Question

Explain trade. Is free trade fair in every culture? Provide examples.

Answer 1

At the core, trade is basically an economic concept wherein there is a provision and receipt of goods or services with an exchange/ compensation between the providing and receiving party. In the earlier times, this exchange used to be in the form of goods/ services (called as barter) whereas, after introduction of monetary assets this exchange is generally in the form of money. Now, to understand aspects of free trade, let us talk a bit about a few trade scenarios. Now, a transaction even as small as buying a candy from a grocery store can be considered as trade since there is exchange of a commodity for monetary asset. Now as we look at trade at a more macro level, we can see a lot of complexities and conditions associated with trading. Let us look at the background of the candy we just bought from the store. Now, this candy is being purchased by the store in wholesale from a distributor who might be buying it from the company directly. Now, this is where things get interesting. The company from which the distributor is buying can be a local national manufacturer or it may be an overseas manufacturer exporting their candy to other countries. Now, in the case the company is based overseas, the economies of more than one country gets involved and from here, the concept of free trade can be understood. Now, when there is more than one economy involved, due to the difference in economic state of the countries and governing policies, there are conditions such as tariffs, fee, commission, etc. on imported/exported goods. Free trade is a concept where all these tariffs and limitations are waived off to encourage trade exchange. There are several benefits of free trade, for example, it opens up markets to new products and services. At the same time, it is advantageous for corporations to sell their products easily overseas. Consequently, it boosts the generation of currency. Now, let’s see a few situations where free trade might not be fair to everyone. Now for a labor-intensive country where the cost of goods is low, on export, after imposition of tariffs and other fees, the advantage of the importing country might not be at that much margin to the end user. Also, with the increase in imported goods, there might be a decline in the employment rate of receiving countries. Labor wages will go down significantly causing a disrupt in life of low-medium skilled workers. This wealth will mostly go to medium-senior level management class people in companies. This will cause a disbalance in distribution of wealth.