As the level of globalization increased, more and more countries pay attention to develop their trade. Through the successful examples of four tigers, people realize that world trade is an efficient ways to get development. So how to encourage export becomes an important challenge for developing countries. Developed countries face the same problem, markets in developing countries are huge, and they can earn huge profit if they can entry those markets. So not only developing countries want to encourage trade, but also developing countries. Now trade liberalization becomes a very important issue around the world. However whether trade liberalization can really help development? There is no doubt that free trade can help development in some ways, but the drawbacks for free trade are obvious too. In this paper I will discuss the advantages and disadvantages of free trade. I will pay more attention on developing countries, because they are the ultimate victim for the drawback of free trade.
Advantages of Trade Liberalization
Personally, I think the biggest advantage of free trade is helping countries encourage export. For developed countries, they realize that as the standard of living increase in developing countries, the demand is increase, and if they can catch this chance, they will earn huge profit. Developing countries face the same opportunity and challenge. Because of trade liberalization, developing countries have more chance to export primary goods to other countries which can help them accumulate capital and become richer. Just like Dollar and Kraay said: "increased trade has strongly encouraged growth and poverty reduction and has contributed to narrowing the gaps between rich and poor worldwide (Dollar and Kraay, 16)". They prove that trade can help counties development their economy and decrease inequality and poverty. For those reasons, whether for developing countries or developed countries, trade is a good thing. As the level of trade liberalization increase, it becomes easier for them to trade with other counties. Seen from this angle, trade liberalization is good for countries' development.
Disadvantages of Trade Liberalization
However, the disadvantages of trade liberalization are huge too. The common drawback of trade liberalization is some sectors will face hard hit. At the same time, developing countries also face some other problems which are worth to thinking
â‘´ Developed countries
Because of free trade, many industries (especially for primary goods) face great challenge in developed countries. Agriculture is one the most obvious example to show how free trade will hurt the economy in one country. As the level of trade liberalization, lots of developing countries have more chance to export low technology goods to developed countries. They have compare advantage in producing those primary goods (because of cheaper labors), so they can export those goods with very low price. For this reason, those sectors in developed countries are face hard hit. However keep some primary but important sectors (like agriculture) are necessary for keep country's stable. In order to keep those sectors, governments must give lots of subsidies and add lots of tariff on import goods. However, as the level of trade liberalization increase, more and more developing countries ask them to decrease tariffs and subsidies, and because most developed countries are the member of the WTO, they have the responsibility to follow the idea of trade liberalization. So trade liberalization let developed countries face great challenge, if they fully open their market, it will become very hard for those sectors in their countries to survive. In the past they can use subsidy and tariff to protect those sectors, but as the level of trade liberalization increase, it becomes harder for them to protect their economy. From this angle, trade liberalization hinders the development in developed countries.
⑵Developing countries
Things are even worst for developing countries. The basic reason is that developing countries are in the weaker bargaining position at the initial stage. Like what Kegley said: "there is little evidence of democracy within the WTO operations (Smith and Moran 2001). Many of its policies are orchestrated by its most powerful members during informal meetings that do not include the full WTO membership (Kegley, 174)". The author points out that in the WTO, most decisions are only decided by its most powerful members; of course the most powerful members are those highly developed countries. However, those countries will make decisions based on their own benefit, and they do not want to thinking about the well-being of developing countries. In the WTO, people pay lots of attention on how to let developing countries open their market, but not how to lower the restriction and subsidies in developed counties. Although the WTO tries to force developed counties to decrease the restrictions and subsidy, but it seems developed countries didn't really follow it. Like what Chand and Phillip said: "the level of non-exempt subsidies in developed countries remains awfully high even after meeting reduction commitments. These subsidies empower developed countries to cause distortion in the international market and protect domestic production form competition against imports (Chand and Phillip, 3016)". So we can conclude that trade liberalization is a one side treaty which only focus on let developing countries open their markets. Under this situation, trade liberalization will hurt the well-being of developing countries.
What's more, developing countries can't fully open their market at the beginning. Donglin said: "trade liberalization should result in price convergence brought about by an exogenous decline in trade barriers. Government policy can counter this price convergence by measures such as tariffs, subsidies, rationing, and price control (Donglin, 935)". Open market will let the price converge, but industries in the developing countries do not have enough power to compete with foreign companies who already have strong powers. There is no doubt that it will become disasters for developing countries to open their market absolutely. If they allowed developed countries who already have strong power and advantage to entry their market freely, they will not have any chance to develop their own economy. After a few years, they may totally depend on import from other countries, and it will destroy their countries. So it is necessary for them to protect their economy and not open the market at the beginning.
According to historical evidences we know that even for those countries who have been successful at using world trade to develop their economies (the four tigers or China), they are using import-substitution strategy at the beginning, which means they protect some sectors at the beginning, and when those sectors become stronger they put them in the world market and let them compete with other countries. So if trade liberalization will force developing countries open their market when they are not competitive enough, it will hinder the development of developing countries.
Conclusion
Trade liberalization is a sword with two blades, we can't simply conclude whether it is good or bad for development. For developed countries, they can't only thinking about force developing countries open their market, but also lower the restriction. For developing countries, as the level of free trade increase, they should know how to make full use of trade liberalization to get development and how to protect their economy. All in all, make decisions based on national's condition, but not simply increase trade liberalization.
