Research Paper Sample: Free Trade vs. Fair Trade

2021-07-05 15:01:18
7 pages
1923 words
University/College: 
Carnegie Mellon University
Type of paper: 
Research paper
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When it comes to the world stage, benefiting from trading requires you to make the best decision for your situation. Among the significant choices, you need to make is choosing which policies that you as a businessperson will follow. Among the primary systems are free to trade and fair trade. Choosing the best option for your situation depends on what you are aiming at, each of the two central policies has a specific target, and aligning your needs with these objectives may mean the survival or failure in trading.

Free trade is a policy among some international markets in which these global markets do not restrict the exportation or importation of good or services to other countries. It is however, not uncommon to see these governments with nations applying these policy implementing some protectionist strategies to protect their nations local employment. Some of the protectionist measures taken by some of these parties include imposing tariffs on imports or subsidies on exports. Free trade is however not without its potential dangers, in some cases; free trade can lead to unequally distributed losses and workers economic dislocation in competing sectors.

Fair trade, on the other hand, is a social movement that aims at helping producers in developing economies to realize better trading conditions and promote manageable farming. This move pushes for the increase of the amount paid to producers. They also aim at improving exporters social and environmental conditions. Because the movement mostly works with developing countries, in most cases they specialize in products exported from developing countries to developed countries. The campaign encourages the players to engage in dialogue, respect for the players and transparency to achieve its goals. This movement is rooted in three central beliefs these are, producers are better placed to express unity with the consumers. The second idea is that the current world trading practices are meant to encourage unequal distribution of wealth among the players. The third belief is that the best and most efficient way to promote growth in developing countries is by buying products from the products at fair prices. Free trade and fair trade are not supplements; they are both aimed at different goals within different scales. The following are among the significant ways in which these two policies of business differ.

Goals

The goal of free trade is to bolster the economic growth of member countries. As such, these policies are in most cases applied by trading blocs made of nations to assist the member countries to boost the growth of their economy. By removing the barriers to trade, these countries can attract more markets. Increase in the number of member players means that the prices of the products in that market are made to be very competitive (Press, 2017). The increased number of players in free trade also results in the improvement in the quality of goods sold. These changes lead to the member countries increasing their sales and growing their economy.

When it comes to fair trade, the goal of this movement is to help producers in developing countries achieve better trading conditions. Given that some well-established economies and others are just coming up, attaining fair trade is not easy. The appropriate trade movement aims at leveling the playing field for the developing countries. Unlike free trade that aims at eradicating barriers, fair trade aims at imposing new obstacles. One way the movement does this is by pushing for the hike of the prices paid to producers from developing countries.

Beneficiary

Free trades primary beneficiary are the multinational corporations. Reducing trading barriers in any market will increase the players in that market. Since most of the players at the exporting level of any country are multinational corporations, free trade initially benefits these companies. Fair trade beneficiaries are the vulnerable producers in developing countries. Fair trade aims at improving the pay to these producers and also improving the environmental conditions. That means these farmers the beneficiaries of this policy.

Limitations

The main limitations of free trade are it leads to the worsening of the conditions for the marginalized players in international trade. While free trade leads to the economic growth of the member countries, it also leads to loses in other fields this include,

Countries that trade with blocks that use this policy end up suffering. Countries selling their products to a trading block are forced to sell at specific low prices while those buying goods from them have to buy at whatever cost these developed countries ask.

Free trades promise of making a profit for these developed countries comes at the cost of a massive exploitation of each country's resources.

The increase in production calls for increased mechanization of the production process. This automation leads to loss of jobs for many workers in these countries.

Another adverse effect is increased deforestation to create spaces to farm and build industries.

In the effort of increasing their profits, countries result in over-exploiting their natural resources.

In the case of fair trade, the limitations include,

Fair trade interferes with the idea of free markets. It is widely known that for business to thrive there need to be no barriers. With fair trade calling for increased pay to producers, these policies can work as barriers to the market.

Demands for increased pay to producers will in most cases push buyers to where there are lower prices to avoid the higher costs.

The other con associated with fair trade refers to how small scale it is. Fair trade movements try to implement changes to the producers. Given how low the campaign aims, it reduces its chances of making a difference.

