Free Trade Free Trade The international trade theory for a long time tended to favor some countries in the provision of goods and services in comparison to other countries. The theory made some assumptions that the existing market structures were competitive and of constant returns at the same time. These assumptions led to trade being carried out in certain countries that had different technological abilities; resource endowment combined with some individual tastes and preferences of the market good and services. Over time, there has been an increasing demand for the government to respond to a variety of issues raised by the local societies in many of their country regions.
The concerns of the society entail the expectations that involve the quantitative and the qualitative aspects of the production of goods and services. Societal concerns come from the accepted values of the society pleasing to a wide range of its members. The result is an emergence of new concerns to respond to the evolving developments and views in areas of new technologies rural structural change and the environmental impacts of agriculture. Positions that are challenging the assumptions of constant returns and perfect competition The positions that put the central assumptions of constant returns and perfect competition can best be explained by two arguments namely, Strategic trade policy argument The world of business that is faced with the ever-increasing returns and faced with imperfect competition has led most of the companies that deal with similar products to encounter a challenge of being incurring some losses in the future.
The reason stands out that; these companies generate a lot of returns compared to the production costs. On the contrary, if by any chances a company manages to make some profit, it does so in excess.
This hence calls for a necessity for the government to come up with export subsidies and impose some import restrictions on foreign companies with interest in investing in a given country, as it will reduce the rate of competition that come from same product production. The result of this is that, it will help companies to end up with the same effect, as it would happen when investing in research and development sector. External Economies The argument tends to support government interventions in some different industries in the production of external economies without ever having any effects on the other countries negatively (Krugman, 1987).
An example is the research made by the US government to boost the mobile phone industry that will end up benefiting China, but with the profits going to the US government mostly. Consequently, the strategic trade policy and the externality arguments try to explain and promote the creation of free trade as it brings many benefits to many countries. Trade policy implications of differing regulations across countries Trade policies are derived policies that necessary implement domestic policies and help in the achievement of domestic objectives that include consumer and market protection.
Thus, domestic policies have effect on trade policies and will not at all have any direct impact on trade, while some additional steps like mutual recognition agreements equivalent of regulations between different trade partners can solve impacts of the other domestic policies. The governments do not need necessarily act towards the national interest in making critical and detailed interventions in microeconomics. They are however influenced by group pressure interests.
The types of interventions made by the new trade theory act to raise the national income that will typically uplift the wellbeing of small, the fortunate groups by big amounts, while at the same time commanding high costs on larger and more diffuse groups (Krugman, 1987). As a result, policy approaches that address societal concerns change from one country to the other. In the traditional trade models, a single industry looks like another to come up with significant external economies; this makes the theory look remote from the set usefulness. When the products that are subjected to domestic regulation that respond to societal concern is not in any way tradable, then there are no direct trade effects (Hanson & Zott, 2013).
If the products are marketable, each domestic regulation is most likely to have some implications on the trade policy. The first step is looking at the existing institutional structures through reviewing the world trade organization provisions and the discussions of possible trade policy strategies from different countries that are used in the regulation of imported goods and services that are believed to not comply with the existing domestic policies that reflect societal concerns (Krugman & Brander, 1983).
The effects of trade of the domestic measures that address technologies are almost similar to those of the non-commodity outputs. Those policies that require the imports to comply with the same set of terms as domestic producers are in most cases, the applications of internal policies and objectives. On the other hand, if both the foreign producers and domestic producers are the focus of the same regulations, the action taken is acceptable under the national treatment, and it becomes conformity with the world trade organization.
If by any chance the foreign producers are subjected to more strict regulations, the result is the violation of the non-discrimination principle. The international trade policy has led to the introduction of policies that have regulated the way in which business across and within boundaries is done. Most of these policies were introduced by the world trade organization and tend to have both local and foreign impacts in relation to the existing regulations that are imposed by individual countries.
These implications tend to affect the rate of investment done, as they tend to limit the ability of foreign investors willing to make their investments in given countries. The policies regulate the percentage of business that is done across the boundaries by that leading to the regulation of both the imports and exports from one country to the other. References Hanson, A., & Zott, L. (2013). Free trade. Detroit: Greenhaven Press. Krugman, P. (1987). Is Free Trade Passé? Journal of Economic Perspectives, 1(2), 131-144. doi: 10.1257/jep. 1.2.131 Krugman, P., & Brander, J.
(1983). A Reciprocal Dumping Model of International Trade. Cambridge, Mass. : National Bureau of Economic Research.