Trade Liberalization
Definition
Trade liberalization refers to eliminating or easing trade
barriers between countries to promote free trade of goods
and services. Examples of trade barriers are tariffs, import
quotas, embargoes, and non-tariff barriers.
The removal or reduction of trade barriers is an important
element in a free trade agreement and increases the
competition in the world market for goods and services.
Moreover, integration into the global economy is vital for
nations to promote economic growth, industrialization,
urbanization, and prosperity.
Key Takeaways
Trade liberalization refers to facilitating trade between
countries by removing or reducing trade barriers.
It is an important element in establishing free trade, and
the process always includes the reversal of
protectionism measures.
It benefits countries in different ways. Its positive effects
include introducing various products, services, ideas,
technologies, etc.
It also gives disadvantages like unhealthy competition
for domestic entities, overdependence on foreign
nations, overexploitation of human capital,
environmental damages, etc.
Trade Liberalization
Explained
Trade liberalization is significant to the global economy; it
promotes free trade and contributes to globalization. It
started gaining popularity in the early 1980s, specifically in
developing countries. However, the output obtained by
different countries varies. Some countries experienced a
rapid expansion of exports of manufactured goods, fast
expansion of industrial supply capacity, and upgrading,
mostly East Asian countries.
For example, China benefitted from the reforms implemented
between 1995 and 2001. But, at the same time, countries like
Africa and Latin America experienced non-prolific impacts like
the non-acceleration of the industrial base. Hence there are
opponents and proponents of the ideology.
The idea’s proponents advocate that liberalization fosters
economic growth supported by increased investment and
physical capital accumulation. In the long run, it reduces the
poverty level in the nation. Opponents of the concept focus
on its side effects like poor employment conditions, labor
standards, income inequality, etc., contributing to a “race
to the bottom” phenomenon. So, they always hold onto the
implementation of protectionism measures.
Examples
In the late 20th century, the Philippines launched its trade
liberalization program. The diminution in industrial protection
enforced by strong tariff barriers and import controls was one
of the starting points. It leads to the liberalization of imports
significantly. These reforms looked to have delivered
significant damage to the import substitution development
strategy that had characterized the nation’s trade and
industrial policy. However, the initiative was halted in 1983,
as the country had its greatest BOP crisis and economic
recession. Again, the reforms were reintroduced in 1986
when the economy gradually recovered and foreign
exchange limits eased.
Another example is trade liberalization in the United States.
The free trade agreements in the United States have created
a minor but favorable impact. Since 1984, the economy
has grown by $88.8 billion and gained 485,000 full-time
employment; however, the benefits have not been spread
uniformly, with college-educated males benefiting the most.
Another discernable issue is the exploitation of American
employees. The agreements frequently benefit multinational
firms at the expense of American employees. For example,
while promoting trade liberalization and investor protections,
governments fail to defend worker and environmental rights
effectively. Hence, as the country recovers from the
epidemic, the Biden administration’s trade policy prioritizes
workers and middle-class people.
Advantages &
Disadvantages
There is a handful of trade liberalization benefits and, at the
same time, produce negative impacts also. Let’s look through
some of the advantages and disadvantages.
You are free to use this image on your website, templates, etc., Please
provide us with an attribution link
Advantages/Benefits
Trade barrier relaxations increase imports and exports.
It introduces various goods and services at reasonable
prices.
When countries collaborate, they introduce their cultures
which is an important element in developing a healthy
community.
It can foster FDI, industrial growth and subsequently
create more employment opportunities.
An increase in the brain drain phenomenon and
domestic supply of skilled workers is an incentive to
improve education.
Promotes shift to a globally scalable business model.
Promoting free trade leads to the reallocation of
government funds initially spent on factors
like subsidies.
It eases technology transfer from developed countries to
developing and underdeveloped nations.
Disadvantages
Imports make it challenging for domestic companies to
establish because of increased competition and lack of
support.
Gradually, it may lead to overdependence on foreign
products and services.
Favoring FDI-friendly policies and SEZ sometimes leads
to exploitation of the workforce. They may face long
work hours, low wages, and unhealthy working
conditions.
It makes less-developed countries struggle to
replace revenue lost through import tariffs and other
fees.
Loosened regulations and lack of concern for
environmental protection can cause depletion and
degradation of natural resources.
Brain drain associated with liberalization policies can
reduce the availability of human capital in developing
countries.
It can affect indigenous people. For example, relaxed
regulations can encourage and ease the acquisition of
indigenous people’s land for corporate use.
Frequently Asked Questions
(FAQs)
What is trade liberalization meaning?
It is the easing or elimination of trade barriers to facilitate the
exchange of goods and services between countries. It focuses
on reducing the complexity involved in international trade.
Developing and underdeveloped countries can secure FDIs
and contribute to economic growth by presenting a trade-
friendly environment.
Explain trade liberalization advantages?
Advantages include introducing new products and services,
sharing technological ideas, innovations, and culture, thereby
developing a healthy community, healthy competition
resulting in affordable prices, and businesses developing
globally scalable business models.
Is the Philippines a trade liberalization?
Before the twentieth century, the Philippines followed a
complex set of protective laws, investment incentives, and
regulatory controls. High tariffs, quotas, and regulatory
policies effectively regulated pricing, domestic supply, and
market access in the manufacturing sector. However, by the
early 1980s, the government had begun to remove tariff and
non-tariff obstacles, preparing trade liberalization paths.
https://www.wallstreetmojo.com/trade-liberalization/
