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LATEST NEWS UPDATES | Beyond the free trade idealism -Arun Maira

Beyond the free trade idealism -Arun Maira

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published Published on Apr 25, 2019   modified Modified on Apr 25, 2019
-The Hindu

An ambitious ‘Employment and Incomes Policy’ must be the top priority for the next government

The U.S. has begun trade skirmishes with India. It objects to India increasing import duties on electronic goods and wants India to reduce duties on U.S.-made motorcycles. Meanwhile the World Trade Organisation seems to be in the intensive care unit. It is time to apply fundamental principles to reshape a trade regime that is fair to all.

On free trade

The macro-economic case for free trade is that if each person would do only what he or she does better than everyone else and all would trade with each other, everyone’s welfare will increase. Also, the size of the global economic pie would be larger because there will be no inefficiencies. The problem is that, at present, many people in the world are doing what others, in other countries, can do better than them. To get to the economists’ ideal state, many people will have to stop doing what they are doing and learn to do something else.

Dani Rodrik has estimated that for every unit of overall increase in global income, six or seven units of incomes will have to be shuffled around within. Moreover, according to this theory, people should not start producing what others are already producing, because they will produce less efficiently until they learn to do it well. According to this theory of free trade, Indians should not have bothered to learn how to produce trucks, buses and two-wheelers when the country became independent. They should have continued to import them from American, European and Japanese companies.

Free trade purists say that easy import of products from other countries increases consumer welfare. Consumers everywhere welcome a lowering of import barriers because it brings products into their shops they could only dream of before. Milton Friedman had observed that, in international trade, exports help companies and imports help citizens. Therefore, resistance to free trade does not come from consumers. It generally comes from companies which cannot compete: companies in less developed countries which are not able to compete until their country’s infrastructure is improved and they have acquired sufficient capabilities, or even from companies in developed countries when producers in developing countries overtake them.

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The Hindu, 25 April, 2019, https://www.thehindu.com/opinion/lead/beyond-the-free-trade-idealism/article26935924.ece?homepage=true


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