Why free trade needs a comeback

The purpose of free trade is to benefit all countries, producers, and consumers. In theory, free trade would bolster efficiency by stimulating producers to maximize their production efficiency and avoid any wastes. If a producer fails to be efficient, it would be challenging to survive, leaving the most efficient producers to gain an advantage in trade. If this were to occur in all markets, resources would be allocated to only the efficient producers that are left. Efficient production would minimize production costs, and consumers could purchase quality products at a relatively lower price. Traders would gain an arbitrage profit as well.

Advantages of Free Trade

As mentioned above, international specialization is one of the main benefits of free trade. It increases total production while allowing countries to enjoy a variety of products. Since countries produce select goods at lower costs, various industries can benefit from economies of scale. International trade causes an increase in both world production and consumption, and can effectively break up domestic monopolies by encouraging international competition. Without free trade, the narrow home market would pose as an open invite for domestic firms to exercise control over different industries. 

International trade also allows countries to be more understanding with each other by learning other cultures and policies while trading. In turn, this helps reduce commercial rivalry and prevent potential wars. The productivity and earnings increase in factors as well, since the countries they trade with have a comparative advantage in a specific type of production. Moreover, free trade removes the downsides of protection like high prices and an increase in monopolies while promoting fairness and improving managerial efficiency instead.

How Can Free Trade Recover From the Pandemic?

Due to the coronavirus pandemic, the global economy is currently in a deep recession and may continue to be in one for the next five years. Even worse, there is still the looming uncertainty of knowing when the pandemic will end. If it continues, it will most likely damage the supply chains and trade connections. As a result, the implementation of sustainable efficiency is more urgent than ever. 

Minimizing production costs without thinking about other alternative costs cannot be considered as efficiency. What may have worked before may not sustain after the pandemic. In this case, understanding sustainability is crucial, and we must take into consideration all the different aspects of sustainability: environmental, social, financial, and cultural sustainability. When we minimize production costs, we need to care about social structure, social development, a fair distribution of financial resources, cultural development, and cultural interaction between different societies. 

Along with sustainable efficiency, we must also figure out what can make our supply chains more resilient to adapt to the “new normal.” As of now, some experts believe more inventory could be one possible measure to protect against future risks. To keep our supply chain resilient, we must embrace broader trade agreements instead of narrowing them down and need a free flow of goods along with regionalized supply chains, especially among industries that have been affected the most. A freer and fairer international trade with sustainable efficiency are needed for the economy to recover fully. 

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