Question

What are the benefits of international free trade? Do all parties gain if there is free trade between countries? Use the trade between the US and Mexico to explain your answer.

Answer 1

Benefits of International Free Trade are –
1.There is an increase in growth of economies of countries.
2.The trade ecosystem is more dynamic as countries do not have to follow protectionist measures to safeguard their domestic economy
3. It also led to lower govt. spending as the subsidy for local industry is no longer there and funds could be utilized elsewhere.
4.There is increase in foreign direct investment which increase the liquidity in the market and boost local economy.
5.Internaltional trade also makes it possible for technology transfer among economies.
Some disadvantages of International Free Trade are –
1.There is increase in job outsourcing and hence dearth of jobs in the local market.
2.Unchecked trade also lead to exploitation of natural resources of vulnerable countries
3.Influence of outside culture dilutes the local custom and traditions.

In the context of US-Mexico trade, some key points to note are –
1.Mexico is the 2nd largest export market for USA while Mexico was USA’s 2nd largest supplier of imported goods as well.
2.The USA has a trade deficit with Mexico but has a service trade surplus with Mexico
3.USA’s FDI in Mexico is mostly in manufacturing, non-banking financial services, finance and insurance and the size is much higher in dollar terms than Mexico’s FDI in USA.
We can see that International Trade has its advantages and disadvantages and economically sound countries always have an edge over the trade in multiple parameters. However, developing nations can also derive benefits provided the govt. makes it a point not to lead anyone exploit the situation.