Free trade agreements promote trade and peaceful economic cooperation between two or more countries. See our article here about “Free Trade Agreements and How They Work”. These treaties bring many benefits to participants, but they can also have some downsides. However, when properly and fairly implemented, the upsides of free trade agreements usually far outweigh any potential downsides.
In this article, we will look at some of the major pros and cons of free trade agreements.
The Upsides
Enhanced Economic Growth – Free trade promotes increased levels of commerce and business activity, resulting in enhanced economic growth. In an atmosphere of free trade, countries can focus their resources on their strengths and increase their presence and competitiveness in the global marketplace. Reduced costs associated with tariffs and regulatory compliance may also potentially reduce prices and spur demand.
Reduced Government Spending – Maintaining restrictions, enforcing quotas and providing subsidies is costly. Free trade agreements reduce or eliminate a lot of this, freeing up government money so that it may be better utilized elsewhere.
Increased FDIs – When a nation is open to free trade, trade partners will be happy to supply foreign direct investment. The benefits of this are many including healthy foreign exchange inflows, improved infrastructure, more jobs and overall increased economic activity.
Technology, Expertise & Knowledge Sharing – As trade partnerships flourish, technology, expertise and knowledge sharing occur, creating new opportunities and potential for further growth both on a social and economic level.
The Downsides
Excessive Job Outsourcing – Free trade agreements can cause jobs to be outsourced from developed countries to emerging markets. We see this with NAFTA and how US companies have outsourced jobs to Mexico, China and India.
Abuse of Workers & The Environment – Because emerging and frontier markets may have less robust regulations concerning labour and the environment, there is potential for irresponsible and unethical business practices, which is why some trade agreements and programmes, such as those with the EU, require the other parties to conform to certain norms with regard to these issues.
Unfortunately, as trade is never 100% free and likely never will be, imbalances will always occur within trading relationships. Furthermore, politics and public opinion will only ensure that the goal of true free trade is never fully attainable. In these circumstances, and depending on macroeconomic factors, some will appear to win or lose more than others from every free trade agreement.
In this article, we will look at some of the major pros and cons of free trade agreements.
The Upsides
Enhanced Economic Growth – Free trade promotes increased levels of commerce and business activity, resulting in enhanced economic growth. In an atmosphere of free trade, countries can focus their resources on their strengths and increase their presence and competitiveness in the global marketplace. Reduced costs associated with tariffs and regulatory compliance may also potentially reduce prices and spur demand.
Reduced Government Spending – Maintaining restrictions, enforcing quotas and providing subsidies is costly. Free trade agreements reduce or eliminate a lot of this, freeing up government money so that it may be better utilized elsewhere.
Increased FDIs – When a nation is open to free trade, trade partners will be happy to supply foreign direct investment. The benefits of this are many including healthy foreign exchange inflows, improved infrastructure, more jobs and overall increased economic activity.
Technology, Expertise & Knowledge Sharing – As trade partnerships flourish, technology, expertise and knowledge sharing occur, creating new opportunities and potential for further growth both on a social and economic level.
The Downsides
Excessive Job Outsourcing – Free trade agreements can cause jobs to be outsourced from developed countries to emerging markets. We see this with NAFTA and how US companies have outsourced jobs to Mexico, China and India.
Abuse of Workers & The Environment – Because emerging and frontier markets may have less robust regulations concerning labour and the environment, there is potential for irresponsible and unethical business practices, which is why some trade agreements and programmes, such as those with the EU, require the other parties to conform to certain norms with regard to these issues.
Unfortunately, as trade is never 100% free and likely never will be, imbalances will always occur within trading relationships. Furthermore, politics and public opinion will only ensure that the goal of true free trade is never fully attainable. In these circumstances, and depending on macroeconomic factors, some will appear to win or lose more than others from every free trade agreement.
