The Global Economy

The concept of free trade between nations is one that is in dire need of promotion amongst all countries in order to create wealth and pull developing countries out of wretched poverty. However, some hold the position that free trade is detrimental to those countries. When put under close scrutiny, that notion fails to pass economic muster. Preventing third world nations from gaining access to developed markets essentially shuts them out of the opportunity for substantial economic growth.

When people talk about free trade, they must accept the notion of trade without the erection of barriers, such as tariffs, which artificially distort prices and destroy any comparative advantage a nation might have. Unmitigated free trade allows for third world countries to compete on a level playing field with industrialized nations since the costs of production in those developing nations is significantly less than the United States. Therefore, for example, instead of putting up protective tariffs to insulate U.S. citrus farmers from international competition, the nation would import citrus fruits from tropical regions where the cost per unit of that good is relatively less expensive due to inexpensive labor, deregulation and a favorable climate. These increases in cost effectiveness will translate into cheaper prices domestically, and those lower prices provide an increase in purchasing power for everyone in the economy.

Some people, however, lament over the destruction of a particular industry in the United States due to trade, or the outsourcing of jobs. While it can be painful for workers in certain industries to be out of work temporarily, the gains from these types of trade benefit society as a whole by manufacturing goods and services in a more efficient manner, allowing for the nation to focus on industries where a comparative advantage actually exists. Simply put, it is part of the creative destruction that is inherent in a capitalistic society. Technology and more efficient means of production are always a top priority, and rightfully so, since such gains diffuse over the entire macro economy. It would be silly to argue, in the time when cars were becoming much more prevalent, that society should subsidize the horse and buggy industry because of the threat cars posed to that industry’s existence.

Some even grieve over the exportation of capital to other nations in order to take advantage of their cheap labor. These \'d4anti-globalists’ simply say that we are exploiting cheap labor and paying horrible wages in those nations. However, what these individuals fail to grasp is that high wages are not a cause of prosperity, but are merely a reflection of prosperity. These critics never mention what the prevailing wage is in these countries, because it will inexorably weaken their argument. Moreover, wages invariably increase when productivity increases. Case in point is India. Many telemarketing jobs were exported to that country because of the inexpensive labor costs. However, due to their greater human capital cultivation, those telemarketing jobs are now being shipped to South Africa because wages in India are increasing exponentially due to constant productivity gains.

If free trade is encouraged, capital development and technological innovation can be realized in every nation, creating viable trading partners and worldwide economic prosperity.