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Despite the fact that free trade creates losers and winners, the virtual unanimity among the economists is that international trade is a definite net gain for the global society (Blinder, 2004). Whatever their position on other ideological issues, there has been universal consensus among economics profession members ever since Adam Smith that global free trade favours the trading nations and of the entire world (Friedman 1997). Almost all universal free traders would concur with the fact that free trade has some winners and losers but despite that, international trade is meant to bring an overall gain by winners gaining enough to make up for any losses they have made somewhere else (Chang, 2007). In this balance, the jobs lost in one industry as a result of international trading is replaced by jobs gained in another industry.
Comparative advantage is the fundamental economic premise of free trade policy. This theory originated in book by British economist David Ricardo entitled "On the Principles of Political Economy and Taxation" in 1817 (Chang, 2007). The theory of comparative advantage simply postulates that in a free market, each member in a group will eventually concentrate in producing that product of which it has comparative advantage (i.e. resources, agriculture-friendly weather, skilled artisans, etc.). Comparative Advantage allows specialization, which in turn enables trading partners to exchange their commodities produced by specialized partners. Under the free trade policy, trade by the use of specialization maximizes wealth, labor, and quantity of commodities, which exceeds what the same number of non-trading states/regions can produce.
To economists, free trade is just another kind of technology or a production technique. Embracing international trade is comparable to adopting a more proficient production technique (Chang, 2007). Free trade increases competence by assigning resources to the most efficient production technique thereby increasing the amount produced at a given level of input. International trade therefore benefits many workers. It enables them to shop for the cheapest consumption goods because workers are also the consumers. Likewise, free trade enables one country to obtain say commodity A more cheaply by focusing in the manufacturing of commodity B and trading for commodity A, rather than producing both products for itself. In such a specialization, a country will specialize on one type of trade for exports and another type for imports. In actual fact, the types of exports industries from a country may not be dramatically different with ones which it imports. Although one nation may have a downright advantage in the production of all commodities, both countries can still trade and gain some benefits given to comparative advantage. When the production possibilities of each world’s frontier are compared with each individual country's, it is clear that the world can produce more when free trade is endorsed. International trade therefore allows workers to become more productive as the goods they produce increase in value. Moreover, producing goods for export generates jobs and income for domestic workers. Workers in exporting industries appreciate the benefits of an open trading system.
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However, with all its benefits, international trade does not exist without several hitches which include trade disparities among the less developed nations and economic difficulties in the countries with large income gap. International trade may put smaller companies out of business, when the bigger corporations increase in strength which in turn pushes the smaller ones out of business (Chang, 2007). Not all workers gain from international trade. Outsourcing of jobs is one of the biggest concerns among society as far as free trade is concerned. Societies feel that outsourcing jobs will result in thousands of people losing their jobs and this will eventually weaken the economic strength of that society. Some workers in industrial countries such as US are also threatened with losing their jobs because of cheap exports produced by lower costs foreign workers. Others worry that firms are relocating abroad in search of low wages. In addition, as an economy opens up to international trade, domestic prices becomes more aligned to the international prices; wages therefore tend to increase for workers who face increased competition from foreign workers.
Some societies believe that there need for trade restrictions in an effort to protect the so called ‘infant’ industries and jobs in one’s own country. Believers of this concept of protectionism suppose that the big corporations from their states corporations will embark on to outsource majority of their jobs from the nations that offer much lower labour changes, which will result in a severe increase in unemployment. However, trade protectionism comes with many costs such as elevated taxes on imported commodities and limits of products allowed into a particular nation regardless of the society’s demands.
Free trade can also cause trade deficit. This happens when one trading partner is at a disadvantage as result of imbalanced trade. This trade deficit mostly favours industrialized countries.
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