Global Trade Problems


Global trade provides considerable benefits to billions of people, but it also causes certain problems which have been the cause for protest around the world. Among these are concerns about the transition of employees from one industry to another and potential human rights issues related to manufacturing in the developing world.

Overview of global trade

Global trade is generally considered in terms of free trade agreements and the activities of the World Trade Organization (WTO) to promote trade among countries. In theory, free trade is supposed to allow for specialization of labor and capital such that the standard of living for participants is improved. However, in the short term, this does not always hold true, and some protest against global trade on the basis of these short-run problems.

Global Outsourcing

Labor does not always shift quickly or easily from one industry to another. Consequently, for industries in which imports prove to be a better value, domestic labor can be left unemployed. American manufacturing jobs are commonly cited as an example. For many manufactured goods, it is more cost effective to purchase imports from abroad than it is to have the goods made in the US. Laborers who are trained in these manufacturing jobs are not necessarily trained for the jobs in which the US has a competitive advantage (often high tech and intellectual capital focused positions), leaving them unemployed until they find the needed retraining.

Human rights issues

Some nations in the developing world do not share the Western world's view regarding basic human rights. Consequently, the working conditions and the wages paid in these nations may be considered sub-par relative to what the West considers reasonable. For many who oppose global trade, the treatment of labor in these nations is reason not to buy goods from these nations.

Transfers of wealth

Global trade can cause significant transfers of wealth when there are nations that are large scale net importers and others who are large scale net exporters. The trade relationship between the US and China provides a useful example. The US has been a net importer for decades. China has grown from a modest net exporter to a huge net exporter in these decades. With this increase in net exports, China has grown wealthier and has been able to support large capital improvements. Similarly, the standard of living in much of China has improved considerably. Much of this improvement is financed by US dollars used to buy Chinese made imports. All of this is consistent with Thirlwall's Law in economic theory.

Environmental concerns

Among the complaints about global trade is concern that trade encourages pollution, especially by developing countries. The high demand for imported goods (and the wealth to be gained from the sale of these goods) may outweigh potential concern for environmental harm. This problem is not unique to global trade, however. Environmental degredation is a classic example of the "tragedy of the commons" without consideration of international trade. The tragedy of the commons occurs when the costs of an activity are not exclusively incurred by the causer of the harm. In effect, society is forced to incur at least part of the costs of the harm. Pollution is the classic example of this. Developed nations solve this problem through regulations. However, most developing nations do not have similar regulations so the tragedy of the commons problem can be more persistent in these places.

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