Political Science

Intelligent brains in the fields of economics have always suggested that it is prudent not to create differences between the residents of various parts of the world by protectionist policies, thus treating the entire world as a common global hub which in turn is beneficial to every member of this common hub.   There have been multiple theories which suggest that by eliminating trade barriers, we are creating a world in which every country will develop an expertise in one field or other and thus the gross produce for the entire world will be greater than normal. Making the entire world barrier free is not a pragmatic solution and thus trade agreements like NAFTA, SAFTA, ASEAN etc give motivation to the participating countries when they realize the benefits and non participating countries when they observe the difference in economy from the participating nations in order to make the world barrier free.

While presenting our case in favor of agreements like NAFTA, which are crucial for the development of the economy of the world at large, we put forward David Ricardos policy of comparative costs where Ricardo deducted that the Gross product in terms of the quantity for the entire world will be higher in the case of free trade. We consider a hypothetical case in which China can produce both wheat and rice more cheaply than France (ie it has an absolute advantage in both commodities). What David Ricardo suggested was that it still would be mutually beneficial for both countries to develop an expertise and trade.

Table 1
CountryWheatRice Cost Per Unit In Man HoursCost Per Unit In Man HoursFrance1530China1015
In Table 1, in France with same number of men deployed, two units of wheat could be produced for every unit of Rice. This means that production of every unit of rice, results in the decline of production in the wheat by two units (i.e. the opportunity cost of a unit of rice is 2 units of wheat). In China, this ratio is 23, much better than 12 in the case of France. That is the opportunity cost of a unit of rice is 1.5 units of wheat in China. Now since the relative cost or the comparative costs differ therefore it is mutually beneficial for the two countries to engage in trading activities even though China has an absolute advantage in both commodities.

Since, China is relatively better at producing rice than wheat therefore China is said to have a COMPARATIVE ADVANTAGE in the production of rice. France is relatively better at producing wheat than rice so France is said to have a comparative advantage in the production of wheat.

Table 2 shows how trade might be advantageous. Costs of production are as set out in Table 1. France is assumed to have 270 man hours available for production. Before trade takes place it produces and consumes 8 units of wheat and 5 units of rice. China has fewer labor resources with 180 man hours of labor available for production. Before trade takes place it produces and consumes 9 units of wheat and 6 units of rice. Total production between the two economies is 17 units of wheat and 11 units of rice.

Table 2
C o u n t r y Production Before Trade After TradeWheat Rice Wheat Rice France 8 518 0 China 9 60 12 T o t a l 17 11 18 12

If both countries now specialize, China producing only rice and France producing only wheat, total production is 18 units of wheat and 12 units of rice. Specialization has thus enabled the world economy to increase production by 1 unit of wheat and 1 unit of rice. If we apply the same logic to the entire economy of the world the production will increase by a gigantic amount.

There are a few assumptions in the simple theory of comparative advantage which are as follows-
No transportation cost is attached..
Costs are constant and there are no economies of scale.
Only two economies are involved in producing two goods.
The theory assumes that traded goods are homogeneous (i.e. exactly identical).
Factors of production are assumed to be perfectly mobile.
There are no tariffs or other trade barriers.
There is perfect knowledge, so that all buyers and sellers know where the cheapest goods can be found internationally.

All said above there are a certain factors because of which countries try to introduce the trade barriers generally in the form of import duties some of which are as follows-
Favorable balance of trade and reducing the fiscal deficit.
In order to protect a specific industriesclass of people if is a huge vote bank for the ruling government.

Public Psychology
Policies created to woo vote banks generally in democratic form of governments.

Per my understanding, rather than taking a political stand on the matters of globalization, we must allow the free economy and therefore should motivate and promote the free trade agreements like NAFTA which are the keys to success for the economy of entire world.