Free Trade Issues

The issues of free trade, fair trade and international trade relations have received increased attention in the media recently as the world comes to terms with the European Community (EC), the North American Free Trade Agreement (NAFTA), the General Agreement on Tariffs and Trade (GATT) and the trade imbalance between the United States and Japan. There are questions regarding the benefits of free trade, the unfairness of "dumping," price fixing, subsidies and quotas, and concerns in the business community about the long-term effects of having a high trade deficit with Japan. Dr. Ravi Batra addresses the issue of free trade in his book, The Myth of Free Trade. This research examines the ideas that Batra puts forth, the theories he covers, and the overall usefulness and applicability of the book in today's business world.

Batra is compelled to write this book, which he recognizes flies in the face of conventional wisdom, because he believes that he sees trends that the economic hierarchy does not see. He cites his 1970s prediction that communism would end by the turn of the century, and his 1980s work on the coming recession, as cases in point where he has spoken as a voice in the wilderness against economic gospel and been correct. It is against this backdrop that the author takes on the issues of free trade and protectionism.

The author's basic premise is that the virtues of free trade to the United States have been overstated. The American practice of free trade has

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owever, protectionism alone cannot help when trade has injured an economy. According to Batra, protectionism must be accompanied by increased domestic competition among firms and industries. Without this competition, local companies will raise prices, produce less than quality products and pay excessive salaries and bonuses. This is the case when monopolistic protectionism is in place. As an alternative, Batra suggests competitive protectionism, which breaks up monopolies into smaller firms while protecting them from foreign competition. Batra holds that competitive protectionism is the answer to most, if not all, of America's economic problems. Productivity, wages and real income would increase while the budget deficit and energy prices would decrease. The trade imbalance with foreign trading partners would erode and disappear, and global pollution would come under control. All that is needed, according to the author, is to raise the tariff rate from its current level of 5 percent (on average) to approximately 40 percent (5). As evidence that free trade has not been beneficial to the American economy, Batra cites the following statistics: the United States has the largest number of billionaires for every million people

Category: Economics - F