Essay sample on Trade Liberalization Introduction
Just as suggested by the topic, trade liberalization refers to the removal of barriers that are seen to hamper proper trading activities by states. It is a process of encouraging free trade among various countries. Trade liberalization covers many aspects such as:
- Reduction of tariffs
- Elimination or reduction of quotas
- Reduction of no-tariff barriers
Non-tariff barriers are aspects or factors that contribute towards raising the cost or increasing difficulty in trade. For instance, if there are certain specific regulations imposed on the manufacture of goods, local producers may be unfairly advantaged. When safety and environmental regulations are harmonized, it isВ much easier to conduct trade internationally.
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Advantages of trade liberalization
- Various countries are given the freedom to specialize in production of goods and services in areas they have comparative advantage thus, net economic gains.
- Removal of trade barriers like tariffs can help in reduction of prices for consumers.
- Trade liberalization can lead to increased competition. This is important asВ countries identify where they can perform best and concentrate on that. A country will be able to shift its resources to a field they canВ effectively maintain a better competitive advantage.
- Through trade liberalization, there are higher chances of specialization considering the fact that one partner can easily know the field thatВ is performing best.
Demerits of trade liberalization
As much as trade liberalization can be viewed by many people as a great step towards enhancing trade between countries, it also has certain disadvantages that need to be noted. These include:
- Trade liberalization usually has different impacts on industries as some will grow while other decline, resulting into a shift in the balance of economy.
- When trade is liberalized, it can be a disadvantage to economies that are in the process of developing and still unable to stay on course with the competition against free trade.
- Studies show that there is always a higher chance that trade liberalization benefits developed countries at the expense of developing nations.
- It is also viewed that trade liberalization would result into exploitation of the environment.
Despite the almost similar number of advantages and demerits of trade liberalization, it is important to note that there are several economic benefits that are attached to it. The only challenge would be on how to ensure equal distribution of these benefits. Besides, it is also important to highlight that trade liberalization highly depends on the flexibility of an economy. With professionals, an economy can easily switch its nature of production to the required standards.
As already mentioned in the preceding paragraphs, trade liberalization is viewed to only bear fruits to developed countries compared to what their developing partners get. That is why it is required that a strong tariff protection is exercised to enable the developing countries to diversify out of non-profitable investments.
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