Compare and Contrast Essay on Free Trade and Fair Trade

The debate between which is the best concept to approach commercial activity revolves around two concepts: Free Trade and Fair Trade. Free trade advocates for the reduction of barriers between countries and elimination of policies that favor countries of particular companies. On the other hand, Fair Trade campaigns for better wages and working conditions of labor for producers. I feel that fair trade is a better than free trade. Although free trade will increase economic growth, help to keep inflation at bay and reaffirm U.S. as world economic leader, free trade runs against the views of the public and political opinion. Free trade tends to favor big multinational and powerful business interests mainly at the expense of employees and less developed countries. Fair trade approach may contain a significant economic risk, but it is a more humanistic orientation. Fair trade will create opportunities for economically disadvantaged producers; this will help in poverty reduction in the nation. Fair trade targets marginalized people, for example, small-scale producers and enable them to have income security hence achieving economic self-sufficiency. Organizations practicing Fair Trade also ensures that the social and environmental well-being of vulnerable small producers is achieved without exploiting them for profits. Fair Trade is the better approach because it focuses on the individuals and business rather than trade policies between countries. Focusing on individuals and businesses enhances transparency and accountability. Businesses come up with suitable ways to involve employees, members and producers in the decision-making process. Participation in decision-making increases productivity in the business, reduces the operating costs and promotes teamwork. Free trade involves many parties between producer and final consumer while fair trade includes fewer parties. Fewer parties result in more direct trade and more profits due to the elimination of middlemen and add more consumers with disposable wages into the marketplace.

Concept of Comparative Advantage

Comparative advantage pertains to the ability of a particular economic actor to produce a commodity or service at a lower opportunity cost than the other economic actors. Comparative advantage theory argues that if countries specialize in producing goods or service where they have a lower opportunity cost those countries will experience economic growth. When debating on free trade versus fair trade, its important to consider the concept of comparative advantage. Most countries open up to free trade because of the comparative advantages that come along with loosening its trading restrictions with another country. Ideally, in comparative advantage, free trade is a win-win situation because the countries involved can concentrate their efforts on the production of a certain product and service. This can maximize the countrys economic output and increase the financial growth for its citizens. But in most cases, as comparative advantage encourages and drives free trade it interferes and hinders fair trade. Considering that free trade is achieved through agreements between governments, there has been a trend where most free trade agreements are often between wealthy nations and powered nations. This inhibits fair trade because in most cases these trade agreements benefit the wealthy nation at the expense of these developing countries. The developing countries open up for social, economic and environmental exploitation by the wealthy country. Producers in developing nations lack social security and other methods to cushion them when the prices of their products are low. While on the other hand the wealthy forces their products in the poor countries market. This promotes inequality among the two countries and goes against the principles of fair trade.

References

Drezner, D., & Choices, C. P. (2006). US Trade Strategy. New York: Council on Foreign Relations.