The Assignment on Global Economy

Running head: THE GLOBAL ECONOMY
The Global Economy
Name of the Student
Name of the University
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THE GLOBAL ECONOMY1
Introduction
A trade policy, which does not limit exports or imports is known as the free trade. There
is no limit of trade under the free trade policy. Likewise, when the barriers or restrictions are
removed or reduced in order to smoothen the free exchange of goods between countries is called
trade liberalization. There are various types of barriers in the free exchange of goods between
different countries such as tariffs including surcharges and duties and nontariff barriers including
quotas and licensing rules. Therefore, the idea of elimination or easing of these barriers leads to
increase in free trade between countries. There exists various arguments in favour and against the
free trade. Sometimes, it brings positive and sometimes it brings negative results. On the other
hand, in some cases, trade liberalization is essential tool to promote trade and in some cases trade
liberalization may not be effective.
Discussion for and against free trade in terms of trade liberalization
In general, the idea of free trade is mainly applied to the international trade. The concept
of free trade is different under varied political parties (Xu, Lee and Wang 2016). Some parties
believes in liberal economic positive. Hence, it promotes free trade between other countries
around the world. On the other hand, some political parties believes in protectionism. According
to them, protectionism promotes growth and development of the country. One of the significant
international organization that plays a major role in promoting free trade across countries is
World Trade Organization (WTO). In addition, several countries of the world are part of the
multilateral agreement of the WTO. There is no limitations of the amount of export or imports
under the free trade (Hayakawa and Kimura 2015). On the contrary, trade liberalization have
several merits and demerits. Trade liberalization may results in lower cost for consumers, boosts

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efficiency and promote economic growth. Therefore, trade liberalization leads to integration
among nations, which is called globalization.
Hence, there is a positive relationship between the globalization and trade liberalization.
However, in absence of trade liberalization, the market would be more regulated and there would
be more strict barriers. It is known as the protectionism. In addition, the absence or easing of
trade barriers decreases the value of products sold in other countries (Bhagwati 2017). Therefore,
there is a probability that the trade liberalization will facilitate the developed countries. On the
contrast, it may hamper the growth of the less developed countries. Therefore, in presence of
trade liberalization, the free trade expands. It allows the countries to exchange goods in a cost or
barrier free environment. Thus, the elimination of regulatory barriers reduces the cost associated
with the trade for the country, which exchanges goods with other countries. As a result, it
decreases the cost for import. It also helps to lower the cost of consumers. Hence, domestic
competition in the country increases (Bas and Strauss-Kahn 2015). The increased foreign
competition ensures lower production cost for the domestic firms as well as greater efficiency.
Thus, it also enables free movement of the resources from one country to another
country, where it have a competitive advantage. Many countries focuses on different sector due
to trade liberalization. It helps in division of labour internationally. Therefore, the countries able
to produce goods in which they have competitive advantage over other countries. Hence, it leads
to efficient and optimum utilization of resources. As a result, the production also boosts in
countries participating in free trade with less or no trade barriers. There are several benefits of
the unrestricted trade such as better efficiency and specialization (Dix-Carneiro and Kovak
2015). These benefits of unrestricted trade results in large scale of production within the
countries as well as globally. It promotes the global output as all the countries of the world may

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able to get access of goods at a comparatively lower costs. Therefore, it generates employment
opportunities within the countries and purchasing power of the people also boosts. Hence, it can
be stated free trade with trade liberalization leads to growth and prosperity in the world.
On the other hand, free trade may facilitate the developed countries. However, it may not
help the less developed countries. There are wide range of examples that free trade hampers the
growth of the underdeveloped and less developed countries. Colonial imperialism is one of the
demerits of the free trade. As free trade along with trade liberalization increases the competition
from the foreign countries (Anderson and Yotov 2016). Thus, the domestic industries suffer due
to competitive market. It intensifies the sufferings of the domestic producers by making imported
goods available at lower prices. The harsh competition due to free trade destroys many domestic
industries in the long run. No or less trade restrictions also contribute largely in affecting the
existence of the domestic industries.
Therefore, it is not possible for the free trade along with trade liberalization to bring
sustainable and equitable development for all industries of the market. A country specializes in
few commodities of the market and get comparative advantages by producing that commodities
only. Other inefficient industries of the country remains non-competitive. Hence, the concept of
the overall development of industries ruled out in case of free trade. Overdependence is another
form of demerits of the free trade. As the countries are interlinked with international free trade
along with trade liberalization (Rugman and Verbeke 2017). Therefore, when domestic economy
of one country suffers from the economic crisis. It also impacts the domestic economy of other
trading partners due to overdependence. The reasons behind this overdependence include
restriction in free movements of raw materials, goods, labour, capital and technology. Free trade
enables one country to transfer different available resources from other countries in order to