Trade liberalisation
Trade liberalisation is the process by which countries agree to
lower import tariffs on goods and services and perhaps
abandon non-tariff barriers such as import quotas. Trade
liberalisation since the end of the Second World War has led to
a reduction in both tariff and non-tariff barriers to trade around
the globe and resulted in a substantial increase in the volume
of trade. This has been a key feature of globalisation.
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Understanding Trade Liberalization
Trade liberalization is a controversial topic. Critics of trade liberalization claim
that the policy can cost jobs because cheaper goods will flood the nation's
domestic market. Critics also suggest that the goods can be of inferior quality
and less safe than competing domestic products that may have undergone
more rigorous safety and quality checks.
Proponents of trade liberalization, however, claim that it ultimately lowers
consumer costs, increases efficiency, and fosters economic
growth. Protectionism, the opposite of trade liberalization, is characterized
by strict barriers and market regulation. The outcome of trade liberalization
and the resulting integration among countries is known as globalization.
KEY TAKEAWAYS
Trade liberalization removes or reduces barriers to trade among
countries, such as tariffs and quotas.
Having fewer barriers to trade reduces the cost of goods sold in
importing countries.
Trade liberalization can benefit stronger economies but put weaker ones
at a greater disadvantage.
Advantages and Disadvantages of Trade Liberalization
Trade liberalization promotes free trade, which allows countries to trade
goods without regulatory barriers or their associated costs. This reduced
regulation decreases costs for countries that trade with other nations and may,
ultimately, result in lower consumer prices because imports are subject
to lower fees and competition is likely to increase.
Increased competition from abroad as a result of trade liberalization creates
an incentive for greater efficiency and cheaper production by domestic firms.
This competition might also spur a country to shift resources to industries in
which it may have a competitive advantage. For example, recent trade
liberalization has encouraged the United Kingdom to concentrate on its
service sector rather than manufacturing.
However, trade liberalization can negatively affect certain businesses within a
nation because of greater competition from foreign producers and may result
in less local support for those industries. There may also be a financial and
social risk if products or raw materials come from countries with lower
environmental standards.
Trade liberalization can pose a threat to developing nations or economies
because they are forced to compete in the same market as stronger
economies or nations. This challenge can stifle established local industries or
result in the failure of newly developed industries there.
Countries with advanced education systems tend to adapt rapidly to a free-
trade economy because they have a labor market that can adjust to changing
demands and production facilities that can shift their focus to more in-demand
goods. Countries with lower educational standards may struggle to adapt to
a changing economic environment.
Critics believe that trade liberalization costs jobs and depresses wages.
Proponents believe it spurs competition and growth.
