The paradox of free trade could not be declined, though world trade organization (WTO) has played a pivotal role to globalize the global trade by reducing the tariff and non-tariff barriers, sadly the benefits from the free trade regime has not been symmetrical. While at one spectrum, the countries with an opulence of resources are bettering-off and those who lack resources and capabilities are losing significantly due to their inability to compete in global trade platform. Some of the cost that comes with free trade are: -
Over-dependence: Free trade conceptualized in the exporting the goods in which we have a comparative advantage and importing the goods in which we lack the same. But this dependence could be detrimental whenever the situation between the countries worsen-offs. The country (Nepal) ran out of medicines, schools got closed (due to lack of diesel to run bus), national inventory for oil plunged resulting rationing (oils were imported from Indian border) (BBC, 2015) when the border between India and Nepal got closed. Similarly, the tussle between the USA and China has gone way far beyond and is impacting S&P 500 and Dow Jones often. The free trade regime between the countries has gone so deep into their economies that any protectionist move from any country, literally could jeopardize the overall global trade scenario. The cost of raw material has spiked due to the import tariff levied by Trump administration which has ultimately made the cost of living higher in the USA.
Currency war and its implication: The free trade regimes settles with the final payment of the trade between the countries. Since most of the trade happens in the US dollar denomination, the exchange rate volatility could be detrimental to the importing economy as they have to pay more and also the goods become dearer to them. As per (Boz, Gopinath, & Palgborg-Moller, 2018) 1% appreciation in the US dollar against all other currencies in the world predicts a 0.6-0.8% decline within a year in the volume of the total trade between the countries in the rest of the world.
Closer of local firms:
Basically, the infant industries of the least developed and developing countries are not able to compete with the products and services from industrialized and developed countries. The initiation of Wal-Mart in India led to the closure of existing local retail stores (Naidu-Ghelani, 2012), often the local firms are not able to compete with the economics of scales, technologies that the MNC’s have.
In general, when the government comes within the track of the free trade regime, they are supposed not to be biased with their industries. Indeed, they have to treat the import from other countries as they would have treated their own products. But in contrast, the government of the countries uses various tariff and non-tariff barriers to protect their local industries. To protect its agriculture industries, the Indian government has heavily subsidized it, it includes banquet tax exemption, subsidies on fertilizer, cheap corps insurance, high tariffs to block food imports (The Economist, 2018), similarly Japan has also protected its automobile industry will strict non-tariff barriers to the auto imports.
In reality, the global business has become a kind of suspense drama, it is intricate and it is not business alone, its political, economic, socio-cultural. Countries use various trade and non-trade tactics to manure international businesses. And all these go to add up the stack of trade disputes on the table of WTO claiming various countervailing measures like anti-dumping laws to protect the negativism of free trade.
Bibliography
BBC. (2015, December 12). Nepal blockade: Six ways it affects the country. Retrieved from www.bbc.com: https://www.bbc.com/news/world-asia-35041366
Boz, E., Gopinath, G., & Palgborg-Moller, M. (2018, February 11). Global trade and the dollar. Retrieved from www.voxeu.org: https://voxeu.org/article/global-trade-and-dollar
Naidu-Ghelani, R. (2012, November 9). Why Are India's Retailers Afraid of Wal-Mart? Retrieved from www.cnbc.com: https://www.cnbc.com/id/49605760
The Economist. (2018, July 12). India’s government claims to subsidize farmers but actually hurts them. Retrieved from www.economist.com: https://www.economist.com/asia/2018/07/12/indias-government-claims-to-subsidise-farmers-but-actually-hurts-them
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