The Disadvantages of Free Trade

Free trade is a double-edged sword. On the surface it appears as equal opportunity for everyone in the pact. While it has some advantages, it also carries some disadvantages. The extent of disadvantages for any country in the free trade zone is directly related to the attained level of technology for that country. This means that less industrialized members of a free trade region may be at a disadvantage until such countries overcome their technological obstacles.

What are Free Trade Zones?

Free trade zones are areas and regions without trade limitations and boundaries. All the countries that constitute the free trade region allow free flow of trade between them and apply little or no trade barriers and tariffs against goods and services delivered from any country within the free trade region.There are, however, some disadvantages that come with open borders.

Increased Competition

When countries open their international borders to member nations in the same free trade zone, they also open themselves up to the possibility of fierce competition which may come from other nations in the same free trade zone. All countries within the zone would be competing with one another for the same consumers.

Increased Unemployment

Because of the increased competition, some countries may appear to have gained some degree of competitive advantage against others. One way of attaining such advantage could be related to advanced technology. For instance, the North American Free Trade Zone includes United States, Canada and Mexico. Because of the technological superiority of the United States over a country like Mexico, unemployment levels in Mexico might be higher than that of the United States because of fewer employment opportunities in Mexico compared to those in the United States.

Corporate Restructuring

Companies in free trade zones are always in competition with one another. This competition can also lead to another issue: restructuring. Unless companies that are at a competitive disadvantage restructure their operations, they may not be in a position to catch up with their competitors. Restructuring is an expensive endeavor; it may involve the corporate management team, ownership, or the operational aspects of the firm.

Economic Underdevelopment

Free trade regions may also impact some regions more than others in terms of the level of economic development. Some areas of the region may attract a greater level of economic development than others, resulting in the economic underdevelopment of some areas within the free trade zone. Underdevelopment could also impact the country's gross domestic product and depress the country's total exports as a result.

References

• Free Trade and Protection
• Arguments Against Free Trade