Krugman's Is Free Trade Passe? Essay

Krugman's Is Free Trade Passe? Essay

Length: 1098 words (3.1 double-spaced pages)

Rating: Strong Essays

Open Document

Essay Preview

Krugman writes that in the decade preceding his article “Is Free Trade Passé?” international trade theory underwent radical change from the traditions of constant returns and perfect competition to include new models emphasizing increasing returns and imperfect competition (1987, p. 131). Comparative advantage is no longer accepted as a means to explain in totality what actually happens in trade, and extraneous factors indicate that free trade may not be in the best interest of individual nations. Krugman answers the question posed in the article title by saying that free trade it is not passé, but it is better used as a guiding principle rather than a standard rule. This paper will review the theories that challenge the assumptions of constant returns and perfect competition, as well as discuss the implications for classical trade optimism and trade policy and practice.
Krugman defines comparative advantage as “the view that countries trade to take advantage of their differences” (1987, p. 132). Comparative advantage theories assume constant returns to scale and perfect competition. Krugman writes that trade exists when countries differ from one another in goods they have to offer, technology, or factor endowments. Although there are multiple models explaining the cause of trade, each differs as to what factors are included to explain why trade takes place. Economist Ohlin and authors Burenstam-Linder and Vernon began introducing counter-points to comparative advantage as early as the late 1950’s, saying that formal models of comparative advantage did not take into account all factors affecting international trade. International specialization and trade caused by increasing returns, as well as economies of scale and techn...

... middle of paper ...

... of their country, but allowing small groups to benefit while the majority are negatively impacted or not impacted at all.
While free trade has certainly changed with advances in technology and the ability to create external economies, the concept seems to be the most benign way for countries to trade with one another. Factoring in that imperfect competition and increasing returns challenge the concept of comparative advantage in modern international trade markets, the resulting introduction of government policies to regulate trade seems to result in increased tensions between countries as individual nations seek to gain advantages at the cost of others. While classical trade optimism may be somewhat naïve, the alternatives are risky and potentially harmful.

Krugman, P. (1987). Is Free Trade Passe? The Journal of Economic Perspectives, 1(2), 131-144.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Free Trade And Trade Agreements Essay

- Introduction Free trade is a policy that lifts all trade tariffs and barriers and thus encouraging the free movement of goods (imports and exports) between nations. Agreements to free trade establish free markets where countries can engage in trade in a free and conducive environment. This type of trade is made possible by free trade agreements made between countries. According to the International Trade Administration, these agreements help minimize barriers to exports form the US, protect their interests as well as enhance the rule of law in member countries....   [tags: International trade, Free trade]

Strong Essays
2266 words (6.5 pages)

Free Trade And The International Economy Essay

- Businesses and workers have long thrived in the international economy. In recent years some countries have implemented national trade policies that unfairly favour their workers and companies; this is where fair trade agreements are introduced. Free trade helps create a more level playing field for national businesses and workers to succeed. Trade within the group is duty free but members set their own tariffs on imports from non-members (World Trade Organization, 2015). These agreements create a more accountable and fair trading relationship between two or more countries....   [tags: International trade, Free trade]

Strong Essays
1302 words (3.7 pages)

Background Of Free Trade Agreement Essay

- Background of Free Trade Agreement The Globalization of FTA (too much for the background?) According to the statistics from WTO, there are 255 regional trade agreements has been signed globally at the end of 2002 and 90% of these agreements are bilateral agreements. Bilateral agreements have gained increasingly attention and become one of the most important choices by more and more countries. In 2002 alone, Singapore has consecutively signed the bilateral free trade agreement with Japan, USA and Australia....   [tags: International trade, Free trade]

Strong Essays
1374 words (3.9 pages)

