5 Myths About Free Trade

Posted by: on Dec 23, 2013 | No Comments

Free trade is when governments stop discriminating between exports and imports and allow manufacturers and service providers to buy and sell products and services in an environment free of subsidies and duties. While economists around the world have been favoring this concept and holding it responsible for the growth and recovery of the economies of many countries; certain myths about free trade have always made governments rethink their views and perspective about free trade.


Major Myths About Free Trade

1. Exports are good and imports are bad: Even today, if you were to ask educated individuals about their concept of trade, most would come up with the opinion that exports are good and imports are bad. Exports obviously bring in money and imports involve expenditure. Filled with judgments, a worsening trade balance is always due to higher imports and lower exports. The truth is, however, actually the opposite. Imports are not always bad. Imports indicate that the country is in need of varied resources to innovate, conceptualize and grow in a way they haven’t before. For example, India still owes the quality of its armory to Russia which has been consistently exporting weapons to the country. Moreover, India has been able to develop tanks such as the Arjun only after extensive R& D with Russian Tanks being the crux of it.

2. Free trade can cause trade deficit: Before discussing the influences of free markets on international trade, the concept behind trade deficit and trade surplus should be understood. Trade surplus does not mean the country has a strong economy. With trade directly related to the amount of capital sourced from international financial organizations, countries have to pay back the money they borrowed sooner or later. Free trade encourages countries to trade under the most favorable circumstances, presenting them with a leverage to trade correctly or even right the wrong when it comes to mending deficits or balancing surpluses.

3. Free trade is not fair trade: Setting up operations in countries like Mexico or the Philippines is any day cheaper than doing so in fully bloomed economies like the US and the UK.  But then, on the other hand, can a country like the Philippines have access to all the advanced technological know-how that the US has? Or even produce or manufacture as efficiently as other developing economies? Setting all that aside, mass production has never been an issue, but then maintaining the quality of each and every product is surely a factor to wonder about. Free trade encourages trading conglomerates to pick and choose the country that can best suffice their trade and business needs. Even better, pick a combination of the most apt countries.

4. Free trade neglects the poor: The myth that free trade just encourages the rich in a better manner has been proved wrong time and again. Free trade, whenever practiced since the seventies, has always pulled the world’s population out of poverty. Substantially reducing the number of people living under the poverty line, relaxation of trade policies, reduction in import and export duties of key resources; the factors favoring free trade have been solely responsible. Free trade encourages entrepreneurships, incubates ideas and creates jobs which result in the greater good of the economy

5. Deducting domestic jobs: Experts opposing free trade conclude that domestic companies should give local talent and resources first priority before venturing out to trade for resources or products.  The fact is rather that increasing imports does not spell unemployment, but improves the nature of the jobs being offered. This in turn improves the capability and standard of living of the domestic working class.

Free trade practiced to its entirety will always have its drawbacks and cannot function to its full potential in the imperfect economy that we are in today. Picking out the benefits, advantages and working on them and infusing it with a list of perfectly skewed policies is what governments need to focus on.

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