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What is 'Trade Liberalization'?

Trade liberalization is the removal or reduction of restrictions or barriers on the free exchange of goods between nations. This includes the removal or reduction of tariff obstacles, such as duties and surcharges, and nontariff obstacles, such as licensing rules, quotas and other requirements. Economists often view the easing or eradication of these restrictions as promoting free trade.

BREAKING DOWN 'Trade Liberalization'

Critics of trade liberalization claim that it can cost jobs because cheaper goods flood the domestic market. Critics also suggest that the goods may be of poorer quality and less safe than domestic products that may have undergone different safety checks. Proponents of trade liberalization, however, claim that it ultimately lowers consumer costs, increases efficiency and fosters economic growthProtectionism, the opposite of trade liberalization, is characterized by strict standards and market regulation. The outcome of trade liberalization and the resulting integration among countries is known as globalization.

The Pros of Trade Liberalization

Trade liberalization promotes free trade. Free trade allows countries to trade goods without regulatory barriers or their associated costs. This decreases costs for countries that trade with other nations and may, ultimately, result in lower consumer costs because imports are subject to lower fees and there is increased competition. 

Trade liberalization increases competition from abroad, which might provide an incentive for greater efficiency and cheaper production by domestic firms. It might also act as an incentive for an economy to shift resources to industries they may have a competitive advantage in. For example, recent trade liberalization has encouraged the United Kingdom to concentrate on the service sector rather than manufacturing.

The Cons of Trade Liberalization

Trade liberalization can negatively affect certain businesses within a nation because imported products increase the competition from foreign producers and may result in less local support for certain industries. There may also be a higher financial and social risk if items or raw materials come from countries with lower environmental standards.

Trade liberalization can pose a threat to developing nations or economies because free trade introduces stiff competition from more established economies or nations. This competition can stifle local industry diversity or result in the failure of newly developed industries.

Education and Trade Liberalization

Countries with more-advanced education tend to adapt rapidly to a free-trade economy. Countries with advanced education have a labor market that can adjust to changing demands and production facilities that can shift their focus to more in-demand goods. Countries with lower educational standards or averages may struggle to adapt to a changing economic environment.

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