Understanding Global Trade Agreements

Understanding Global Trade Agreements: Origins and Effects on Economies

Global trade agreements are a frame of reference within which international trading relations between countries are conducted. Such an agreement is intended to reduce or do away with trade barriers such as tariffs, quotas and import restraints and promote movement of goods and services across frontiers. To appreciate global economic relationship, it is of great importance to understand how these agreements operate, and how they shape economies. In this context, the present article intends to address the peculiarities, which accompany global trade agreements as well as their impacts on domestic and global economies.

What are global trade agreements?

Global trade agreements are international treaties that are created among states with the aim of restructuring and improving trade and investments. Such agreements can take the following form:

1. Bilateral Trade Agreements:

• • Definition:

Agreements that exist between only two countries.

• • Example:

The U.S. –Mexico Canada Agreement (USMCA) is a perfect example of NAFTA which covered the trade agreements of three countries but had primary focus on the U.S. and Canadian partners.

2. Multilateral Trade Agreements:

• • Definition:

Agreements which include more than two countries.

• • Example:

General Agreements on Trade Tariffs (GATT) and World Trade Organization (WTO) are examples of multilateral agreements that involve multitudes of countries across the globe.

3. Regional Trade Agreements:

• • Definition:

Agreements made among countries within a geographical bloc.

NEW POINT:

Foreign Policy in the EU is intensely shaped by economics having a close relation between trade and politics. EU member nations continue to harmonize their trade policies.

Global Trade Agreements: Challenges to Traditions of Multilateralism. It is important before we conclude to recall another major goal of such agreements.

This will naturally tend to lead restricted compartmentalization of trade in goods as well as services which involves standardization.

Easier and cheaper trade will inevitably be the envisaged outcome whether for developing countries’ exports through reduction of tariffs and quotas or for the provision of services through basic liberalization through tariff agreements negotiated across nations.

There is promotion of economies of scale, increased efficiency and optimum utilization of more extensive and innovative resource bases as evident.

Influence of International Trade Agreements on Economic Prosperity

1. Economic Growth:

• • Positive Impact:

Trade agreements can foster increased economic dynamism as they widen markets. Countries obtain access to more opportunities, which in turn can enhance production, exports, and jobs.

Example 1:

Another example is the dramatic expansion of Southeast Asian economies, Vietnam and Malaysia, among others, that has been fuelled by their integration into the global trading system, which has granted them access to the US and EU markets.

2. Increased competitiveness:

• • Positive Impact:

The existence of international competition compels domestic industries to grow and thereby increases their efficiency and competitiveness at the international level.

• • Negative Impact:

However, not every industry does so well. Some industries, especially those which are less competitive in the global perspective, may not be able to endure and thus retrench workers and restructure the economy.

3. Consumer Benefits:

• • Positive Impact:

The reduction in trade barriers certificates low prices and a wider basket of goods and services for the consumer. The number of producers increased competition, resulting in improved products.

• • Negative Impact:

However, in certain instances, the entry of cheaper products on the market imports may displace local producers which decreases the volume of domestic products.

4. Job Creation and Job Loss:

• • Positive Impact:

Under favorable circumstances such as obtaining trade agreements, job creation in industries or sectors that focus on exports and mostly rely on foreign investments in certain sectors to be opened up for business also expect more jobs.

• • Negative Impact:

Conversely, industries that fail to compete with lower priced imports are likely to create job losses, unemployment in current times and more dramatically, a requirement for retraining the workforce.

5. Impact on Small and Medium Enterprises SMEs:

Positive Impact:

Notably exporting is good for SMEs but with low or no trade barriers, they may come under pressure from bigger businesses. However, that trade agreements may push them back as they will have access to foreign trade and new economies.

• • Negative Impact:

On the other hand, If there is an inflation, then SMEs or smaller businesses will certainly be in trouble, since big businesses will tend to reduce their prices because of economies of management.

6. Environmental and Social Impact:

• • Mixed Impact:

It has to be said about the social impact of trade agreements that while stimulating economic development, it may encourage a cultural hegemony; competition may restrain some hostile inter-cultural effects, while there are more severe effects in some nations at the level of employment and business laws.

7. The Influence of Geopolitics:

• • Effect on Strategy:

The new balance of economic power and strengthening ties can be structurally important to the geo political equations of the region. Trade agreements are a weapon that states can wield to either increase or decrease their regional or global influence in an realm.

Problems and Reactions to International Trade Agreements

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