An Examination of Free Trade's Impact on Poverty and Inequality

This essay delves into the multifaceted relationship between free trade and poverty, exploring its impact on both developed and developing nations. It examines the arguments for and against free trade, highlighting how globalization has increased economic participation while simultaneously exacerbating economic disparities. The discussion covers various aspects, including the effects of free trade on economic growth, technological advancements, labor practices, and environmental sustainability. The essay analyzes how developed countries have benefited from free trade through investment and innovation, while also addressing the exploitation of cheap labor and the environmental consequences in developing nations. It further explores the role of international organizations and the UN's development goals in addressing poverty, as well as the long-term implications of climate change and environmental pollution caused by free trade. Ultimately, the essay provides a comprehensive overview of the complex interplay between free trade, poverty, and global inequality.

Running head: FREE TRADE AND POVERTY
FREE TRADE AND POVERTY
Name of the Student
Name of the University
Author Note

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Introduction
Reinert (2019) states that after the industrial revolution, globalization is one of the
essential market trends that is likely to stay. The free trade brought by the advent of globalization
by including the marginalized society to come forward and make their mark. Free trade is one of
the most important market trends that has become synonymous with growth and development.
The aspect of free trade and the actual benefits remains to be speculated and debate. However,
Shoman, Karafillakis and Rawaf (2017) are divided in their opinion when it comes to talk about
free trade and poverty. Free trade has united the world and increased participation of the people
all across the world. Studies indicate that it has increased the economic disparity even further
(WTO.org 2020). While it is undeniable that free trade has increased participation of the poorer
nations, studies also illustrate that the financial gain is reserved only for the richer countries. The
main objective of this is to analyses that free trade promotes the rich countries get richer and
poor countries poorer (Robson 2016).
Discussion
Laissez-faire or free trade refers to the policy that has minimum interference from the
government in the economic affair of the country especially the trading policies of the import
and export of goods and services (Anderson et al. 2016). The concept of free trade was popular
in the 19th century which was focused on achieving economic autonomy. It gained further
importance during the industrial revolution which was characterized by mass production of
goods and services. Economist are of the opinion that free trade among nations promote a
healthy global economy, the free trade policies differ in theory and practice (Anderson et al.
2016).

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Reinert (2019) states that free trade promotes economic growth even when certain
countries have restrictive trade policies. A study conducted by the Office of the US Trade
Representative estimates that US economic growth grew by 5% annually, it should be
understood that US is one of the most developed and powerful nations in the world so when
considering other countries such Nigeria the economic growth did not rise and it faced a lower
GDP owing to the free trade policies. The advent of globalization has encouraged free trade
which has promoted an increase in the economy, technological advancement. These
technological advancements have been very effective in combating poverty. Jeffery Sachs a
well-known economist credits free trade and introduction of technology such as mobile phones
very helpful in reducing poverty. He further adds that such technology is effective in enabling
the members of the developing community to secure jobs through increased communication,
transfer money and gain education. In fact it also aids the government to reduce cost in setting
telephone lines and instead opting to set mobile tower which helps to reduce cost (Daunton
2017).
Developed countries could cease the early benefits if free trading as they already had all
the necessary technology for it. The free trade allowed these developed countries such as US,
UK, Norway, and Sweden to compete with the world market and make a more market
investment. They also could provide the citizens with a better quality of life through more
inclusive policy and shift their economic stance to invest more in innovation and technological
advancement. Studies show there is direct correlation between corruption and poverty
(Anderson et al. 2016). Richer countries have lower corruption and crime rate as there is better
distribution of wealth among the masses. For example in case of Netherlands, according to
reports 49 crimes are committed every 1000 people which has led Netherlands to close their