Essay about Free Trade : A Controversial Issue

- Trading internationally, along with foreign trading policies has always been a controversial issue in America. Free trade is just as taboo if not more so. Today, the United States has made an attempt to maintain an open market of trading. Free trading greatly benefits a nation’s economy. The history of trade in The United States dates back over half a century ago. Through a substantial part of history, the United States had implemented rather extensive barriers and restrictions regarding importation, in order to better protect domestic suppliers from any serious foreign rivalry....   [tags: International trade, Free trade, Export]

Strong Essays
1074 words (3.1 pages)

Free Trade And Laissez Faire Policies Essay

- Classical Economics Background Both fathers of economics, Adam Smith and David Ricardo, made a strong case for the implementation of free trade and laissez-faire policies, in opposition to the then-dominating theory of mercantilism, usually associated with France. Smith 's idea of absolute advantage, perfected by Ricardo 's comparative advantage, stated clearly that free trade is a win-win situation, because it pushes nations towards division of labour – today usually called specialisation – in an international market....   [tags: International trade, Free trade]

Strong Essays
709 words (2 pages)

Free Trade Theory : The Basic Foundation Of International Trade Essay

- Importing and exporting, goods and services forms the basic foundation of international trade. Each domestic market has its own agenda in regards to wants and needs which ultimately leads to conflict regarding interests and how to proceed when conducting business. Costs may arise when competing nations implement their own polices to try and gain an edge in the market, this can be risky if no action is taken by domestic industries. Government intervention is thus critical when considering how the environment can be managed to ensure domestic markets are still reaping benefits whilst fighting off potential risk....   [tags: International trade, Mercantilism, Free trade]

Strong Essays
1858 words (5.3 pages)

Evolving Trade Policy: The Benefits of 'Fair Trade' Over 'Free Trade' Essay

- Trade Policy is a crucial part of our society in the United States, along with many others across the globe, that greatly depend on the profits and materials accessible due to the transfer of goods, ideas, and other materials between countries. Currently the trade policy that seems to dominate the trade market is ‘Free Trade’ which tends to leave the larger, wealthier counties with the most benefits while the developing countries are struggling to compete due to the lack of materials and workspace....   [tags: fair trade, free trade, trade market]

Strong Essays
1070 words (3.1 pages)

Is Free Trade Killing Theu.s Industries? Essay

- Is Free-trade killing the U.S industries. As Trump is allegedly trying to force a high-percentage tarrif on the Chinese imports, and Bernie Sanders to oppose the former trade agreements with the Asia-Pacifics, international trade has became one of the most heated topics on the presidential political debate. Everything has its own good and bad, free trade is no exception. On the brightside, in a perfectly competitive market, free trade maximizes economic efficiency, promotes economic welwares of both consumers and suppliers....   [tags: International trade, Economics, Free trade]

Strong Essays
1215 words (3.5 pages)

Essay on Globalization: A Free Trade Phenomenon

- Globalization is “the integration of states through increasing contact, communication and trade to create a holistic, single global system in which the process of change increasingly binds people together in a common fate” (Carey 2002). Some economists recognize globalization as being in the best interest of all states. While others believe that increasingly liberated trade and global economic interaction is necessary in many ways. While globalization marks a move toward a more open world-trading regime, it can also be linked to strains on sovereignty, worker’s rights, and the environment....   [tags: Outsourcing, Offshoring, Free Trade]

Strong Essays
882 words (2.5 pages)

The Pros and Cons of Free Trade Essay

- The Pros and Cons of Free Trade Free trade is exchange of goods and commodities between parties without the enforcement of tariffs or duties. The trading of goods between people, communities, and nations is not an innovative economic practice. Nations are however the main element within a free trade agreement. By examining free trade through three different political ideologies: Liberal, Nationalistic, and Marxist approaches, the advantages and disadvantages will become apparent. Theses three ideologies offer the best evaluation of free trade from three different perspectives....   [tags: Free Trade Tarriff Duty Trading Goods Ideology]

Strong Essays
928 words (2.7 pages)