Adam Smith And Traditional Theory Of Free Trade

In terms of efficiency, free trade thus means that every state should play to maximise their specialisation of production and to minimise doing less efficient tasks (Kindleberger, 1995). Liberals believe that specialisation will improve the welfare of an individual country and that of the world as a whole if countries specialise in one task according to their comparative advantage (O’Brien and Williams, 2013). Moreover, nation states can expand their businesses with foreign direct investments, and this leads to more dynamic business style. Free trade opens up a door to the world for every single state, and domestic companies can export and import their commodities without paying extra tariffs or tax. Eliminating trade barriers creates a field which people can play a role internationally to compete one another in order to improve national as well as international economy (Balaam, and Dillman, 2011b).

Asset Allocation Free trade enhances the allocation of worldwide assets. if the countries or individuals can do a trade for the things they require, they can concentrate on making the ones they do best. Imports have a tendency to suppress inflation,... ... middle of paper ... ...wever under fix exchange the government needs to maintain the exchange rate and in order to do so they have to sell their foreign assets and reserves against the local assets leading to a reduction in the foreign reserves of the country. Therefore the monetary policy is ineffective under fix exchange rates. REFERENCING: Jackson, J (1993) Basics of macro economics, Macro economics journal, 833-14 Keynesian (1899) Keynesian Theory and its implication, Journal of Macro Economics, 248-95 Ferguson, Brian S. (2013) General theory of employment, University of Guelph, Discussion papers, 2013-06, 186-49 Vroey, M (1994) Nash equilibrium & working, Journal of Business Economics, 208-89 Jacob, B (1987) Fixed Exchange rate policies, University of Cambridge, London, 293-97 Walt, H(1993) Monetarist theory & Classical Theory, McGraw Hill, London Press, London, 98- 122

The advantages of free trade can be seen through domestic markets and the growth of the world economy. T... ... middle of paper ... ...ystem primarily responsible for promoting global competition. Free trade also promotes shifts in production so as to fit the “comparative advantage” model. Though free trade is widely practiced concerns with how to regulate free trade, something supposedly unregulated, countries have to subject themselves to the controversial institutions of the IMF and WTO. Fair trade policies while potentially creating smaller markets support workers’ rights in both the U.S. and developing nations.

How will these changes affect the major players in the globalization process embedded in your country’s future? Changes in inflation, gross domestic product, and the labor market are all major players in the globalization process embedded in the future United States. If inflation increases the cost of goods in the United States will increase, interest rates will increase in order to maintain a profit margin. A decline in a nation GDP indicates a recession, which in turn leads to unemployment, which affects the labor market. B.

The open markets are filled with competitors trying to trade and sell their goods and services. Fair Trade laws are enacted to provide an equal opportunity in the marketplace for developing countries and small producers of goods. To protect their financial economies, .governments intervene by placing huge taxes and quotas on exports, to restricting producers who try to flood the markets with their products. This intervention also helps those producers who are facing unfair trading practices. Companies who provide cheaper made products, can cause a deficit for any country by flooding their economy with these exports.

Economic exchange is an important tool to enhance economic growth. However, contrary to the expectation, intensified economic exchange in America, as a result of free trade has negatively impacted on wage rates. Consequently, as free trade extends to non- American economies, converting the whole world to a global village, the impact on wages spreads out to other nation and with the current trend it will soon flatten wages across the globe at a low level. The deregulation in trade has resulted to relocation of production towards the cheap labor zones hence gaining a completive advantage. In an effort to compete fairly, production firms left in the developed countries try to reduce their production costs by reducing labor costs and deteriorating work environment conditions, hence resulting to a race to the bottom.

Foreign Direct Investment generates employment in the short-term by inundating the market with financial capital that must be maintained through labor. This can counteract the impact of the regular business cycle on the labor market (UNESCAP, 184). FDI can also improve the productivity of the rest of the economy. This has been especially true when FDI has been applied to the privatization of previously state-owned public enterprises. The result is greater efficiency and greater supply of services and products (UNESCAP, 185).

The idea of collecti... ... middle of paper ... ...unity to trade in order to reach their full potential to flourish economically (List 49). Consequently, state regulations for promoting public prosperity are unnecessary (List 49). In conclusion, I contend that economic integration reduces conflict, and in turn creates peace and prosperity due to interdependence, and free trade. In an era of globalized economy, countries see the resources they lack and thus, look to establish interdependent business networks that will be advantageous to both of them in the long run. Furthermore, free trade permits the greater interests of all to be discerned, and thus a more prosperous nation.

For this analysis we will be comparing free trade against strategic trade policy and a system of external economics. All three have there place, depending on how one would like to shape an economy and what compliments an economy in the most proficient way. Strategic Trade Policy First, lets analyze the system of strategic trade policy which allows government factions to subsidize and intervene with businesses within their specific sector to promote benefit for said businesses and intern the economy. This type of of government intervention manipulates trade policy to benefit the country in question through its domestic producers. “When there is a significant domestic market for a good, protection of this market raises the profits of the domestic firm” (Krugman, 1987, p.136) and is the key reason that a strategic trade policy is put into place.

Free Trade Agreements can create opportunities for Americans and help to grow the U.S. economy. According to the United States Trade Representative, “The United States is a Member of the World Trade Organization (WTO); the Marrakesh Agreement establishing the World Trade Organization (WTO Agreement) sets out rules governing trade among the WTO's 154 members.” To decrease poverty, developing economies need to grow faster, allowing the poor to benefit from this growth as well. Trade can play an important part in reducing poverty because it boosts economic growth consequently causing the poor to also benefit from that spurt in growth and development. According to Fergusson’s (2005) study, living standards in developing countries are not catching up with those in developed countries. They have made some progression yet are still lagging in comparison to developed countries and their living standards.