Benefits and Pitfalls of a Free Trade Regime

Free Trade and World Trade Organization
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Free Trade and World Trade Organization
Free trade refers to a policy that removes all restrictions, such as quotas and tariffs, on imports and exports. In that light, countries that have signed the Free Trade Agreement (FTA) exchange products and services across national borders with minimal government interference. Free trade enables nations to specialize in producing goods and services efficiently (Hill & Hult, 2018). In addition, countries easily import commodities that they do not produce locally. No country can produce everything it needs, which is why free trade is necessary. FTAs are introduced to eliminate trading and investment barriers and facilitate good relationships among the nations involved. The World Trade Organization (WTO) sets an international system of trading rules that allow countries to negotiate terms of trading. Notably, it offers a platform that allows nations to settle their trade disputes and come up with ways to enhance effective trading. The paper focuses on the benefits and pitfalls of a free trade regime without forgetting to discuss the significance of WTO.
Free trade plays a significant role in the international market by promoting the exchange of products and services among countries. In particular, it is linked to sustainable development since nations can acquire the resources they need from others to enhance the optimal production of specific commodities that are in high demand. Free trade benefits all nations that comply with this regime (Hill & Hult, 2018). For instance, participant countries of FTAs remove trade barriers and make negotiations on trade easy, creating a conducive trading and investment environment (Yao et al., 2019). FTAs boost comparative advantage in member countries and employment. When a nation signs a trade agreement, it gets access to a larger market, where it can sell its commodities freely with minimal government interference. For sure, free trade has played a vital role in globalization since it makes it possible for countries to exchange goods and services, contributing to economic growth and development. Willis Hawley and Reed Smoot introduced the Smoot-Hawley Tariff Act (1930), which increased tariffs on imports. The United States of America's (USA) foreign trade decreased by 40%, leading to the Great Depression (Epstein, 2016). When Donald Trump was the president of the USA, he repeated a similar problem of tampering with free trade by increasing tariffs on imports from China, Mexico, and Canada. The results were not impressive since creating trading barriers damage the trading relationships among countries. Free trade is a significant thing that can prevent a global recession since nations can produce quality commodities and exchange them with others for what they produce the best, creating an effective trading relationship.
For a free trade regime to work out successfully, the WTO plays a crucial role. The WTO is an international organization that brings countries together by creating a conducive platform for free trade. In other words, it removes all barriers to cross-border investment and trade by ensuring that member countries retain a good relationship that allows them to exchange their goods and services with others freely (Hill & Hult, 2018). The WTO is responsible for implementing policies applying to the world trading system and ensuring that participant nations adhere to these regulations. Moreover, it enhances the establishment of additional multinational agreements. The organization has significantly contributed to decreasing limitations that might hinder cross-border investment and trade. If countries do not have a governing body to monitor and settle disputes in free trade, it can be challenging for them to engage in trade. In reality, free trade cannot be successful without the WTO, which ensures that member countries can overcome the problems they encounter while they exchange goods and services.
Free trade is beneficial in various ways. Specifically, it creates an open trading network that is mutually beneficial to all participant countries (Jiang, Wang, & Liu, 2021). For example, WTO member countries can trade with each other freely, meaning that a nation focuses on producing what it can based on the availability of resources, including raw materials and skilled workers. Since there is a ready market for the commodities produced in another country, it is easy to exchange such products so that every nation can acquire what it does not produce locally. In that process, employment opportunities are created, leading to income generation by the majority of people. Another bene...