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How does free trade agreement affect the global economy and trade between countries?

Mariano MacCrann

Hey friend,

That's a great question! Free trade agreements have a significant impact on the global economy and the trade between countries. Let me explain it to you.

Firstly, free trade agreements eliminate or reduce tariffs, which are taxes imposed on goods and services imported from other countries. By doing so, it becomes cheaper to import and export goods, making it easier for businesses to invest and trade across borders. This increased trade and investment lead to economies of scale, which results in lower prices, greater efficiency, and higher productivity. The increased productivity results in a higher output of goods, which leads to more earnings and creates more jobs.

Moreover, free trade agreements increase competition and create a level playing field for businesses globally. Domestic businesses are exposed to foreign competition, which encourages innovation to remain competitive. It could be done through researching and developing more efficient processes, producing higher quality products or offering unique services, which competitive edge over rivals.

Additionally, free trade agreements encourage specialization and better utilization of resources. Countries can focus on producing goods and services that they are best suited for, resulting in increased efficiency that leads to higher economic output at a lower cost. The specialization of countries is the result of comparative advantage, which ensures that every country produces goods and services efficiently, ensuring gains for all nations in the trading bloc.

On the other hand, free trade agreements have negative impacts. Some argue that free trade agreements lead to job loss, especially in developed countries, and discourage local firms from investing in their local economies because they can easily outsource to cheaper regions. Another negative impact is that the cost of goods produced in countries with better environmental standards and labor laws may be higher than in countries with lesser standards, leading to lower-cost production but at a cost to environmental sustainability and human rights.

In conclusion, free trade agreements have many benefits such as increased trade and investment, competition, specialization, and better utilization of resources. It also has negative impacts that require consideration. Ultimately, free trade agreements are an essential aspect of today's global economy, ensuring economic growth, job creation, and higher standards of living for millions of people worldwide.

I hope this helps you understand the impact of free trade agreements on the global economy and trade between countries.