History Of Free Trade

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One of the most accepted and largest free trade areas was once created by way of the signing of the North American Free Trade Agreement (NAFTA) on Jan. 1, 1994. This settlement between Canada, the United States, and Mexico encourages change between these North American countries. Trade originated with human conversation in prehistoric times. Trading was the principal facility of prehistoric people, who bartered items and services from each other before the innovation of modern currency. Peter Watson dates the records of long-distance commerce from circa 150,000 years ago. Lower the price for goods and services was the whole idea of free trade by promoting competition. Domestic producers will no longer be able to rely on government law and other forms of assistance, including quotas that essentially force citizens to buy from them. The producers will have to enter the market and strive into to obtain profit. Free trade was first observed by Adam smith in 1776. “These artificial constraints to free trade are detrimental to a society” (Adam Smith). Until his book was published so many people had different skeptic about free trade. As a result of Adam Smith’s book titled Wealth of Nations, free trade achieved an intellectual and rational status supreme to any other principle in the field of economics.

Organized commerce get to new market the world over with urging neighborhood enterprises to improve their opposition and toward the end which make improvement in GDP figures and opening of new worldwide markets. 18th economist David Ricardo created the theory of comparative advantage.2 He argued that a country boosts its economic growth the most by focusing on the industry in which it has the most substantial comparative advantage. For example, England was able to manufacture cheap cloth. Portugal had the right conditions to make cheap wine. Ricardo predicted that England would stop making wine and Portugal stop making cloth. He was right. England made more money by trading its cloth for Portugal’s wine, and vice versa. It would have cost England a lot to make all the wine it needed because it lacked the climate. Portugal didn’t have the manufacturing ability to make cheap cloth. So, they both benefited by trading what they produced the most efficiently. (AMADEO, 2019).

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As we can see, until 1800 there was a long period characterized by persistently low international trade – globally the index never exceeded 10% before 1800. This then changed over the course of the 19th century, when technological advances triggered a period of marked growth in world trade – the so-called ‘first wave of globalization’. (Beltekian, 2018)

Historians agree that by the 1850s, almost all goods were admitted to Britain without tariffs, consonant with the view that Britain was an exponent of free trade. The poster child was the repeal of the Corn Laws in the 1840s. As is standard when liberalizing trade, the economy as a whole benefited. Almost all goods being duty free, however, is not the same as absolute free trade—especially if the few exceptions are some of the most important components of international trade. In the case of Britain, French wine retained a very high tariff. (Al-Ubaydli, 2016)

Some 600 years ago, the city of Bhaktapur, straddling the trade route from Tibet, was the most important business center in the valley of Kathmandu. The people of Bhaktapur treated the traders to feasts in which aila flowed like water, and put them in the right frame of mind for trade negotiations. Exports are the only way to pay for imports. And Nepal has to import just about everything: it is imported petrol which keeps Nepal’s transport system running and imported planes provide domestic air transport. Imported computers allow us to take advantage of the Internet, imported cosmetics and electronic consumer goods allow us to enjoy the finer things in life for a small, landlocked country like Nepal, trade is everything. Bigger countries like India or the United States don’t really have to be that dependent on trade, but Nepal must learn from city-states like Singapore which have transformed themselves have into hubs for global trade and prospered dramatically. (WADHWA, 2000)

Impact of globalization

All with the rise of globalization their arrive various kind of people having their idea and explain their thought on the world economic those people called economist because of their research on various kind of world economic. In our class contain we teach about two economist they are Adam smit and David Ricardo.

Beginning after WWII, one of the most superb outcomes of globalization is it’s have an impact on on trade. The interdependence, prosperity and wealth of nations with one any different have precipitated a make higher in free trade which has dramatically decreased the probabilities of battle from an economic standpoint. The process of increased integration and co-operation of different national economies. It involves national economies becoming increasingly inter-related and integrated. The main impact of globalization are; Monopoly power of multinationals, structural unemployment, tax avoidance, increased capital and labor mobility, economies of scale, greater competition(lower price), increased trade( greater choice of goods).

Globalization Advantage in free trade

  1. 1) Free trade

Exchange goods and resources for countries is called free trade. This means countries can produce goods at a lower opportunity cost. When countries specialize there will be several gains from trade;

  • Lower prices for consumers
  • Greater choice of goods, e.g. food imports enable a more extensive diet.
  • Bigger export markets for domestic manufacturers
  • Economies of scale through being able to specialize in certain goods
  • Greater competition (pettinger, 2019)
  1. 2) Free movement of labour

Labour Migration increased gives advantages to both workers and recipient countries. If a country experiences high unemployment, there are increased opportunities to look for work elsewhere. Also, it helps countries with labour shortages fill important posts. For example, the UK needed to recruit nurses from the Far East to fill shortages. (pettinger, 2019). The Ricardian theory showed how trade can arise because of differences in labor productivity.

  1. 3) Increased economies of scale

Production is increasingly more specialized. Globalization allows goods to be produced in special parts of the world. This increased specialization allows decrease average prices and lower prices for consumers.

