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).
The free trade market place is looking and routing for ASEAN Economic Community’s success. It is seen as the catalyst that will energize the free trade market and will be good for the United States, Europe, and beyond. There has been many studies done supporting this theory and many countries are convinced as seen by them supporting this by their investments in ASEAN Economic Community. Free Trade has been good for all nations and opens the doors to the world’s economy, promotes social, political and labor improvements making the world as a whole a better place.
Introduction Adam Smith, author of The Wealth of Nations, shows support for free trade and emphasises it as a trade policy which ought to be adopted. Krugman and Obstfeld back Smith's support by stating that the efficiency of trade is increased by free trade and accumulates the national income of countries. Free trade is a theory which suggests that each nation benefits in specialising in an economic activity from which it gains absolute advantage, enjoying absolute superiority over other nations in a specif economical activity (Peng). With free trade follows opportunity, replacing regulation and growth of economic activity. (Rugmann and Collinson).
Furthermore, free trade permits the greater interests of all to be discerned, and thus a more prosperous nation. Therefore, competitive relationships are avoided and meaningful ones are created through economic integration. Finally, it is clear that economic integration produces peace, and minimizes the chance of conflict erupting between various nations.
NAFTA resulted in the losing close to 750, 000 jobs in the United States alone as a result of business moving to Mexico. Consequently, personnel individuals suffering from NAFTA, could not bargain for a salary increase.
The capitalistic economy makes a way for companies to change with society in a way that businesses are happy because their sales are improved and consumers are happier because they get the products they want. The free enterprise system is the engine that drives the United States economy and continues to work to this day.
Low tariffs on import increases jobs outsourcing which will negatively affect the employment opportunities in developed countries. The RTA signed between US, Mexico and Canada (NAFTA) reduced tariffs on imports allowing foreign companies to expand and outsource their production. (EPI, 2003) As a result, the bargaining power of American workers was undercut. (Faux, 2013) NAFTA caused the loss of 700,000 jobs as the production moved to Mexico. The jobs lost were mainly from California, Texas and Michigan, where the majority of US manufacturing relies.
What is free trade? Free trade is international trade of goods and services without tariffs or other trade barriers. Krugman (1987) in Is Free Trade Passé looking for a real free trade which is depend on perfect competition and constant returns. Nowadays, countries are more likely to follow Strategic Trade Policy that give domestic firms, households or factors of production an advantage over foreign ones. Comparative advantage theory has many assumptions one of them is constant returns, it is traditional models of international trade.
The core of Adam Smith Free Trade International Trade Theory is all parties involved in trade have received trade benefits in the free trade transactions. Adam Smith thinks different countries produce the same product with different costs; the country should produce the definite low cost products instead of absolute high products. The products can be exchanged with other countries, so that the two countries will increase labor productivity and decrease the costs. Obviously, labor and capital can be properly distributed and utilized. Citizens could enjoy the variety goods and services at the lower costs, but the exchange needs international market free trade.
This means the policy allows for the unlimited import and export of goods between the countries. The objective is to strengthen trade and commercial ties between the countries. Free trade agreements [FTAs] can be between two countries and/or multiple countries in a region. FTAs are often referred to as an international treaty between the countries and are sanctioned by