As all governments and nations work to remove trade barriers and create greater trading opportunities, the school of thought has been global trade liberalization and/or regional free trade agreements. While economists and politicians have argued on both sides of this issue, there has yet to be a consensus on the most optimal arrangements. This is a complex and multifaceted question which requires finesse and cooperation among nations and globally. Presented is an analysis of regional free trade agreements, benefits and drawbacks, and overall nations’ participation, and impact on global trading.
Regional Free Trade Agreements While global trade liberalization focuses on the reduction of tariff barriers between nations or all nations, regional …show more content…
With economic integration, two or more nations would come together to trade more efficiently within specific regions (Carbaugh, 2015). This would be accomplished by lifting restrictions on international trading, quotas, regulations, and promoting flexibility. Economic integration was particularly appealing to developing nations struggling to attain competitive advantages in the global trading marketplace (Andrei, 2015). In all the root of integration such as this is to support overall economic …show more content…
Additionally, how reducing tariff barriers relate to overall production efficiency and trading opportunities. Following this further, trading intergrations can affect trading welfares by either increasing trade creation or reducing trade diversion (Carbaugh, 2015). When a trade agreement under the assumption of custom unions causes a domestic product to be replaced by a member’s lower cost import, this is trade creation. This is a positive welfare to the trading companies because it increases production and spurs comparative advantage for those trading members (Carbaugh, 2015). Later, it will become apparent that this can be translated on a larger global scale. On the other hand, trade diversion occurs when low-prices non-member goods are replaced with a member’s high-cost product (Carbaugh, 2015). Basically, this translates in the lower effeciency in overall production and an overall welfare loss to the trading members. Admittedly, there can be a net welfare gain when trading creation outweigh trading
Regional Free Trade Agreements While global trade liberalization focuses on the reduction of tariff barriers between nations or all nations, regional …show more content…
With economic integration, two or more nations would come together to trade more efficiently within specific regions (Carbaugh, 2015). This would be accomplished by lifting restrictions on international trading, quotas, regulations, and promoting flexibility. Economic integration was particularly appealing to developing nations struggling to attain competitive advantages in the global trading marketplace (Andrei, 2015). In all the root of integration such as this is to support overall economic …show more content…
Additionally, how reducing tariff barriers relate to overall production efficiency and trading opportunities. Following this further, trading intergrations can affect trading welfares by either increasing trade creation or reducing trade diversion (Carbaugh, 2015). When a trade agreement under the assumption of custom unions causes a domestic product to be replaced by a member’s lower cost import, this is trade creation. This is a positive welfare to the trading companies because it increases production and spurs comparative advantage for those trading members (Carbaugh, 2015). Later, it will become apparent that this can be translated on a larger global scale. On the other hand, trade diversion occurs when low-prices non-member goods are replaced with a member’s high-cost product (Carbaugh, 2015). Basically, this translates in the lower effeciency in overall production and an overall welfare loss to the trading members. Admittedly, there can be a net welfare gain when trading creation outweigh trading