Trade and "Free Trade" Development in the Last Fifty Years Undoubtedly, the current global economic order is mainly based on the "free trade" regime. This economic order is characterized by the increasingly unhampered flow of products and goods across national and regional borders. Arguably, the dominance of the "free trade" regime is the inevitable result of major economic policy developments and trends in the last fifty years, which include the freeing of many economies from trade restrictions through national economic policy, the action of Bretton Woods institutions, the formation of trading blocs, and lastly, the establishment of a global supply chain to support trading activities.
One of the most important factors which contributed to the realization of the free trade agenda was the shift from protectionism to liberalization in many countries’ national development policies. For many countries, the adoption of economic liberalization was necessary for bankrolling economic growth, spurring employment, and reducing poverty levels (Shiner 2008). This opened up many economies to unrestricted trade activities and allowed other countries to export both capital and goods into previously untapped foreign markets. Developed economies, particularly the United States, have espoused the liberal agenda since it gave them the ability to export surplus capital and goods, which was necessary to continue their economic growth.
In many countries, the shift towards a free trade regime was supported and reinforced by Bretton Woods institutions such as the World Bank and the International Monetary Fund (IMF), which specified the adoption of economic liberalization policies through its structural adjustment programs (SAPs). These institutions used the level of implementation of SAPs in developing countries in evaluating a country’s ability to pay its loan commitments to the banks. Consequently, the World Bank and the IMF had an indirect influence on the adoption of national development programs and legislation that favored the dismantling of trade barriers and ensuring an environment that was conducive for trade and business expansion.
Another important factor which supported the growth of the free trade regime was the formation of continental and regional trading blocs such as the NAFTA, European Union (EU), Association of Southeast Asian Nations, and the Latin American Free Trade Association from 1960 onwards (Frankel, et. al., 1994, p. 1). Through these organizations, countries enter into agreements that support the increased trade between regional partners through the elimination of trade barriers and the facilitation of the unimpeded flow of goods between countries and regions. Hence, the formation of continental and regional trading blocs broke down the traditional blocks to trade in the form of reduced tariffs and transportation costs within countries that were signatories to free trade agreements or FTAs made under the auspices of regional and continental formations.
Unsurprisingly, the lack of trade barriers resulting from the liberalization of majority of the world’s economies and technological developments led to the creation of a global supply chain and logistics system, wherein businesses could easily source out raw materials, labor, and other products from multiple markets at a lesser cost and reduced risks or to supply such products to markets integrated with the global economy. Hence, there has been unprecedented growth in the flow of products and goods within the global supply chain, wherein businesses are not limited to their domestic markets but have the option to operate on a global level.
Thus, the complementary actions of national governments, Bretton Woods institutions, and trading blocs helped usher in an era of increased and almost unimpeded trade activities. These developments were also reinforced by the creation of a global supply chain and logistics system which enabled the cheaper and faster flow of capital and goods from one economy into another.
Frankel, J., Stein, E., &. S. Wei (1994). Trading blocs and the Americas: the natural, the unnatural, and the super-natural. 1994 U.C. Berkeley CIDER Working Paper. Retrieved October 24, 2008 from http://ksghome.harvard.edu/jfrankel/CARACJDE.10.pdf
Shiner, J. (2008). U.S. Transformational economic policy: linking trade, growth, development. eJournalUSA. Retrieved October 24, 2008 from http://www.america.gov/st/econ-english/2008/June/20080608093002xjyrreP0.8731653.html&.distid=ucs