Recent US protectionist policy and trade war once again ignited the dormant debate on free trade. Now, it is essential to know whether the free trade system is flawless or need certain efforts for further improvement. President Trump argued that Chinese export is responsible for the job losses in US. In addition, 400 billion dollars trade deficit with China is also a cause of concern for US. When the largest economy of the world is facing such situations, then what would happen with small and vulnerable nations. For you, this is the best resource to know about the negative impacts of free trade system in the global economy.
Job losses and unemployment
This is the most common argument of opponents against the free trade system. As per theirs view, firms prefer low cost production to withstand in the competition. For this, they shift theirs production activities in the low cost factors region.
For example, nowadays, production in China is widely considered cost effective due to low, wages, cheap resources and so on. Therefore, China has become the ‘factory of world.’ In such situations, people are loosing jobs in the other nations.
Loss of job is a serious thing as it impacts saving, personal capital, and standards of living. Export driven growth strategy is somehow responsible to place free trade system in the negative zone.
Insecurity of food for vulnerability
It is the least noticed but most important. Factor intensive production is at the heart of Free Trade to gain comparative advantage over others.
Hence, it is common that export-oriented and import-competing agro- industries are constantly diverting theirs land for cash or plantation crops. Such industries leave less resources for food grain production.
So far, it has often been proved by the land use policies of respective nations along the “Stolper- Samuelson Theorem.” Then what would happen at the end-less production with higher cost.
Dispute over Intellectual Property Rights
Since many decades, It has been a bone of contention between inventors and potential beneficiaries. Even after the establishment, it is yet to be resolved. These are arisen out of the disagreement over deserved benefit of patent rights and the unaffordable prices of essential commodities.
Here, inventors are stressing to recoup their investment, whereas potential beneficiaries are arguing about the unaffordable prices for their people. Secondly, majority of patent rights related to biotic resources are with developed countries, but such resources are abound in developing countries.
Regional block politics
The contours of the global market are yet to be expanded properly. Even though, the Uruguay round was a milestone in term of consensus over the barrier reduction, the later development raises many doubts over the result oriented negotiation.
It is true that regional economic blocs are engine of growth and appreciable incentive for integration. But, at the same time, these are acting bypasses or alternatives for the stagnated negotiations of the WTO. These are favoring some while discriminating others.
Economic inequality and Regional disparity
Open market embodies the democratic principle that is freedom to trade. Likewise, many staunch aspirants are pumping their investment in areas from where they could reap profit in return, ignoring unprofitable one. Hence, consequent repercussions are regional disparity and economic inequalities. It is forcing people to move to promised regions. Such migration is further accentuating problems of both regions.
Trade disputes and loss of consumers
As per the mercantilist view, export-driven economies always gain compare to importing. Following this, various actors are exploiting unconventional ways to maximize share in market, but are receiving same treatment from opposite actors. Consequently, no goods is becoming affordable either for consumer or for producers.
To preserve the interests of unskilled labors of import-competing industries, high income countries are offering large amount of subsidies for them. These practices are paving way for uneasy competition for exporters from other countries.
Loss of environmental
Cost effective production with lower opportunity cost is prerequisite to scale more in competitive market. In addition, no economic actor is ready to internalize negative externality properly, fearing to lose the advantage. So, the loser is bystander.
Sense of cultural deprivation
Large market is essential to obtain the economies of scale. To following this, many are cultivating such market either through culturally bounded product or homogenization in the global society. It is widely accepted assumptions the products convey the ideas and values of source region. This is the intentional process that is demanding the cultural interests of people. If we want to really reduce the negative impacts of free trade system, then we have no option but to eliminate discussed flaws.
These are some common negative impacts or disadvantages of free trade. Healthy competition is necessary. Conflict oriented competition will not bear better results. Instead, will cultivate breeding ground for counter arguments. After all, it is wrong to make free trade system a beast of burden for own mistakes.