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Effect of Free Trade

Prompt: As we have seen free trade is currently the predominant economic arrangement of the global economy.  How do free trade agreements (formalized or not) reflect the economic power imbalances between the Global South and North?  Additionally, how is fair trade a response to such inequalities?  In addition to clearly explaining the power imbalances, your answer must demonstrate that you understand the meanings of free and fair trade.

 

            Free trade is the result of transnational companies searching for cheap labor and maximum profit. In free trade, the price of a good, or wage levels, are established by the relationship between supply and demand (Williams 306).  The desire for free markets lead countries like the United States, and others of the Global North, to shift manufacturing to Third World countries.  Free trade “pressed developing nations to lower tariffs on imported goods and to create new export-oriented manufacturing zones, largely to serve the needs of those foreign firms” (Gonzalez 249).  Free trade arguments are based on the operation of a perfect free market, but on the opposite end, people make the case that the global economic system is not set up as a perfect free market (Williams 322).  Although this is currently the predominant economic arrangement of the global economy, free trade creates major power imbalances between the Global North and the Global South.  Countries or corporations (of the Global North) have the power to work the system to their own advantage.

While countries of the Global North prospered from the boom in expanded trade, “the Latin American nations that rushed to adopt the neoliberal model soon discovered it did not produce the miracle progress for ordinary people its proponents had promised” (Gonzalez 250).  For example, the mass amounts of foreign capital infused into the Mexican economy forced many small manufacturers and farmers out of business.  This caused a large amount of unemployment for millions of people.  “By the late 1990s, wealth disparity had grown so rapidly that the region was reporting the biggest income gabs in the world between rich and poor” (Gonzalez 250).  Reliance on free trade prohibits those who do not have the money to play a part in the market as consumers and/or workers.  This is a case where people and countries of the Global North become richer, and the people of the Global South become poorer—only adding to the power imbalances that already exist. 

On the other hand, fair trade plays an important role in response to inequities between the North and South.  “The fair trade system guarantees the producers a fair price for their goods, regardless of the market value” (Willaims 320).  Fair trade aims to help producers in Third World countries, and promotes sustainability.  It gives small producers an “economic incentive to keep performing the series of ecologically beneficial services…” (Jaffee 162).  Unlike free trade where small producers cannot maintain crops or the production of goods when demands are high and times are tough, fair trade guarantees income regardless of the conditions.  This extra income generated by fair trade is critical for developing countries.

Market-led development such as free trade does not necessarily mean the absence of the state, but rather a shift in roles as the provider (of goods and services) to an institution that allows people, companies, and economies to make decisions on their own (Williams 305).  Free trade zones were meant to stabilize economies, and although they do supply people with low-wage jobs, these zones do more damage than good by forcing unemployment on many communities in developing countries.  This also fuels massive amounts of emigration to countries of the Global North, which in turn brings more money into First World economies.

 

Work Cited:

Gonzalez, Juan. 2011. “Free Trade: The Final Conquest of Latin America.” Pp. 249-227;   344-348 in Harvest of Empire: A History of Latinos in America. New York:            Penguin Books.

Jaffee, Daniel. 2007. Chapter 5: “A Sustainable Cup? Fair Trade, Shade-Grown Coffee,   and Organic Production.” Pp. 133-164; 298-300 in Brewing Justice: Fair Trade           Coffee, Sustainability and Survival. Berkeley: University of CA Press.

Williams, Glyn, Paula Meth, and Katie Willis. 2009. Chapter 10: “Market-led         Development.” Pp. 305-332 in Geographies of Developing Areas: The Global          South in a Changing World. Pp. 28-44. London: Routledge.

 

RELATED: International Trade development: Trade and globalization

 

 

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