Sample Essay on Trade Liberalization
Trade liberalization is the removal of trade barriers that exist between different countries for purposes of encouraging trade. Since the end of World War 2, governments have worked together on efforts that eliminate or reduce export subsidies and import restrictions.
The motivation behind this is that liberalizing or deregulating trade would lead to an increase in trade volume, promote economic growth as well as improve standards of living globally. Countries that enjoy prosperity and sustained growth have already opened their markets to investment and trade.
Through liberalization of trade and capitalizing on comparative advantage areas, countries are able to enjoy numerous economic benefits. Use of resources such as labor, land, human capital and physical resources should be focused on what countries can do best.
Measures for trade liberalization should be carried out on multilateral basis then complimented by appropriate labor, education policies and employment so the benefits accrued from trade can be shared. Trade liberalization involves 3 major components which include:
- Reduction of tariffs
- Elimination or reduction of quotas
- Reduction of non-tariff barriers.
Non tariff barriers are those factors that make trade expensive and difficult. For instance, specific regulations on certain goods can provide an advantage that is unfair to producers of domestic goods. International trade is made easier by harmonization of safety and environmental legislation.
Trade liberalization is pursued on different levels such as regional, multilateral and bilateral. Over the last five decades, liberalization on all these levels has been successful.
Advantages of Trade liberalization
Trade liberalization offers numerous advantages some of which are as listed below:
- It makes it possible for governments to specialize in production of services and goods that have a comparative advantage making it possible for the economy to enjoy a net gain.
- Due to removal of tariffs, prices are lowered and consumers are able to buy products and services at low costs. For instance, removal of food tariffs in the West aids in reduction of agricultural prices on a global scope. This especially benefits countries that import food.
- It leads to increased competition since firms also face competition from abroad. This increases the level of efficiency, cuts costs and also acts as an incentive for the economy to shift to new industries where they can enjoy competitive edge.
- Liberalization also opens the way to economies of scale which increases specialization. Economies also concentrate on production of particular goods and this can be beneficial in increasing savings.
Trade liberalization can open the way to numerous economic benefits. However, most of the benefits are not equally distributed and success is often dependent on the flexibility of the economy. What is more, it works better in countries where the economy is more developed than in countries where the economy is unstable.
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