Trade Liberalization

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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. The easing or eradication of these restrictions is often referred to as promoting "free trade."

BREAKING DOWN 'Trade Liberalization'

Those against trade liberalization claim it can cost jobs and even lives, as cheaper goods flood the market, which at times may not undergo the same quality and safety checks required domestically. Proponents, however, say trade liberalization ultimately lowers consumer costs, increases efficiency and fosters economic growth.

Along with a reduction in the number of restrictions a government has in place, trade liberalization also removes any incentives that may have been present within the market. The opposite stance, protectionism, provides strict standards and regulation on the market.

Pros of Trade Liberalization

Trade liberalization promotes a free trade marketplace. This allows goods to cross international lines without any regulatory barriers or their associated costs. This can make it more cost effective for those looking to import or export goods with other nations and, ultimately, may result in lower costs to consumers due to lower fees and additional competition.

It may also provide a mechanism by which a nation can specialize in the production of a particular good in which it has an advantage. This can lead to lower production costs, which may also translate into savings for consumers.

Cons of Trade Liberalization

Trade liberalization can negatively affect certain businesses within a nation. This can include increased competition from foreign producers, as well as lower local support for certain industries. There may also be higher risks to certain environments if items or raw materials are gathered from countries with lower environmental standards.

Trade liberalization may also pose a particular threat to developing nations or economies as they likely cannot effectively compete against more established economies or nations. This can lower local industrial diversity or may result in the failure of certain newly developed industries within a particular economy.

Education and Trade Liberalization

It is often seen that countries with more advanced education adapt to a free trade economy more effectively than others. This stems from the ability of the labor market to adjust to changing demands and the ability of production facilities to shift their focus to more in-demand goods. Countries with lower educational standards or averages may struggle in adapting to the changing economic environment.