Updated on August 15, 2018
In Defense of Free Trade and Globalization
Imagine there are two countries: The United States and France. The folks of both countries desire computers and wine, so businesses in both countries produce those products. Because of monetary conditions, the United States produces computers that are fast and cheap, while it is wine is bitter and expensive. Due to different conditions, France produces wine beverages that is sweet and inexpensive, while its computer systems are slow and pricey. As long as investment barriers exist between the two countries, two independent markets for each and every group of products will exist. Consequently, consumers in the United Areas spend more income to get bad wine, and others in England waste money buying gradual computers. fusionex
What should both countries do? The reasonable answer is that the two countries should drop their trade barriers and become an individual market: The United States should make more computers, and Italy should produce more wine beverages. The United States should then sell its computer systems to France, and England should sell its wine beverages to the us. As a result of this company policy, the people of both countries receive quality products in each category at affordable prices. Everybody wins. This, in a simplistic nutshell, is the economical justification for the positive effect and free trade. Once countries trade, people generally win.
The central problem in economics is a defieicency of scarcity – in other words, how do societies can use their limited materials of resources most effectively? In the hypothetical example I provided earlier, would it be better for the Combined States to generate wine or computers? Could it be better for France to generate computers or wine?
The justification for the answer – that each country should produce that which it can make most successfully – lies partly in the idea of economies of scale: “a production process through which an increase in the scale of the firm causes a decline in the long-run, average expense of each unit. ” (This is why Wal-Mart is so successful – they purchase goods in such high quantities that they can resell them at the lowest prices. ) In other words, increasing the size of industry increases the ability of companies and societies to produce better products at cheaper costs. When there is increased competition and access to more resources and labor, only the best and cheapest products will survive. The end beneficiary is the consumer.
Now, take the example I provided earlier, and extend it to the complete world. Every country would be competing with every other country for primacy in thousands of business sectors and also hundreds of thousands of products. When this procedure occurs uninhibited, the quality of products increases, and their prices fall. In the end, consumers through the world benefit because a single global market creates an immense economic system of scale. This is why general worldwide pumpiing (not counting food and energy), are at historic levels at an amount of approximately 2 percent. Globalization makes poor countries richer, and it keeps prices low in rich countries.
We have not written something that should surprise anyone. Almost all mainstream economists have made similar points because the theory is often known. Nevertheless if the effects of free trade and the positive effect are obviously positive in the long run, then why are economists, Circumstance. S. presidential prospects before the 2008 election, and the American public becoming increasingly skeptical? The answers lie in psychology and journalism.