✍️✍️✍️ Cons Of Fair Trade

Monday, December 13, 2021 7:15:33 AM

Cons Of Fair Trade



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Victor Claar: Is 'Fair Trade' Fair?

Thus, international trade may also give companies a higher level of security against bankruptcy and other serious financial issues. Since countries can specialize in the things they can produce in the most efficient manner, global trade can significantly increase the overall welfare levels on our planet. This means that we as humanity are able to consume more goods and services on average compared to a state without international trade. Due to distribution problems, some people might even suffer from international trade since their countries might lose their competitiveness. Thus, even though overall global welfare increases due to international trade, some countries might even end up worse compared to a fictive state where there is no international trade at all.

Since international trade will increase the overall welfare levels in many countries, the tax revenue in those countries will also likely increase. Another upside of international trade is that firms get access to industry experts all over the world. In certain fields, especially in those areas where technology is not mature yet, there is often a quite limited number of people who really know what they are talking about. In those areas, it is crucial for companies to hire those experts in order to get a competitive advantage.

Thus, with international trade and globalization, it is much easier for those companies to hire those experts or at least to manage cooperations with them. Focusing on just one single local market is often quite risky since in times of local economic downturns or other issues in this region, companies may get in serious financial trouble. Thus, by targeting different markets and by engaging in international trade, companies are less dependent on one single market and they can diversity their geographic business risk due to that.

Since international trade is quite important in our nowadays state of the world, countries may refrain from serious conflicts since they do not want to put their important trade connections at risk. International trade also allows investors from all over the world to finance projects in countries abroad. This is not only beneficial for the profits of investors, but may also improve the living conditions of many people in poor countries since through investments in those countries, the economy will be strengthened and more people may be able to get a higher income and to provide for their families. From the previous analysis, it has become clear that international trade has many advantages and can be a major factor in order to improve and assure our global wealth.

One disadvantage of international trade is that it often implies a significant dependence on countries. For instance, if large amounts of a special commodity are shipped to another country and the commodity is quite rare, the exporting country can often dictate prices and the receiving country may have to pay those prices since there may simply be a lack of alternatives. Therefore, international trade can lead to an unpleasant level of dependencies on other countries, which may be pretty economically harmful to certain countries. Due to economic dependencies from other countries, some countries may also be forced into conflicts which they actually do not want to be involved in.

Even though international trade has the potential to improve the living conditions of billions of people on our planet due to welfare gains, there is still a significant distribution problem regarding this gain in wealth. While some countries in our rich Western world greatly profit from international trade, other countries may actually suffer since they might not be able to compete in this fierce global market and the local population may rather suffer than profit from those trade activities.

Therefore, international trade can even lead to serious global injustice in some poor countries of our planet. Global trade may also lead to significant local unemployment. While the economy of some countries may greatly benefit and companies may be able to create high numbers of jobs, companies in other countries may be significantly harmed by global trade since they might lose their competitiveness, which in turn may lead to job losses in those countries. For instance, while big companies are often able to profit from international trade since they are able to expand their economic territory, small companies may not have this opportunity since they have limited financial resources and expanding to other markets may be costly.

Therefore, especially for those small companies, global trade may lead to serious financial trouble and many of those small businesses may eventually lose their competitiveness and go out of business in the long run. Since global competition increases significantly, companies all over the world have an incentive to expand as fast as possible. However, this expansion process often involves the production of high amounts of material goods, which in turn implies serious levels of greenhouse gas emissions and eventually contributes to global warming. Another problem of international trade is that the related fierce competition will give companies an incentive to excessively pollute our environment.

For instance, emissions do not stop at country borders but will hurt our whole planet since they contain harmful greenhouse gases that contribute to global warming. However, companies will not take those negative externalities into account since they are not charged for those emissions properly. Therefore, every company has the incentive to excessively pollute our environment in order to accomplish higher production levels, even though this will lead to an unpleasant environmental outcome for everyone in the long run. International trade also contributes to the resource depletion problem.

Since our global welfare levels increase on average due to international trade, people are able to consume more material goods. For the production of those goods, large amounts of natural fossil resources have to be used, which may cause serious problems since at one point in time, some of our natural resources may be entirely depleted and we will no longer be able to use those resources for production purposes.

This may lead to a variety of problems since we might no longer be able to produce many important goods due to a lack of commodities. For instance, if two countries had problems in the past and their cultural values are also quite different, those countries may not be able to establish fair trading agreements and for those kinds of problematic relationships, trade will be of no use. Some big corporations also managed to avoid or at least to greatly reduce their tax burden through international trade and offshore firms. This can be considered to be quite unfair since companies who earn the most should also contribute to tax revenue in an appropriate manner.

Another disadvantage of engaging in international trade is that there is a significant exchange rate risk associated with it. If the currency in the foreign country significantly appreciates, you might be in serious trouble since you have to spend much more for the same amount of raw materials now. Thus, if you do not hedge against those currency risks, you might get in serious trouble sooner or later. International trade also implies the need to adjust business actions in order to comply with international and foreign laws. While companies who only engage in national markets just have to make sure to comply with local laws, companies engaging in international trades also have to take into account several other regulatory frameworks, which may be costly since the help of experts may be needed in order to comply with those international regulations.

For instance, you might not be able to evaluate the financial counterparty in a foreign country correctly. If this counterparty goes bankrupt, you may be in serious trouble since you might not get the money this company might still owe to you. Therefore, international trade can also significantly increase the counterparty risk for companies. Globalization and international trade may also lead to a state where highly skilled workers might leave their home country since they are able to earn much more money abroad.

Free trade agreements have also drawn protests from the U. Yet proponents of free trade say new agreements improve the economy on all sides. The WTO acknowledges that free trade does indeed lead to job losses. What happens is the other eight are lost not because of trade but they are lost because of new technologies, innovation, higher productivity. That would certainly be a strong argument against free trade, not for it. And, it looks like Perot was percent correct, notes "Business Insider" stating:.

Unions, understandably, have strongly criticized the free-trade agreement as critically harmful to workers and the U. The unions contend that the increased capital mobility facilitated by free trade has hurt the environment and weakened government regulation. It remains to be seen how effective this new agreement will be in softening some of impacts of unfettered free trade. Others agree that the environment is another casualty of free trade. Put simply, you can't have free trade and "save the planet," says Alf Hornborg, a professor of human ecology at Lund University in Lund, Sweden, noting:.

The expanding ecological footprints of affluent people are unjust as well as unsustainable. The concepts developed in wealthier nations to celebrate 'growth' and 'progress' obscure the net transfers of labor time and natural resources between richer and poorer parts of the world.

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