It is bound to take a very long time for the changes made to individual producers to make an impact on all of the countries producers.

These goals by the fair trade movement while aiming at improving the conditions for traders could result in taking away customers from these countries products.

Determinant of producer compensation

Free trade, deals with governments and trading blocks. The determinant for the payment of the producers in countries applying these policies is, therefore, the government involved and the market. The states set the procedures to govern trade under these systems while market forces push the factors like prices and the amount demanded and supplied. The fact that these forces dictate prices of products makes market forces and government policies the determinant of producer compensation in free trade policy. The cost of living and the how much it cost a producer to uplift his living standards are the determinants of producer compensation under fair trade. Fair trade is all about the improvement of the status of the producers in developing countries. How much a producer gets under this policy is therefore determined by the cost of living in that country and the how much it will take a specific producer to uplift his or her life.

The supply chain

In the efforts of trying to maximize profits, producers under free trade engage different consumers. Every producer under this policy is always looking for ways to reduce his production cost. For most, this works by trying out unusual combinations of the factors of production to find out, which is the cheapest combination. To maximize profits, producers increase the number of consumers their goods reach. The increased consumers make for more sources of revenue by increasing the demand for the products. Producers under free trade will also change their sources of raw material to the options that mean the highest profit for the business. Sometime these producers will also change the source of their raw material to capitalize on any emergence economies of trade. The push to make the highest profit does not only apply to producers. Intermediaries have also adopted this new practice, often intermediaries who introduce producers to consumers and new markets will be involved in the chain.

Because fair trade aims at improving the lives of producers its operation are nothing like those in free trade. There are fewer players involved in the fair trade supply chain. One of the ways of increasing what producers earn is by cutting out the intermediaries. To achieve this fair trade aims at coming up with new ideas where producers go directly to the consumers. Any disadvantaged producer can also enjoy a piece of the pie by becoming a partner in this supply chain.

Marketing

Marketing in free trade zone takes place with the single aim of increasing sales. Some of the tools used to achieve this are,

Trade shows, here a country can display the goods it is bringing to the market. The advantage of using a trade show is that the audience is explicitly looking for goods to be buying,

Promotions. Finding products that supplement one another, is the idea behind trade promotions. New products are sold together with complementary well know goods to increase customer awareness.

Most countries in free trade are also known for posting their products on magazines and advertising their goods on websites.

Branding is another method used by companies under free trade. It refers to the use of a slogan, sign or words to give a consumer a mental picture of a particular group as the better choice for specific goods (Clifford, 2017).

Marketing for producers in fair trade, on the other hand, points out to,

Customizing the products to fit the customers need, the customization may include selling products together that supplement each other or fitting products in a quantity that fulfills a specific need that the customers have.

The other strategy of marketing when it comes to fair trade is aiming at fulfilling their customers needs. Rather than selling just to maximize profit fair trade marketing happens with the needs of the customers in mind (Lake, 2017). The aim here is to provide the fair trade customers with the products that fulfill their requirements.

The last another method of marketing use in countries in the fair trade movement is the use of social media. The approach here is to create content showing the positive effects fair trade brings to producers and the environment. Given that the push for this movement is to improve the lives of producers, the idea here is to educate the consumers of the advantages of the fair trade movement.

The push of responsible business innovations like going green in production also points the movement uses to market their products.

Advantages

Free trade over fair trade

Benefits all the players involved

When countries form a trading block, each of the nations involved brings to the table, goods that it has the comparative advantage to produce. Concentrating on the production of one product will lead to each country specializing in the production of particular goods. While each of the states does this, trading among these countries will mean that each player is benefiting from the trade as each nation sells what it has in surplus and buys what it does not. The prices set under these circumstances will encourage profit, as everything will be sold at a profit. Fair trade, on the other hand, benefits those who have been certified to join the movement. It also has a minimal footprint regarding the people it helps as it concentrates on individuals.

Removing trade barriers by free trade will lead to increase of trade

By eliminating some of the trade barriers, more producers get into the market. An increase in the volume of business will lead to higher competition for market share. Competition among producers will lead to the improving the quality of goods produced and increase the capacity of trade. Fair trade, on the other hand, adds onto the existing...

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