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Arguments For and Against Free Trade

FOR Free Trade

  • INCREASED ECONOMIC GROWTH: Free trade agreements create larger markets for companies to sell their goods to. It means that instead of producing everything necessary within the borders of a country, countries can specialise on producing those things that they excel in and can instead import other things that would cost them a lot to produce. In this way, productivity is increased and the economies of the trading countries grow. It was estimated that the GDP of the entire EU would be 8.7% lower without the single market.
  • FOREIGN DIRECT INVESTMENT CREATES NEW JOBS: Free trade areas incentivise foreign direct investment, meaning a long-term investment by an investor/business in an enterprise that is operating in a different country/economy. This has several benefits for the recipient country, as the investment often leads to the creation of jobs both directly and indirectly. For example, the ten Central and Eastern European countries that joined the European Single Market experienced a robust 1.5% annual growth in employment until the breakout of the financial crisis.
  • LOWER PRICES FOR CONSUMERS: Free trade means that global competition can enter the local market, leading to more options on the shelves for consumers and in many cases to lower prices. When trade barriers are in place, it is hard for foreign suppliers to sell their goods on the local market, as they are taxed far higher than their local competition. However, when barriers are removed, foreign suppliers can sell goods at similar conditions to local suppliers, which increases the competition for customers in the market and causes prices to drop. Sometimes, foreign companies can produce goods at a much lower cost than local ones, which means that consumers now have much cheaper options to buy.

AGAINST Free Trade

  • JOB OUTSOURCING LEADS TO UNEMPLOYMENT: Free trade allows businesses to move their production to a place where it is cheaper to produce. In countries where labour or production costs are high, this often means that many people lose their jobs, because production is outsourced to cheaper places. Furthermore, companies in branches that had previously been protected by government subsidies are often unable to compete with global companies as markets are flooded with cheaper goods.
  • SUB-STANDARD WORKING CONDITIONS AND LOW WAGES: Cheap production often comes at a high human cost. To save labour and production costs companies often move their production to “less developed” countries, and capitalise/exploit on the lack of labour protection laws there. Local workers are often forced to work under dangerous and inhumane conditions. One of the most severe examples of this was the collapse of a garment factory in Bangladesh in 2013, which had produced clothing for European companies (amongst others). In addition, workers are often forced to work for extremely little pay and in the most severe cases even include child labourers.
  • FREE TRADE IS BAD FOR THE ENVIRONMENT: Production requires resources and through free trade companies gain access to the natural resources of other countries. In “less developed” countries vigorous environmental protection laws are often lacking, which allows companies to use fast harvesting methods, such as clearcut-logging, which are harmful to the environment and very unsustainable. The rigorous exploitation leads to a depletion of resources, which has severe negative long-term effects on the local environment. It also means that the resources are no longer available for the local population, leading to negative impacts on the local economy. Furthermore, goods and materials have to travel a great distance before they reach the final consumers. 90% of all traded goods reach their destination by ship, a sector which is responsible for 3% of global greenhouse gas emissions.

Photo by Dominik Lückmann on Unsplash