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prison. The money saved from this can be used to cater to the public (TheWeekUK.com 2020).
Whereas, Tijuana in Mexico is considered one of the most dangerous cities in the world, it is
interesting to note that it is also one of the significantly poorer places in the world (Woody
2020).
We are a part of the consumerist society which is constantly catering to our needs and a
consumer will always work in their self-interest and look for cheaper products. Studies show that
free trade promotes the production of lower priced good. While free trade removes the trade
restrictions allowing the import of lower priced goods it consequently reduces the labour costs
(Anderson et al. 2016). Big corporates do not want to spend money on making their products so
as to maximize their profits and minimize their expenditure. This meant that the previous high
paid home workers are being replaced by cheap foreign labour through outsourcing. Daunton
(2017) argue that these helps the developing countries to ensure they give employment to the
mass. On the other hand, studies show that this is especially harmful for the marginalized section
of the society who become vulnerable to labour abuse (Sandoval 2016). In many countries such
as India, China, Uganda, Bangladesh, Chile and others owing to the low labour costs the working
conditions of such places are often very dangerous encouraging big industries to gain the
products at a lower price (Azad 2019). A report states that the cosmetic industry is one of the
largest in the world and it is rampant with such unethical practices where poor Mexican farmers
work in very precarious conditions often without safety equipment to manufacture wax for
beauty purpose (Brownsell 2020). So while free trade encourages foreign investment it also
reduces ethical economic practices in poor countries.
Free trade is considered to be inclusive trade practices which allows an increased
business participation among the nations. This has indeed seen some development among the

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developing nations which shows significant progress in the field of science, technology and
certainly in the economy. For example, it has help to increase employment among the women in
Bangladesh in their clothing manufacturing departments. While such examples may lead to
believe that it has indeed alleviated people from poverty, it is far from the truth. High rates of
employment is not equal among the masses owing to various boundaries, such as lack of skills,
age limit, and geographical barrier. The accessibility of these facilities is very different for the
rural and urban masses. There are far greater issues, lowering the price of labour for the
production of cheaper goods is affecting the small scale industry which is forced to reduce their
workers as they unable to pay for them. Studies show that free trade harms the local indigenous
businesses and art forms that is unable to sustain under such conditions. This also illustrates how
the free trade is actually harming the grassroots people.
Robson (2016) believe that free trade reduces child labour, as free trade encourages
foreign companies to invest more and therefore, the manufacturing units which previously
employed children can afford better technology thus reducing child labour. This is not entirely
true as many places still prefer children working in their factory as it means that they do not have
to pay them much. In bottling, matchbox, clothing factories child labour is rampant and even in
many cases such as embroidery industry in India is known for using child labour and making
them work in unhealthy and long working hours (Chaudhuri et al. 2016). China is considered one
of the global markets for mass producing cheap products which has allowed China to claim an
autonomy for producing some of the cheapest products in the world. Studies show that it has one
of the worst working environment for their workers which includes slave like working conditions
(Sandoval 2016).

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The United Nations created a set of eight development goals in 1990 that in included
reducing child mortality, promoting child equality but most importantly eradication of extreme
poverty among the nations all over the world (UN News.com 2020). Reinert (2019) states that
the standard of poverty differs in different countries significantly and hence is a variable concept
that has sociological and geographical implications. To illustrate, a person is US is considered
living in poverty if they earn less than $11770 a year which amounts to $32 per day. On the
other, a developing nation like India a person earning INR 50 is considered poor which amounts
to less than a dollar a day. Hence, the UN has set certain characteristics that help to set a standard
to understand the poverty of a person to see if they have access to clean drinking water,
sanitation, health, education and basic human amenities. The UN defines extreme poverty as
someone who lives on less than $1.29 a day (UN News.com 2020).
As of the UN reports of 2015, it has been found that about 836 million people still live
below the poverty line but since it is less than a billion it should signify some success. World
Bank claims that if the current trend of free trade continues the amount poverty could reduce to
half given the current conditions remain optimum. According to their data they state that if for
example Zimbabwe continues its growth pattern which is quite slow compared to the other
countries it will become a rich country in 2722 years (Hallegatte et al. 2017). Current studies
show that the climate change poses a serious threat to the productivity and development of the
free trade. The climate change is especially hard for the developing nations who have mostly an
agrarian economy (Hallegatte et al. 2017). The changing pattern of rainfall and weather change is
causing severe damage to the agricultural production, affecting the economy and the people of
such countries. Studies indicate that UN reports considers the people who have been alleviated
out of the basic poverty line to be a major success however, the people who have crossed the line

