Negative Effects of Free Trade
Clarke Ricks School of Business,
Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
April 9, 2022
Negative Effects of Free Trade
Free trade is meant to eliminate unfair barriers to global commerce and raise the
economy in developed and developing nations alike. But free trade can – and has – produced
many negative effects, in particular deplorable working conditions, job loss, economic damage
to some countries, and environmental damage globally. Yet, the World Trade Organization
continues to advocate for free and unfettered trade, much to the detriment of some national
economies and millions of workers.
Adverse Working Conditions
As underdeveloped countries attempt to cut costs to gain a price advantage, many
workers in these countries face low pay, substandard working conditions and even forced and
abusive child labor. In a "New York Times" article tellingly titled, "An Ugly Side of Free Trade:
Sweatshops in Jordan," Steven Greenhouse and Michael Barbaro said that apparel
manufacturing – "propelled by ... free trade" – was booming in Jordan and its exports to the
U.S. had soared 20-fold in five years. Yet there is a dark side to this free trade, the paper stated:
"Some foreign workers in Jordanian factories that produce garments for Target, Wal-Mart
and other American retailers are complaining of dismal conditions – of 20-hour days, of not
being paid for months, and of being hit by supervisors and jailed when they complain."
Nevertheless, the WTO says it does not consider a manufacturer’s treatment of workers
reason for countries to bar importation of that manufacturer's products. The WTO notes
developing countries insist any attempt to include working conditions in trade agreements is
meant to end their cost advantage in the world market. When this argument for free trade
persists, workers globally pay the price.
Fears of Job Loss
Free trade agreements have also drawn protests from the U.S. public for decades due to
feared job loss to foreign countries with cheaper labor. Yet proponents of free trade say new
agreements improve the economy on all sides. The WTO acknowledges that free trade
does indeed lead to job losses. At the 2017 World Economic Forum in Davos, Switzerland,
Roberto Azevêdo, the WTO's director-general stated:
"Trade is responsible for two job losses out of ten. What happens is the other eight are
lost not because of trade but they are lost because of new technologies, innovation, higher
productivity."
Though Azevêdo was arguing that other factors account for 80 percent of job losses
globally, it's notable that the director of the world's greatest advocate for free trade was
acknowledging that 20 percent of all job losses on the planet are caused by free trade. That
would certainly be a strong argument against free trade, not for it. And, New York Times
columnist Paul Krugman argues that free trade deals with countries like Korea and Colombia
aren’t “job creation measures.” This is hardly a ringing tribute to free trade.
"Great Sucking Sound"
During the 1992 presidential election, Ross Perot warned that the then-new North
American Free Trade Agreement (NAFTA) between the United States, Mexico, and Canada
would create a "great sucking sound" as millions of jobs were siphoned out of the U.S. and into
Mexico and Canada. And, it looks like Perot was 100 percent correct, notes "Business Insider"
stating:
"The goods balance of trade for the U.S. with Mexico has been negative and steadily
growing over the years. In 2010 it amounted to $61.6 billion, which was 9.5% of the total goods
trade deficit (in 2009). "
Unions, understandably, have strongly criticized the free-trade agreement as critically
harmful to workers and the U.S. economy. The AFL-CIO argues that NAFTA has harmed
consumers and workers in all three countries, contributing to a loss of jobs and drop in income
while strengthening the clout of multinational corporations. The unions contend that the
increased capital mobility facilitated by free trade has hurt the environment and weakened
government regulation.
Changes under the Trump Administration
Then-candidate Donald Trump promised during his campaign to end United States
participation in NAFTA. As President, Trump has negotiated a new three-county pact to replace
NAFTA and announced, in October 2018, that NAFTA would be superceded by USMCA – the US-
Mexico-Canada Agreement. It remains to be seen how effective this new agreement will be in
softening some of impacts of unfettered free trade.
Effects on the Environment
Others agree that the environment is another casualty of free trade. Put simply, you can't
have free trade and "save the planet," says Alf Hornborg, a professor of human ecology at Lund
University in Lund, Sweden, noting:
"For centuries world trade has increased not only environmental degradation but also
global inequality. The expanding ecological footprints of affluent people are unjust as well as
unsustainable. The concepts developed in wealthier nations to celebrate 'growth' and 'progress'
obscure the net transfers of labor time and natural resources between richer and poorer parts
of the world."
Lund echoes the arguments discussed previously: that free trade causes global
inequalities, poor working conditions in many developing nations, job loss, and economic
imbalance. But, free trade also leads to a "net transfers of labor time and natural resources
between richer and poorer parts of the world," he says. Free trade is driving the growing global
problem of greenhouse gases, because workers in developing nations end up producing goods
at a far lower cost and in inferior working conditions, generally using older, and dirtier, energy
sources such as oil and coal, Hornborg argues. This occurs while the economies globally
consume more of the diminishing natural resources on the planet, and fail to develop clean fuel
technology, such as solar and wind power.
Putting all of these factors together – job loss, economic imbalance, deplorable working
conditions, and environmental degradation – and free trade falls on the negative side of any
economic equation: It's bad for job growth, bad for working conditions, bad for global equality,
and bad for the environment.