  1. 4) Greater competition

Domestic monopolies used to be protected through a lack of competition. However, globalization means that firms face larger competition from foreign firms.

  1. 5) Increased investment

Globalization has also enabled improved ranges of investment. It has made it simpler for countries to attract short-term and long-term investments. Investment through multinational agencies can play a large role in improving the economies of growing countries.

Disadvantage of globalization

  • Free trade can harm developing economies

Developing nations frequently fighting to compete with developed countries, therefore it is argued free exchange advantages developed countries more. There is an infant industry argument which says industries in growing countries need safety from free trade to be able to develop. However, growing countries are regularly harmed through tariff protection, which western economies have on agriculture.

  • Environmental costs

Increase of non-inexhaustible resources is the issue of globalization. Growing of defilement and a perilous climatic devation. Firms can also re-appropriate assembling to where natural models are substantially less severe.

  • Labor drain

Globalization enables workers to move more freely. Therefore, some countries find it difficult to hold onto their best-skilled workers, who are attracted by higher wages elsewhere. (Pettinger, 2019)

  • Less cultural diversity

Globalization has led to improved economic and cultural hegemony. With globalization there is arguably much less cultural diversity; however, it is also led to extra choices for some people.

  • Tax competition and tax avoidance

Multinational companies like Google, Amazon, and Alibaba can set up offices in different countries like Bermuda, Luxembourg with very rates of corporation tax and then funnel their profits through these subsidiaries. They pay very little tax in the countries where they do most business. The greater mobility of capital means that countries have sought to encourage inward investment by offering the lowest corporation tax. (E.g. Ireland offers very low tax rate). This has encouraged lower corporation tax, which leads to higher forms of other tax. (pettinger, 2019)

Comparative Advantage Theory

All with the rise of globalization their arrive various kind of people having their idea and explain their thought on the world economic those people called economist because of their research on various kind of world economic. In our class contain we teach about two economist they are Adam Smit and David Ricardo.

Heckscher and Ohlin maintain that factor endowment underlie a nations comparative advantage, their theory became known as the factor endowment theory. It is also known as the Heckscher Ohlin theory. Hypothesis states that comparative advantage is clarified exclusively by contrasts in relative national supply conditions. The theory implies that Brazil export coffee because it has an abundance of the soil and climatic conditions required for coffee production; the US and Canada export wheat because they are endowed with an abundance of temperate-zone land, which is well suited for wheat production; and India and China are huge exporters of shoes and garments because they are heavily endowed with labor. (Carbaugh, 1980)

Globalization in inequality and poverty

Researchers from the University of Colorado–Boulder and Williams College in Massachusetts surveyed executive compensation at thousands of U.S. companies between 1993 and 2013 and concluded that ‘recent globalization trends have increased U.S. inequality by disproportionately raising top incomes.’ (Soergel, 2017). Within some countries, trade has contributed to rising inequality, but that unlucky end result ultimately reflects the want for improved security nets and higher social and labor programs, no longer trade protection.

The 2001, US-Vietnam free trade agreement reduced poverty in Vietnam by increasing wage premiums in export sectors, spurring job reallocation from agriculture, forestry and fishing into manufacturing, and stimulating enterprise job growth.

A study of 27 industrial and 13 developing countries finds that shutting off trade would deprive the richest 10 percent of 28 percent of their purchasing power, but the poorest 10 percent would lose 63 percent because they buy relatively more imported goods.

In many developing countries, export growth has been associated with greater gender equality. Exporting firms generally employ a significantly higher share of women than non-exporters. In Cambodia’s export-oriented garment sector, which is one of the main providers of wage employment in Cambodia, 85 percent of all workers are women. (GONZALEZ, 2017).

Backlash of globalization

Globalization is under attack. Donald Trump electoral victory, the Brexit vote and the rise of an aggressive nationalism in main land Europe and the world are all part of a backlash to globalization. The roots of global economic order were established just as World War 2 was coming to end, in 1944 delegates from the Allied countries met in Bretton Woods to establish a new system around open markets and free trade.

Freeing up trade restrictions also led to a global shift in manufacturing. The industrial base shifted from the high-wage areas of North America and Western Europe to the cheaper-wage areas of East Asia: first Japan, then South Korea, and more recently China and Vietnam. (SHORT, 2016). According to a record through Chad Bown of the Peterson Institute, a nonpartisan think tank, the tariffs imposed by President Trump on Chinese imports into the United States have raised the average tariff to 24 percentage from three percentage at the begin of the trade battle and “will have an effect on nearly the whole thing Americans buy from China.” In simple terms China and the US wants to be kings of the Hill, instead of learning how to share.


IN synopsis, albeit higher taxes produce more income, globalization and world financial harmonization are the fundamental reasons why we have such a significant number of facilitated commerce understandings, Above all the reactions, organized commerce will advance popular government through control and straightforwardness. Besides, governments should help in keeping up and observing basic guidelines in security, work, and ecological issues in their exchanging nations. Through these procedures, there can be a reasonable and adjusted exchanging framework around the globe.


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