Effects of global free trade on the standard of living in developing countries

I will be carrying out a study to identify the pros and cons of global free trade which is raising the standard of living in developing countries, but firstly it is important to identify what is meant by free trade, standards of living and the definition of developing country.

Free trade

Free trade is an ideal that the World Trade Organisation (WTO) has been striving to attain since its foundation 60 years ago. Free trade is a system that encourages all countries to produce and export what it is best at. If applied fairly and collectively, free trade should benefit all. Trade between various countries of the world which enables people to attain food and materials that they cannot produce for themselves without the interference of the government.

Raising standards of living

Higher incomes are one of the signs to rising standards of living, there are, however many more aspects to the standards of living of an individual, one reason is education. Education does not only let the workforce become more productive but also increases the ability of the individual to enjoy and appreciate their culture. Another example such as working. Access to working does not only provides an income but also provides self-esteem and purpose of working. Rising living standards are also linked to the ability of people to contribute in society. The poor are not given that opportunity as they do not have the income to buy.

Developing countries

Developing countries are countries that have a low standard living; these countries usually have a low gross national income per capita even though they are in an economical development. They also have a high gross domestic product per capita. Another economic measure is also industrialization. A number of international organizations like the World Bank have researched many developing countries and one of the developing countries is china. They also researched developed countries which are countries with a higher GAI per capita such as the USA and United Kingdom. The World Bank investigates all the countries around the world and it researches in what category the countries fit in, there are three main categories which are low income, middle income and high income countries. Most countries fall in low income group and middle income groups, few countries fall in the high income group.

Now that we have established the three main factors of the statement it is important to understand that the world is becoming more globalized. Globalization is an ongoing process in which countries are becoming more integrated in terms of social, cultural and economical factors. The current form of globalization involving free trade and open markets are facing much disapproval. Democratic countries are affecting elected leaders abilities to make decisions in the interests of their people.

I will now be arguing the pros and cons on global free trade and how it is raising the standard of living in countries.

Pros

* Due to globalization one of the advantages is that free trade between countries is increasing because countries are effectively becoming more similar due to the fact that many countries are becoming more self-sufficient.

* The developing world uses more efficient resources, this means that all the countries that are involved in free trade are at profit.

* As an outcome in most countries prices are low, employment will increase and therefore there will be an increase in income and higher rates of economic growth for the countries who are mainly involved in free trade that experience rising living standards.

* Some developed regions are progressed at the costs of other developed regions; this means that there is a threat to other regions.

* Because globalization is increasing, skills and technologies enable to increase the living standards throughout the world.

* In many countries population has increased due to the fact that in two decades, from 1981 to 2001 people surviving on 1$ or less per day increased.

* In many developing countries population decreased from 40% to 20%. War between developed nations is likely to reduce

* Immense easiness and pace of shipping for supplies and citizens.

* There is competition with other businesses; in this case competition fosters lower prices which are efficient in production and innovation but other benefits are that employment may decrease and people will become more desperate for jobs and they will accept lower wages, so therefore business owners will no longer have to compete for labour. This also means that it will allow businesses to offer sub-standard salaries, benefits and working conditions.

* In many developing countries there is more of a strict rule, i.e. drug problems, immigration problems etc are looked at with awareness.

* Free trade allows companies a better supply of raw materials at a lower price. This allows them to cut down their expenditure and be more economical on the global market.

* The countries involved in free trade experience rising living standards, increased real incomes and higher rates of economic growth.

http://www.globalpolitician.com/2551-globalization

http://www.buzzle.com/articles/advantages-of-globalization.html

http://www.darkseptemberrain.com/ideas/advantages.htm

Cons

* Decreases in ecological reliability as polluting corporations that benefits of frail dictatorial regulations in developing countries

* Larger threat to nations of diseases being transported unintentionally.

* There is a huge threat to many jobs, jobs are mainly lost due to the fact that growing imports

* There could also be a change or even a loss in culture in many developing countries such as historic values

* Many developing countries will usually struggle with international competition but if they wish to invest within the industry then in the future they may be able to gain comparative advantage.

* Many developing countries need to rely on primary products because there is a chance for them to gain comparative advantage, however the disadvantage in this factor is that the prices can vary due to many environmental factors, so therefore if developing countries just stick to primary products then they should bare in mind that goods will have a low earnings flexibility of demand so therefore economic growth demand will only increase slightly.

* Developing or new industries may find it rather difficult to become conventional in a competitive atmosphere with no short-term protection policies by the government.

* Free trade in developing countries can direct to pollution and many environmental problems as companies fall short to comprise these costs in the price of goods.

* Crime rate is increasing, the rate of unemployment is also rising, and more the twice as many people will expectedly lose their homes. The number of homeless people is rising and a lot of young people are using illegal drugs. There is also a significant rise in illegal immigrants entering countries subtly.

