International trade is the modern framework of prosperity. Free trade policies open up new areas to competition and innovation. Free trade leads to better jobs, new markets and increased investment. Free trade spreads values and beliefs as well as goods and services. Since international trade relies on traders keeping their agreements, countries and companies are more accountable to each other and therefore more stable.
The purpose of trade is to provide access to a greater variety of goods and services. According to the Heritage Foundation, free trade &ldquo;fosters competition, spurring companies to innovate and develop better products&hellip;keeping prices low and quality high.&rdquo; Free trade allows regions and companies to focus on the goods or services that they do best. International trade increases a company&rsquo;s market share. This causes lower cost and increased productivity, leading to higher rates of production.
Free trade rewards risk-taking through increased sales and market share. When larger countries like the United States take advantage of free trade, their economies grow. This growth overflows into smaller countries that are economically unstable or mired in poverty but are open to trade. The Heritage Foundation reports, &ldquo;The advantage for poor countries in being able to trade for capital is that the payoff is more immediate in their private sectors.&rdquo;
Free trade forces companies to support the rule of law. The World Trade Organization requires members to honor all agreements and abide by all WTO rulings. Countries that do not enforce contracts lose business and investors move their money elsewhere. If a country wants to retain the benefits of free trade, then they must obey the rules. The Heritage Foundation reports that free trade also &ldquo;transmits ideas and values,&rdquo; which it says leads to stronger and more stable governments in smaller countries.
Free trade improves the allocation of global resources. If countries or people can trade for the items they need, they can focus on making the ones they do best. Imports tend to suppress inflation, since each product or service comes from the best supply source. According to the CATO institute, &ldquo;we benefit from the lower prices that imports give us, and we can use the money we save to buy things made at home.&rdquo;
Trade agreements open markets and offer business incentives and protections. They include commitments to protect intellectual property rights and labor rights and open regions to competition. They also govern environmental standards and improve customs facilitation. According to Alan Blinder, professor of economics at Princeton University, &ldquo;exporters tend to be more technologically sophisticated and to create better jobs.&rdquo; Trade and finance are mutually supportive. Finally, global investment allows for greater diversification and risk sharing.
- world trading image by Eray Haciosmanoglu from Fotolia.com