Trade has been a fundamental aspect of human civilization, fostering economic growth, technological advancements, and cultural exchanges. However, while trade has numerous benefits, it also has several social negatives that often go unnoticed or are overshadowed by the economic gains. One of the significant drawbacks of free trade is its potential to lead to adverse social consequences, such as the exploitation of cheap labor, increased pollution due to lower regulations, and undeclared government subsidies like cheap financing, free land, tariffs on imports, or tax waivers.
Free trade is based on the principle that businesses should operate in free and open markets with minimal government regulation. This approach aims to increase trading between countries and bolster economic growth. However, it often results in negative consequences, such as:
All these practices lead to imbalances that are not due to one country or factory being more efficient, as described by Adam Smith in Wealth of Nations, but rather due to the exploitation of loopholes and the lack of a level playing field.
Free trade, being less regulated, often results in various cost-cutting measures that may not always be socially and environmentally responsible. There have been numerous cases of organizations conducting their business activities under conditions that are undesirable for society and the environment. Although the conditions provided by free trade may be highly favorable for increased economic gain, issues surrounding the social and environmental consequences of business are often overlooked, with dire repercussions for the people in the production process who are often most negatively affected by the practices of free trade. Pollution also increases, from increased air pollution to increased pollution in waterways as enormous volumes of goods are shipped around the world; the container ships release sulfur dioxide and heavy metals into the oceans, which then enter our food chains.
On the other hand, fair trade seeks to ensure that factors other than simple economics are taken into account, namely social and environmental impacts. It promotes the idea of responsible business conduct while encouraging trade. Although products and services may be slightly more expensive under fair trade, there will be higher employment in the developed countries, thus less of a need for large social safety nets to subsidize and retrain citizens losing their jobs to lower regulation countries.
There are numerous schools of thought when it comes to deciding whether countries should go the free trade or fair trade route. Although free trade may lead to increased profits in a shorter period of time, improper business practices that do not take the social and environmental impacts of your business into consideration can result in governments opting for a more holistic approach to trade policy. It is important to understand that, ultimately, government policies set the playing field for trade across borders.
As such, in a world where citizens are starting to become more aware of the impact of their purchasing decisions and governments are seeing the economic and social impacts of free, but not fair trade, we expect that the pendulum will swing towards more balanced trade policies. Furthermore, responsible business practices also address some of the social and environmental issues that we must begin to address. Governments must set a level playing field to start the process of moving more world trade from Free to Fair. For more insights on the impact of trading, visit this trading social network article.
While trade is essential for economic growth and development, it is crucial to consider its social and environmental impacts. Free trade, although economically beneficial in the short term, often leads to the exploitation of cheap labor, increased pollution, and undeclared government subsidies, resulting in long-term imbalances and unfair competition. On the other hand, fair trade promotes responsible business conduct, higher employment in developed countries, and environmental safeguards. As awareness of the social and environmental impacts of trade grows, it is expected that there will be a shift towards more balanced and fair trade policies.