Trade Openness

Trade openness is always beneficial for workers, because it allows them to buy cheaper imports from abroad

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There are varying opinions on whether trade openness helps the economy of a country or makes it worse off. Various studies have been conducted to examine the relationship between trade openness and economic growth and the results tend to lean to the conclusion that trade openness, in the long run, is beneficial to the economy. For the proponents of trade openness, they argue that countries that adopt trade openness are at par with the trending technological changes of the time; there is efficient utilization of resources through comparative advantage, and it fosters competition both in the domestic and global markets. On the flip side, however, trade openness could pose harmful effects to the economy. The unregulated trade could lead to the closure of domestic industries and negatively affect the balance of trade of a country. This paper is an attempt to explore whether trade openness is always beneficial for consumers to buy imported goods, with reference to two emerging economies; Kenya and USA.

Trade openness, in essence, is the removal or relaxing of barriers to trade between countries. In the case of imports, it is the reducing or abolishing of high taxes, tariffs, and quotas. These measures are put in place by most governments who wish to protect their economies from threats from foreign markets. The effect of these measures is to make the price of imported goods exorbitantly high beyond the reach of most of the citizens, thus making it unattractive. Quotas, on the other hand, are restrictions imposed on the quantity of goods that a country can allow into its borders without harming the domestic market (Kahnamoui 2013).

Trade openness has enabled consumers to have access to a wide range of products from many countries. This is a good reprieve for most consumers, especially in markets that have constricted the range of products to choose from. With trade openness comes specialization where countries focus their attention on the production of products in which they have a comparative advantage. As such, such products tend to have lower prices as there are optimum resource allocation and utilization based on the concept of comparative advantage. Governments can, therefore, opt to import products in which it lacks the comparative advantage and major o the production of products it has a comparative advantage on. Consumers will, therefore, benefit from a variety of products to choose from and also enjoy the price advantage of those products.

Trade openness also opens up avenues where competition in the market is fostered. With competition, companies tend to produce quality products to outdo each other. Also, there is increased product features to suit the vast needs of consumers. Monopolistic tendencies and its adverse effects will also be checked. Companies that have a monopoly in a market tend to produce substandard goods and charge high prices. With the adoption of market liberalization, local companies risk facing imminent closure if they do not produce quality products that meet international standards as consumers now have the option of exploring foreign markets to access similar products (Ottaviano, Pagnini and Del Gatto).

Technological advancements in domestic markets have also been achieved as a result of the adoption of market liberalization. Superior technologies have been used in the production of various products as companies, especially under franchised firms where similar technology is adopted in all franchises across diversified markets. In so doing, quality and efficiency is achieved, which translates to consumer satisfaction.

On the flip side, trade openness is not always beneficial to the consumer and the domestic industries. It comes with its own sets of challenges. There is the risk that local industries might be forced to shut down if imported goods are cheaper than those that are locally manufactured. The ramifications of this will be adverse: there will be widespread unemployment and underutilization of resources as industry facilities will end up being idle. To avoid such a scenario, governments should ensure that equilibrium is attained between the amounts of imports that should be allowed into the economy to supplement the locally produced goods. Kenya has had its textile industry closed as a result of cheap imports of clothes especially from China. In the US, Ford was on the brink of facing bankruptcy owing to the huge competition in the industry and the importation of Japanese and German vehicles. To mitigate this, the company resorted to venture into the low-end market to diversify on risks.

There is also the risk of unhealthy products finding their way into the local industry if import policies are not properly regulated. This is especially true with regards to food commodities that find their way through into a country. The consumption of genetically modified products still raises major issues in most countries, yet they are still imported and consumed. Junk food, as we all know to make people become obese if consumed in large quantities. In the long run, the life expectancy and productivity of a country will be negatively affected if such trends go unchecked (Kahnamoui 2013).

To achieve a favorable balance of trade, there should be no great disparity between many imports and exports. Too many imports imply that dollar demand will be high hence a weakened currency. Kenya is a net importer and as such its exchange tare sometimes fluctuates to alarming levels. Last year, for instance, saw its currency dip to a record low owing to too many imports in the construction sector. Companies reporting under such environments experience exchange losses.

With market liberalization comes outsourcing of labor. Many people still do not see outsourcing as importation. Outsourcing has led to many people dislodged from their jobs to create a way for more experienced and better-qualified staff. In the USA, there has been a huge public outcry that immigrants have taken up all the jobs meant to benefit the locals. This has led to an escalation of racism and stereotyping in the country (Ottaviano, Pagnini and Del Gatto).

The question of whether trade openness is always beneficial to the consumer because it opens up avenues to import cheaply is still in contention. Trade openness has its own flaws as well as strengths. The overall effect, however, is that trade openness has positive effects that could benefit the economy in the long run. With well-formulated import policies and a healthy domestic environment, the threats associated with trade openness will not be felt much as the economy will be thriving and consumers will benefit from a wide range of products to choose from and a huge price advantage as a result of comparative advantage concept. Consumers can, therefore, import products cheaply without having the fear that the local industries might collapse.

References

Kahnamoui, Farrokh. 2013. "Does Market Size Matter For How Trade Openess Affects Economic Growth?". IBR 6 (6). doi:10.5539/ibr.v6n6p10.

Ottaviano, Gianmarco I.P., Marcello Pagnini, and Massimo Del Gatto. "Openess To Trade And Industry Cost Dispersion: Evidence From A Panel Of Italian Firms". SSRN Electronic Journal. doi:10.2139/ssrn.1005299.