Comparing Free Trade and Fair Trade: Economic Models and Impacts

This essay provides a comprehensive analysis of free trade and fair trade, contrasting their underlying principles and practical implications. It begins by defining free trade based on the theory of comparative advantage and fair trade as a more achievable and practical approach. The essay then critiques free trade's tendency to promote uneven development and its protection of intellectual property rights, which can disadvantage developing nations. It examines the efficiency of free trade by analyzing the economic models of Japan, China, and other Asian countries, highlighting the role of government intervention and preferential treatment in fostering economic growth. The Ricardian model is discussed to explain international trade and comparative advantage, with a focus on its limitations and assumptions, especially regarding labor and homogeneous goods. The essay concludes by emphasizing the importance of considering the fairness and equity of trade practices in the context of global economics and development.

A) Free trade and fair trade
Free trade concept is based on a theory that it’s better for countries to specialize in producing and
exporting goods and services that they comparatively produce more efficiently with assumption
of no unemployment is available and perfect competition exist. In practice, all the conditions of
free trade are not practical and therefore makes the whole free trade a theory. Fair trade on the
other hand is able to achieve the factors promoting trade and not inhibiting it. Fair trade is
therefore practical and achievable compared to the theory of free trade (Miller, 2018). Free trade
is kind of a capitalist market which promotes uneven development. Allowing and shielding
countries to focus on their specialties it making the undeveloped countries to remain
undeveloped while the developed countries to remain developed. The free trade rules are
therefore meant to shield the developed countries from any interference of their development. In
addition, the free trade is able to promote and observe the preservations for the intellectual
property rights. This is one of the major rule which is disadvantaging the developing nations
(Hamilton, 2018). Through this rule, the developing nations are unable to amend any invention
since it has key development protections. Through the preservations, the developing nations will
have noting of their own. In addition, even when they invent, the developed nations have the
power to buy the intellectual property rights. Being poor, the nations will sell the rights and the
developed nations will take advantage of their weakness and own the systems.
B) Efficiency of free trade and exploitation
Free trade is usually against government interfering with the trade to make some areas special
than others. But these special treatments have worked to elevate economies of some key
countries to top notch. For instance, the Japanese Model where he government intervened and
selected few industries which they offered preferential treatment which involved tax deductions

and tariffs helped those sectors to become competitive with the multinational companies
(Otmazgin, 2014). For this case, the government intervened on services and goods which could
not be sufficiently and efficiently be supplied and made them a stronghold. This was able to
elevate the Japanese economy. The Asian model on the other hand focused on Export processing
zones (EPZ) in order to attract foreign direct investment (FDI). The government gave conditions
to the foreign companies to export just the competitive goods which is against the free trade.
This worked for the Asian economy. The Chinese model did not focus on the FDI. The Chinese
government used a model where their intention was to foster domestic companies by guiding
industrial policies and formation of alliances between the domestic and foreign multinational
companies (Arai, 2019). Preferential treatment to the domestic companies was done to ensure
that they were able to form the required alliances with the multinational companies. This was
done on the automotive industry and today the fruits of the mode can be seen where the China’s
automotive industry is controlling the world. Cushioning the local markets against the free trade
is a critical element to enhance the local economies. Developing nation need such measures and
not free trade measures which are theoretical.
C) Recardo model and free trade
Recardo model is used to explain the idea of international trade between two countries. The
model presents the idea of the comparative advantage which is needed in free trade in order to
support the international trade. Under the model, the model shows that the less productive
countries can still benefit from free trade when trading with more productive countries (Galiani,
Torrens, & National Bureau of Economic Research, 2015). The major objective of the model is
to show that the developing nations can thrive under free trade. The model is able to use the
workforce productivity to explain the differences in internal trade. The model explains that a

single economic factor is used and in this case is the labor. The cost of production associated
with the different countries is different. On the other hand, the low wage countries are usually
unable to use their production cost advantage in many ways to compensate the gap. For the
German US case trade, the German jobs depends on export and German does the export to a tune
of 4 times the export US does to German. The German provided the US with great and cheap
labor during the dry seasons (Jean, Chiou, & Zou, 2013). This led to the building of the US
economy on which the German did not benefit. The model relies on theories which form major
problems for its implementation. This means that the low labor issues are not able to resolve the
countries problems when the free trade is implemented. The theory assumes of homogeneous
goods which is not practical. The labor cannot be homogeneous across the nations.

References
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in Asia. Honolulu: University of Hawaiʻi Press.
Arai, K. (2019). Law and Economics in Japanese Competition Policy. Singapore: Springer.
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environments. Bingley, U.K: Emerald.
Galiani, S., Torrens, G., & National Bureau of Economic Research,. (2015). The political
economy of trade and labor mobility in a Ricardian world. Cambridge, Mass.: National Bureau
of Economic Research.
Hamilton, C. (2018). Silent invasion: China's influence in Australia. Richmond, Victoria: Hardie
Grant Books
Miller, R. C. (2018). International political economy: Contrasting world views. London:
Routledge