14 Oct 2022


The Impact of Free Markets on Global Business

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Academic level: High School

Paper type: Research Paper

Words: 1375

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According to Evernsky, a free market is an economic system whereby, the prices of goods and services are influenced by an open market and the consumers of the products. An open market, in contrast, is a type of market structure without restrictions. That is, there are free entry and exit of competitors from both the buyers and the sellers. Specific to the global market, free market is considered a system in which countries trade freely with other foreign countries, without restrictions, such as trade barriers imposed by any of the trading countries (Evensky, 2011) . Generally, this means that countries that have free trade agreements, their governments have little to no restrictions on the mobility of goods and services (as defined in their agreements) that originate from the countries they are in a trade agreement. Also, it means that there are little to no tax levies or embargos on the products from the trade union member states. Free trade is made possible through agreements between individual countries, or more prevalently through International trade unions. For instance, the European Union has successfully implemented a policy on free trade agreements. This trade agreement allows free movement of goods and services (Through experts and professionals) among the member states (Evensky, 2011) . Most countries are members of at least one trade union, in effect, member countries, therefore, enjoy some kind of free trade agreement that is imposed by their respective unions.

Additionally, in their effort to support globalization, the international trade unions have jointly made free trade agreements to allow the free movement of goods and services from the member states of the different unions. An example of such agreements is the Canada-EU Trade Agreement (CETA). This a comprehensive economic trade agreement that allows both the European Union members and Canada to trade freely (Mansfield, 2012) . This act has significantly facilitated the movement of goods between the boundaries of Canada and the member countries of the European Union. Just like globalization is taking shape and covering more grounds internationally, it is dragging free trade along with it. Consequently, it is of inordinate significance to clearly understand the Implication that free trade has to the economies of the particular countries and more importantly, its impacts on global business.

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At the outset, one of the greatest impacts of free trade is felt by the consumers on the final cost of products. There are two essential ways in which free trade affects the price of goods. Free trade ensures that all the levies on import from member states are either zero-rated or significantly reduced, to make it easy for the goods to enter into the countries (Rivoli, 2014) . As a result, the cost of operations that are incurred when availing the products into this foreign market is significantly reduced. The ultimate cost of the goods is also significantly reduced, that is the products become much cheaper to the final consumer in the foreign market. Secondly, the introduction of free trade to countries has the effect of attracting member local business companies. They find potential in expanding to the international markets when free trade markets are introduced, essentially because it will be cheaper for them to export their products to the new international territories. In the end, there will be multiple companies supplying the same products and as the law of supply dictates, when the supply of a particular product increases, its price reduces proportionately hence, the cost of products will reduce. Also, from another perspective, free trade will invite more supplementary products into the market, this will give the consumers the privilege of choice. That is there will be multiple products in the market that can serve the same purpose, in the end for the products to become more appealing to the consumers the producers will either improve the quality or reduce the cost of the product. Therefore, free trade will significantly reduce the cost of goods on a global scale.

Besides the cost of goods, free trade has significant implications for the currency exchange rates. Currency exchange rates are essentially the value of a countries currency in comparison to the currencies of other countries. The value of a countries currency is fundamentally determined by the quantity and quality of the products the country exports, if the quality and the quality of the products exported are high, they will fetch high prices in the international markets, hence adding value to the currency of the country (Sons, 2014) . Free trade, widens the access to international markets and increase the chances of the products getting sold. As a result, more products will be exported to foreign countries and fetch their respective foreign currencies back. However, because it is free trade the other countries will equally bring their products, fetching your currencies in exchange for their products. This equal exchange of products may stabilize the currency exchange rates. Another element of free trade that also stabilize free trade is the fact that free trade is an agreement, and within the agreement, there are standard conditions that prevent the countries with higher economic stability from taking advantage of countries of lesser or developing economies. Also, the agreements have protective measures that are frequently used to balance off the balances of payment and balances of trade.

While stabilizing currency exchange rates and ensuring a fair balance of trade, free trade minimizes trade deficits. Trade deficits are generally an economic measure of how much the value of a countries imports exceeds the value of a countries export. Free trade markets create a condition whereby the governments of individual countries have little to no control over the flow of goods in and out of the country. These controls are therefore managed by the consumers, the effect of this action is that there will be unpredictable trade deficits, essentially because, if a country imports more than its exports, the deficit will be big and may grow bigger once the consumers get accustomed to the imported products. The only way that these deficits can be kept in check is through the agreement. The trade unions define the standard for which a country is allowed to export to its member countries without hurting the economy of the importing countries. To further make the agreements more convenient, it should provide annual or semiannual reports on available markets and the dynamics the markets present. This kind of information will guide the countries with surplus products on the potential trading partners that are in need of their products. This way the individual business will make market-oriented products based on informed decisions.

Nevertheless, the free market does not impact much on labor cost. The cost of labor is normally reduced by an increase of both skilled and unskilled labor when they flood the markets, employment becomes a challenge, as a result, they often will offer their services at a much lower wage rates, lower than the standard. Free markets may indirectly contribute to this labor cost downgrading since they not only allow the movement of goods, they also allow free movement of people between the member states in search of greener pasture. Tentatively, companies will easily move their production sites and manufacturing plants to countries with which they have a free trade agreement, the countries with a greater population that will offer cheap labor for example China and India, most international corporations are supported with free trade agreements their countries have, hence, has their manufacturing and assembling plants in china, because the county has a great supply of cheap labor, both skilled and semi-skilled. Often, these countries become major Industrial zone, especially when if other manufacturing resources are also available. On the other hand, when companies bring their manufacturing branches in a different country, with less skilled labor, the demand for skilled labor rises, consequently, the general cost of specialized labor also increases. Therefore, free market impacts labor cost both ways, depending on the economy of the countries with respects to each other. One way of implementing this proposal is by managing the surplus products, free markets have conveniently availed alternatives foreign markets to trade the products at best prices.

Other than labor costs, the free market has a direct influence on employment. Free market open doors to the international markets, in a way this means people of different nationalities will be allowed to work in different countries without restrictions. With no borderlines that restrict trade and employment opportunities, employment numbers will increase. Another aspect of the free market that will significantly impact employment, free markets invites new firms into potentially growing sectors of economies, in an essence firms with potential success rates, initiates their respective growth strategies into these unexplored territories. In the end creating employments to the locals. In the long term increasing the employment levels on a global scale. In conclusion, free markets have a significant impact on the growth and stabilization of the global economy.


Evensky, J. (2011). Adam Smith’s essentials: On trust, faith, and free markets. Journal of the History of Economic Thought, 33(02) , 249-267.

Mansfield, E. D. (2012). Votes, vetoes, and the political economy of international trade agreements. London: Princeton University Press.

Rivoli, P. (2014). The Travels of a T-Shirt in the Global Economy: An Economist Examines the Markets, Power, and Politics of World Trade. New Preface and Epilogue with Updates on Economic Issues and Main Characters. NY: John Wiley & Sons.

Sons, J. W. (2014). The case against the global economy: and for a turn towards localization. NY: Routledge.

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