V2. The idea of free trade and the globalization debate
3 important questions on V2. The idea of free trade and the globalization debate
Geopolitics of free trade: which countries were important for the promotion of free trade?
- United Kingdom (1846-1914): UK-led reduction in tariffs
- Repeal of Corn Laws in 1846 (start)
> Tariff to protect domestic producers of grain. - Free trade for itself and colonies
- United States (post WW2): US led the establishment of GATT/WTO
- spread of free trade agreements
- They were the hegemon of that time: the main political actor and most productive global economy
- Would benefit the most from global free trade
Why is free trade good for development according to the bhagwati view?
- It allows international specialization > countries can produce what they are good at
- Increases competititon and thus efficiency
- Cheaper and better products for everyone
- Creates employment for low-skilled low wage workers in developing countries
- it offers firms from developing countries to enter global value chains (industrial upgrading)
- They can learn from working with multinational companies
- Benefit from spillover effects
- Can trigger race to the top in environmental and labor standards
- Free trade can lead to higher environmental and labor standards in developed and developing countries
Positive view
Why is (unrestricted) free trade bad (for development) according to the Chang view?
- Large multinational companies undermine industrial capacity building in developing countries
- The infant industry arguement of mercantilism
- Race to the bottom: It allows exploitation of lax labour and environmental standards, low taxes and low wages in DC > more pollution, etc.
- Facilitates formation of transnational oligopolies > less competition, domination of the market
- Governments lose a crucial source of revenues
- When tariff rates are abolished > they used to be able to invest it into education, healthcare, etc.
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