Objections to Free Trade and their Validity
In line with the advantages of free trade discussed here, there is a set of objections to free and these objections can be represented through the following four points.
Firstly, free trade is criticised due to its perceived disadvantages to local producers. The concept of free trade promotes open competition without barriers in the global scale. Thus, companies from abroad with strong competitive edge may present serious threat to the levels of revenues of local businesses.
However, this threat can be used as a positive factor as well, in terms of motivating local producers to innovate and search for additional sources of competitive edge in creative ways. From this perspective, local producers need to be assisted by government through building effective infrastructure for competition rather than being protected from foreign competitors limiting their motivation to innovate.
Secondly, free trade is blamed for causing trade deficits with detrimental impacts on national economy. Specifically, trade deficit is an absence of balance between imports and exports and reducing the levels of trade deficits is one the main macroeconomic goals of the government.
Trade deficit between US and China has been estimated to be as much as USD 40.6 billion (Crutsinger, 2014, online), and a range of economists point to this number as one of the main reasons for severe economic issues in the US.
At the same time, counter-argument can be formulated in a way that “a growing trade deficit, despite its misleading name, is a good for the economy. It is typically a signal that global investors are confident in America’s future” (Boudreaux, 2014, online).
In other words, there is a positive correlation between trade deficit and the levels of investment in the national economy from abroad, and these investments have great potential to revive national economy.
Thirdly, free trade is criticised for shifting jobs to other countries. Free trade may have negative implications on prospects of new job creation in a country, because demand for products and services can be satisfied by foreign businesses. The validity of this statement is hard to criticise, however, it can be argued that protection of low-skilled jobs within a country through tariffs has negative impacts on competitiveness and innovation potential of local industries.
It needs to be understood that loss of jobs in developed countries are primarily caused by rapid technological advancements with advanced mobile applications reducing the need for human resources and even making some professions obsolete rather than due to the impacts of free trade (Boudreaux, 2014, online).
Therefore, protection of low-skilled jobs within the boundaries of national economy is not an effective approach for long-term perspective, and instead governments need to develop the infrastructure for innovation so that sustainable competitive advantage can be gained in the global marketplace.
Fourthly, free trade has negative effects on environmental issues. This point represents the only objection for free trade in this list that needs to be totally agreed with. Profit maximisation is the primary objective of businesses and the pursuit of this primary objective is associated with increasing the levels of outputs, at the same time when decreasing the costs of input.
In their attempts to gain cost advantage in the global competition businesses may intentionally or unintentionally neglect negative environmental consequences of their operations and this may lead to a wide range of environmental problems such as global warming, deforestation, depletion of natural resources, etc.
Moreover, there are vast differences between countries in terms of environmental legislations. Accordingly, in free trade environment businesses from countries with weak environmental legislations may gain unfair cost advantage over businesses with solid corporate social responsibility (CSR) programs, and this point marks a substantial shortcoming of free trade.
Boudreaux, D.J. (2014) “The Benefits of Free Trade: Addressing Key Myths” Available at: http://mercatus.org/publication/benefits-free-trade-addressing-key-myths
Crutsinger, M. (2014) “US Trade Deicit Drops to $40.6 Billion in October” Available at: http://abcnews.go.com/Business/wireStory/us-trade-deficit-drops-406-billion-october-21093014