Trade Liberalization Can Boost Productivity By Inducing A Better Allocation Of Production Factors

Trade liberalization inspires economic growth, and ensures sustainable prosperity for everyone. The reduction and removing of tariffs has made materialistic goods like food and clothes more available and affordable to countries that are developing and have low GDP per person. For example, the average Kenyan

The technological revolution spanned many decades, but for the scope of this paper will be limited to the 1990s through the early 2000s. Prior to the 1990s, the U.S. technology market was dominated by foreign products. Conversely, several blue-collar industries, including the furniture industry, were thriving on U.S. made goods. The foreign technology market dominance shifted in the 1990s. The creation of several U.S. technology and dot-com companies swayed the technology market to the U.S., but this shift did not benefit the blue-collar industries.

Australia and China both benefit if Australia makes iron ore and resource goods and China makes manufactured goods

Globalisation inevitably increases pressure to liberalise trade and to eliminate tariffs and non-trade barriers. Liberalisation of trade within OPEC clearly resulted in China (an NIC) for example, gaining a comparative advantage over the US (MIC) in the manufacture of machinery products.

Global dependencies have grown since the European colonization of America and Africa, but since that time certain underdeveloped countries have become powerful economies thereby shifting those that were reliant to one whom others rely upon. America and China are two perfect examples of this phenomena. Over the last 40 years Asia has been one of the fastest growing economies relying on the export of goods for a large percentage of its growth. For the past few decades American innovators have been outsourcing production work to China. Nader argues the purpose of outsourcing is to increase profits, but I feel it is to allow for innovation. Without this exporting the U.S. would not have experienced the massive technological growth in recent years. Corporations are now more likely to invest in new technology because of limited risk that cost cutting measures in China allow for. The President needs to understand this and incentivize domestic production rather than punishing foreign production. If the government successfully does this, the United States would experience a growth in production alongside the current growth in technology.

The projected free trade agreements between Canada and China relates to the major economic concept of international trade and gross domestic product. Why do nations prefer to trade instead of attempting to become more self-sufficient? Nations buy goods from other nations because no nation can afford to be totally self-sufficient. Productivity increases if a nation can

“Free Trade Increases U.S. Sales and Profits Removal of costly and delaying trade barriers, such as tariffs, quotas and conditions, inherently leads to easier and swifter trade of consumer goods. The result is an increased volume of U.S. sales. Also, use of less expensive materials and labor acquired through free trade leads to a lower cost to manufacture goods. The result is either increased profit margins (when sales prices are not lowered), or increased sales caused by lower selling prices”. (White, 2011)

• Farhoomand: National Innovation Systems of China and the Asian Newly Industrialized Economies: A Comparative Analysis. Asia Case Research Centre, University of Hong Kong, HKU392. Handed out in class.

Economic analysts say trading among other countries with no stipulations improve global efficiency in resource allocation (Tupy, 2005). Free Trade delivers goods and services to those who value them most and allows partners to gain from specializing in the producing those goods and services they do best; according to Tupy’s findings, Economists call that the law of comparative advantage. Tupy also states when producers create goods they are comparatively skilled at i.e. Germans producing beer and the French producing wine, those goods increase in abundance and quality. Trade allows consumers to benefit from more efficient production methods, for example, without large markets for goods and services, large production runs would not be economical. Large production runs, in turn, are instrumental to reducing product costs while lower production

Countries are enabled by free international trade to specialise or to focus in the production of the goods in which they have a comparative advantage. Specialisation countries can take the benefit of efficiencies generated from increased output and economies of trade. The size of the firm’s market are increased by the international trade which results in lower average costs and increasing in productivity, as it ultimately leads to increase in production.

The theory of comparative advantage explains the benefit of free trade. According to this theory by David Ricardo in the early 19th century, “Both countries will be better off if each specializes in the industry where it has a comparative advantage, and if the two trade with one another.” (Citation) International trade opens up markets to foreign supplier, and domestic companies need to improve their efficiency, boost productivity, and lower cost to increase competitiveness instead of enjoying monopolies or oligopolies that enabled them to keep prices well above marginal costs. On the other hand, international trade also offers domestic companies bigger demands and broader markets; therefore more jobs relevant to export have been created. Furthermore, jobs in the US supported by goods exports pay 13-18 percent more than the US national average (ustr.gov).

The numerous trade agreements developed between different groups of countries reveal the success of developing such relationships. Countries these trade agreements have reported increased imports and

China’s patent system can be traced back to the late Qing Dynasty when China began signing international treaties. For example, on August 18, 1903, China and the United States agreed on a treaty on navigation and commerce. The treaty provided for a “reciprocal patent-granting arrangement whereby citizens of one contracting party could apply for and secure patent rights for their inventions in the other contracting party.”1 After the Qing Dynasty was over thrown in 1911, the

Liberalisation of trade has been made possible through the formation of the World Trade Organisation and several other regional trade agreements. The establishment and operation of these trading blocs has been made possible through the electronic revolution. The efficiency of the trade agreements due to the accelerated technology contains many long term benefits for member nations. Prime Minister John Howard outlines the benefits of trade liberalisation with reference to the proposed bilateral trade agreement with the United States. “A free trade agreement

To begin with the benefits of trade liberalization, while country starts to open the country borders for foreign trade with lowering tariffs and import restrictions, basically, the gains from import and export will be rise. Moreover, with the allowance of trading for foreigners who bring with them technology, investment and production skills inside borders of the country, country will achieve to fill up the lack of production skills and increase the amount of manufacturing goods, job opportunities for community, while sometimes foreign firms will benefit only from low labor costs. In the other words, a country will start to earn from comparative advantage as sector specialization and exporting goods while making sectoral transformation due to trade liberalization continuously which is also explained with an expansion of investment on research and development. Additionally, the industrialization degree of the manufacturing will be affected positively by Foreign Direct Investment (FDI) according to the country’s sector of comparative advantage. These processes can cause to make new job opportunities, boost in income per capita, advantages for consumers. All in all, these benefits can be listed as, (Arsalan Hasan,