobs not considering that the cost incurred while saving jobs in this manner is largely significant. At the same time, it is not even conceivable that there are any jobs saved while buying American made commodities. It is irrational for Americans to spend huge sums of money buying items made in America for the aim of saving jobs.
Free trade thus provides an affordable economy and economical options which are easily managed. The main economical problem is the utilization of the always scarce resources in the production process. Trade barriers will potentially affect the dollar value although this has not been understood clearly (Blinder, n. d). Restriction of imports will mean that the Americans will spend minimally on foreign items. There will be fewer dollars given out to the global currency markets and this will increase the strength of the dollar above other world currencies.
The unprotected industries in this scenario will begin to suffer as the strong dollar will make goods in the US to be less competitive in the global market. At the same time, the ability of America to export will be heightened in case there is no free trade. Government Requirements Before making decisions on the issue of free trade, a critical analysis should be considered by governments. America is a great nation, the leader of the entire globe and it is very illogical to want China and Japan to impose some export quotas on their textiles in the name of “protecting” the textile industry in the US.
There should be more to be done to improve the free trade by seeking more freedom both at home and abroad. There is little importance in making foreign aid contributions to foreign governments. Perhaps, this intervention only adds up to the promotion of socialism which cannot be of benefit to the US economy which needs to be robust and support the large population. The imposing of restrictions on the foreign products made in foreign states will dangerously hinder free enterprise. Therefore, encouraging a free economy is by supporting free trade.
References: Blinder, A. S (n. d). Free Trade. Retrieved August 6, 2010 from: http://www. econlib. org/library/Enc/FreeTrade. html Federal Reserve Bank of New York. (n. d. ) Free Trade vs. Protectionism. Retrieved August 6, 2010 from: http://www. newyorkfed. org/education/fx/free. html Friedman, M. (1997). The Case for Free Trade. Retrieved August 6, 2010 from: http://www. hoover. org/publications/hoover-digest/article/7125 Reference: Friedman, M (1997). The case for free trade.
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