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are still poor (WTO.org 2020). That means that a large section of people still do not have access
to the basic amenities such as electricity, safe drinking water, access to health and others.
Free trade has very serious consequence on the environment, the free trade means
transportation of goods and services on land, air and water. The supply chain used by many
international organizations do not adhere to the environmental laws and cause immense pollution
to the local ecosystem (Agha 2017). In the case of Coca-Cola one of the largest multinational
organization in the world which employs a million of people is not so ethical in their
environment sustainability. Coca-Cola has reduced the groundwater level in Kerela a state in
India where it had set up its manufacturing unit. The reduced groundwater level severely affected
the local farming areas where they could not irrigate their land due to the lack of water causing
production loss (Agha 2017). Another instance, Shell one of the largest oil company had set up
in Nigeria this meant better job opportunities for the locals. While that was true Shell's 55-year-
old pipeline ruptured that led to spillage of millions of litres of oil in the creeks and shore of
Bodo in the Niger Delta (Enneking 2019). The oil spillage destroyed the local fishing community
of the region. This shows that while it did provide Nigerians with employment opportunities it
also neglected the marginalized people and the local ecosystem. Shell did not respond to the
cleaning measure until recently which means that it continued to make profits from the
developing countries without solving the crisis (Enneking 2019).
The severe pollution brought by the free trade means that it aids in global warming. To
illustrate increased globalization has increased cross cultural communication that means that the
tourism industry is booming. This is good for the economy of poor countries who can earn a
great deal from the tourism revenue. However this also means that the local ecosystem which is
often delicate is also getting harmed from the process. More farmlands are being taken to create

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infrastructure to accommodate tourist. This has a direct effect on the crop production of the
African countries such as Nigeria, this affects the food security of people who mostly live below
the poverty line (Hallegatte et al. 2017). The following phenomenon has a series of
repercussions, firstly, less food production will lead to the increase in the price of food which
means that the marginalized section of the society will be incapable of buying. Due to the lack of
food production in the country they will be forced to import food from the developed country
increasing dependency on them. Lack of access to food will lead to starvation and poor nutrition
among the masses who will be more susceptible to diseases leading to high mortality rate
(Hallegatte et al 2017).
Enneking (2019) and Reinert (2019) are of the opinion that the negative effects of free
trade is more likely to affect the underdeveloped countries faster and create crisis. Free trade is
not just an economic phenomena there is deep socio-cultural effect as well that is shaping the
world economics today. Free trade has enabled the rich countries to send aid to their poorer
counterparts, while that is important to create humanitarian bonds and influence in the
government, it poses challenges as well. The governments of these underdeveloped countries
face threat in all spheres of political, economic and sociological perspective. For example, during
the Ebola outbreak people in the rural communities in Democratic Republic of Congo were
quarantined, so when the human aid was being given people were forced together to crowd
together. This shows the acute poverty situation where people have to risk their lives to get some
help (Shoman et al. 2017).
Reinert (2019) are of the opinion that this is sort of an economic colonialism that puts
profits before the well-being of the people. This is simpler for the developed countries who do
not have to deal with the end results of these policies. Reinert (2019) suggest that to combat the

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situation it is important to issue higher tariff and limitations on outsourcing. Some believe there
needs to better governance policies to protect the needs of the people especially the foreign
workers. The main flaw with the free trade policy is that in many developing countries the rule
for minimum wage is often variable and in some countries there is no fixed minimum wage. This
enables the developed countries to save enormous amount of money at the expense of the people.
Some countries such as Bangladesh depend solely on the foreign investors as they lack natural
resources and need the investors to create jobs and keep the economy afloat (Azad 2019).
Conclusion
In conclusion, free trade is a two way road and the implications are complex yet
necessary. It can be noticed from the above study that there is significant advantage to the
developed countries and in a way the poor countries have significantly more challenge.
However, the situation is gradually changing and there is increased public awareness. Therefore
there is a more discussion and debate in creating better policies that will safeguard the interest of
the developing and underdeveloped countries.

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