* Many people who are retired or will be retiring later on in life are becoming penniless; people are going more in to debts because the rate of inflation of the prices for everything is increasing really quickly. http://www.helium.com/debates/114902-do-trade-and-free-markets-improve-our-standard-of-living-and-promote-freedom/side_by_side?page=2

* http://usliberals.about.com/od/theeconomyjobs/i/FreeTradeAgmts_2.htm

In this paragraph I will be discussing how developed countries such as the U.S benefit from developing countries around the world. Firstly I will be talking a bit about the U.S and how it is taking advantage of developing countries such as china.

Globalization is hard to sell to average people, when developed countries sell more overseas, this is more likely for businesses to employ more people.

The U.S first free trade agreement was with Israel in 1985. This agreement was provided for the elimination of duties for goods, apart from certain agricultural products from Israel entering the U.S. This U.S agreement allows the U.S products to compete on an equivalent foundation with European supplies, which have free entrance to Israeli markets. The second U.S free trade agreement was with Canada which was in 1988.

As the U.S is already a developed country, it takes more advantage of developing countries such as china. China and the U.S both agreed to china joining the world trade organisation (WTO). This was however a great impact to china because when china opened up its markets the economics would improve. It also strengthened the authority of the world trading system, which has been damaged by disputes between the United States and Europe. The disadvantage to china for joining the (WTO) is that china’s employment could have risen greatly and that competition would increase greatly too. The US has been approaching China to unwrap its markets to American products and services. The U.S take advantage of china because china are working less than slave labour prices to manufacture goods for the U.S, The Chinese produce goods cheaply, because their people are numerous and relatively poor. When this occurs the U.S then sells the products for normal prices, so this means cheap labour and a higher profit margin for the U.S. This is however not fair on china as it is a very poor country.

The pros for U.S free trade is that free trade will increase their sales and profit for U.S businesses, this will also reinforce the economy, deduction of prices and delaying trade barriers, such as tariffs, quotas and conditions, essentially this leads to easier and swifter trade of consumer supplies. This will then result in an increased volume of sales for the U.S. The U.S also uses less expensive resources and labour is required through free trade which leads to a lower cost to manufacture goods.

Free trade creates middle-class jobs over the long term period, U.S businesses tend to grow from increased sales and profit margins, demand will actually rise for middle-class people to smooth the progress of sale increase. Free trade is also an opportunity for the U.S to offer financial aid to some of the poorest countries.

The cons for U.S free trade is that Free trade has caused many losses of jobs for the U.S especially higher paid jobs and that many free trade agreements are bad deals for the U.S.

The U.S has also harmed many countries around the world as well as employees in other countries who are being oppressed and damaged. The environment in other countries is being ruined so this states that free trade is not good for the U.S, this also means that the American employees cannot comparatively compete with cheap labour for the reason that the expenses of living in these other countries are so small compared with the U.S.

The system we have today means that developed countries can protect their markets whereas the developing countries cannot protect their markets, the cost of this for people in developing countries is very devastating. This means that they are Unable to sell their goods, and therefore they cannot make enough money through trade. Meanwhile, their own producers are going out of business because of unfair competition.

My point of view is that If China really wants to help their own trade and industry then they must allow economic independence and competition, and they need to put an end to deception and fraud. They should start using gold and silver as money, and they should reject the U.S. paper dollars that they receive in trade with the U.S, and demand gold and silver as payment, instead. They should reject the frauds of fractional reserve banking and should refuse paper money. If they do this, they will stop being economically demoralized in trade relations with the U.S., and this will lead them to thrive.

The deal will give foreign firms new access to the fields of insurance, telecommunications and banking, including auto finance.

That should boost foreign investment in China and speed up the process of economic reform.

In the past, employees could not compete in a free market and lose their jobs.

Nowadays internet jobs have been constructive, but in particular industries some people have taken on permanent irreplaceable losses. People are also now more in favour of opening their own businesses rather than working for organizations.

Customers benefit in the domestic economy as they can now gain a better range of goods and services.

The increased competitions ensure goods and services, as well as inputs, are supplied at the lowest prices.

To claim that “globalisation has raised living standards all over the world” is probably legitimate provided that we understand that it has also, and more notably, lowered living standards too. The rich have got richer and the poor have been dispossessed, hundreds of millions of people living on the edge of the market economy, selling a small surplus after filling the needs of their families without entering the market, have been pushed off their land or out of their forests and traditional pastures.

The problem with free trade is that Free trade means competition, and competition can be risky, particularly when it affects a country’s prosperity. Countries often want to protect themselves against the effects of free trade. They can make foreign goods more expensive by imposing taxes (‘import tariffs’) on them, which means that consumers have to pay more for them. This protects the people in their own country who produce those goods, because they do not have to compete against cheaper foreign imports.

In practice, trade has never been free, because some countries have taken steps to protect themselves. However, as we shall see below, trade is freer for some countries than it is for others.

India has one of the fastest growth rate globally and the global economy which has helped GDP growth rates. In 2002-03 droughts in the last two decades in India has slowed the process of growth whereas in 2007 there was a slight increase in growth. A global comparison shows that india is now one of the fastest growing countries just after china.

As India and china are two of the poorest countries around the globe the takes advantage of this so they can produce products for the U.S.