Question

why is there so much pushback against free trade policies? Why is it that there is so much opposition to trade despite the general agreement of economists that it is beneficial? Discuss the impact of special interests and voter irrationality in determining these outcomes. Do you believe that the Democratic process if efficient in reaching optimal trade policies? Explain why or why not.

Answer 1

Case Specifics and Examples

Free trade policies are aimed at ensuring that economies consider each other’s markets to be one and do not apply heavy tariffs or taxes on trade. Over time, numerous countries have evolved using this concept and have earned huge benefits in terms of added revenue, profits as well as greater productivity for itself.

We have examples of ex-communist countries such as India and China, which previously used to follow the concepts of a closed economy, and their overall growth rates remained extremely low. Over a period of time, as they all embraced free trade economics, their countries began seeing double digit growth rate and became prime exporters of various goods and services from being third world countries.

Now, when we see why countries look to pushback on free trade economics, it is important to note, that the core reason for this is clashes between economies on fundamental principles or any other factors such as terrorism or lack of being on the same page politically to be the core reason as to why countries have taken a step back in the recent times from free trade economics.

For example, the recent trade war between China and the United States of America, is fuelled by the lack of political connect and trade issues which have not been solved on both sides. The United States believes that China has an unfair practice of providing support to major industries such as Aluminium and steel due to which its companies suffer and as a result both these countries have pushed back the practice of free trade policies.

There are other examples of the trade war between Pakistan and India which has resulted from political instability in the region as well as terrorism and other cross border issues which have meant each of the countries do not want to trade with one another due to sentiments of voters against each other despite knowing that this could bring in great positive impact for their society at large.

Impact of Special Interests along with Voter Irrationality: -

As explained above, each trade partner often has their own interest of ensuring stability in the region and help to their own sectors to grow. This however may have disadvantages for other countries who view it as a negative trade practice and disallow free trade to occur. The example of China and America illustrates how China, for its regional development wants to provide support to major industries, however America feels that this leads to unfair gains to Chinese companies and thus halts trade.

On the other hand, when we look at democracies, in the view of economists, this is the best possible way of promoting free trade. Even if voters are irrational and would not support a government in a country like India to have trade relations with Pakistan, it would still be better than a communist government which is hard lined in its approach.

This is because, even when some people in a democracy may oppose free trade, others demanding for goods and services may still consume the same and allow for free trade to occur. On the contrary in a communist society, the government decides it or not a product would be allowed to sell or not which in most cases is down to a few people and their choices.

Thus, we can conclude by saying that democracy allows for higher choices to individuals and ultimately is a better method to select free trade.

Please feel free to ask your doubts in the comments section if any.