Free Trade: Fostering Development or Widening the Gap?

In the context of global economic integration, free trade has become a primary driver of growth.
However, some argue that it only benefits wealthy nations, while poor nations are disadvantaged. I
disagree with this view. Free trade is not a zero-sum game but an opportunity for countries, regardless of
their level of development, to achieve mutual benefits through specialization and cooperation.

The arguments against free trade often come from old theories like mercantilism and neo-mercantilism,
which suggest that the only way to get rich is to sell more than you buy . However, Adam Smith's theory
of absolute advantage and especially David Ricardo's theory of relative advantage demonstrate that
all nations can benefit from trade. According to Adam Smith, a country can improve its economic well-
being by specializing in goods that it can produce more efficiently than anyone else. Even if it doesn’t
have an absolute advantage for a certain type of product, according to Ricardo, it can still focus on
producing and exporting the goods for which it has a relative advantage (the lowest opportunity cost).
This allows developing countries to leverage their low labor costs to specialize in labor-intensive goods
and trade with wealthy nations, thereby creating added value and improving living standards.

The disagreement with the aforementioned view is further supported by more modern theories. The
Heckscher-Ohlin (H-O) theory explains that countries will export products that intensively use their
abundant factors of production. For developing countries, the abundant factor is labor, which allows them
to compete in industries like textiles or footwear. Furthermore, the International Product Life Cycle
(IPLC) theory also shows opportunities for poorer countries. As a product enters its mature and
standardized production phases, companies from developed nations will shift production activities to
developing nations to take advantage of lower costs, thereby creating jobs and promoting
industrialization.

In conclusion, the idea that free trade only makes rich countries richer and poor countries poorer is an
inaccurate oversimplification. Based on the theories of comparative advantage, H-O, and IPLC, free trade
brings tremendous development potential to developing nations, helping them leverage their unique
advantages to integrate into the global economy. The challenge lies not in the nature of trade itself, but in
how each nation manages and effectively utilizes it to ensure sustainable and equitable growth.
Trade Liberalization: An Irreversible Trend?
Is free international trade a trend that can't be turned back? While we see some countries leaning toward
protectionist policies, I believe that the trend of trade liberalization is a one-way street. The reason is that
global economies are already so connected, and advances in technology and economic efficiency continue
to push for more open markets.

First, the international trade system that has been built since the mid-20th century is very strong . After
World War II, organizations like the World Trade Organization (WTO) were created and treaties like the
General Agreement on Tariffs and Trad (GATT) were designed to help countries trade goods more easily
by reducing tariffs and other barriers. Today, this system is reinforced by thousands of bilateral and
multilateral trade agreements, such as the European Union (EU) and the Association of Southeast Asian
Nations (ASEAN). This complex network has connected economies around the world. Breaking it would
cause major economic chaos, showing that this trend is difficult to reverse.

In addition, economic and technological realities also reinforce this trend. Companies have spent decades
building complex global supply chains, where products are designed, manufactured, and assembled in
different countries to achieve the lowest possible costs. Returning to domestic production would reduce
efficiency and push up prices for consumers worldwide. Furthermore, the rapid development of
technology, from the Internet to modern logistics systems, has made international business easier and
cheaper than ever. This technological infrastructure creates a powerful incentive to keep trade borders
open.

In summary, while politics might temporarily lean towards protectionism, the fundamental forces of
global trade are too strong to be reversed. The existing system of agreements, the benefits of global
supply chains, and the unstoppable progress of technology all point toward a future with increasingly free
trade. Therefore, the trend of international trade liberalization is not a temporary policy choice, but an
inevitable and lasting feature of the modern world.
Trade Liberalization: Who Benefits More?
A major question in economics is whether opening up international trade benefits developed countries
more than developing ones. While trade liberalization is expected to help all nations move forward
together, I believe that developed countries often have an advantage due to their existing conditions.

Developed countries often benefit more because they possess strong infrastructure, advanced technology,
and a highly skilled workforce. This allows them to focus on producing high-value goods, such as
software, financial services, and complex machinery. For example, a technology company in the US can
export software services worth millions of dollars, while a developing country might only be able to
export raw materials like agricultural products or textiles. Moreover, wealthy nations can use their money
to invest in poorer countries, which gives them a degree of control over resources and markets. This
imbalance can make developing countries more vulnerable to global market fluctuations.

However, this does not mean developing countries gain nothing. Free trade helps them access large global
markets for their goods. It also attracts foreign investment and technology, which helps them build their
own industries. Many nations have successfully leveraged this opportunity. A prime example is Vietnam
and Bangladesh, which have used free trade to become major textile and footwear manufacturers, creating
millions of jobs. This has helped to reduce poverty and improve the lives of many people. Nevertheless,
these countries still face challenges like low wages, poor working conditions, and a dependence on
foreign companies, which means profits are not always distributed evenly.

In conclusion, while trade liberalization offers benefits to both sides, developed countries often have a
head start due to their pre-existing advantages. For developing countries, however, free trade remains a
critical path for poverty reduction and economic growth. It requires smart policies to fully capitalize on
opportunities while also protecting domestic industries and workers.
The Impact of FDI on Vietnam's Economy
Foreign Direct Investment (FDI) has been a crucial part of Vietnam's economic success over the past few
decades. For a developing nation, FDI offers a significant source of capital and technology that can drive
growth. However, like any major economic trend, it comes with both key advantages and notable
disadvantages.

On the one hand, FDI brings enormous benefits. The most significant advantage is the injection of capital
into the economy, funding large-scale projects and industrial development. This investment directly
creates a large number of jobs for the local workforce, helping to reduce poverty and improve living
standards. Beyond just money, foreign companies also bring new technologies, modern management
practices, and valuable skills, which domestic companies can learn from. For example, major corporations
like Samsung and Intel have established factories in Vietnam, creating a sophisticated manufacturing
ecosystem and integrating the country into global supply chains.

On the other hand, FDI presents several challenges. One major concern is that the benefits may not be
distributed evenly. Foreign companies often dominate key sectors, making it difficult for local businesses
to compete and grow. There are also environmental risks, as some foreign investors may not adhere to
strict environmental standards. Another disadvantage is the potential for over-reliance on foreign capital.
If a multinational corporation decides to pull out of the country due to economic shifts or political
changes, it could cause a significant shock to the local economy and result in mass layoffs.

In conclusion, FDI has been a powerful engine for Vietnam’s economic growth, providing much-needed
capital, jobs, and technology. However, the country must be aware of the potential downsides, such as
competition for local firms, environmental issues, and economic dependency. To truly maximize the
benefits, Vietnam needs to continue implementing smart policies that attract foreign investment while
also protecting its domestic interests and ensuring sustainable development.
Making Money on the Foreign Exchange Market
The foreign exchange market is the world's largest and most liquid financial market, where various
participants, from central banks to individual investors, exchange one currency for another. While much
of this activity is for practical purposes, such as international trade, the primary motivation for most
participants is to profit from fluctuations in currency values. Two of the most significant strategies for
making money in this market are arbitrage and speculation, each with its own distinct approach to
currency trading.

The most common method for profiting is speculation. This involves buying a currency when its value is
expected to rise and selling it when its value is expected to fall. Traders use various strategies, such as
technical analysis (studying price charts and patterns) and fundamental analysis (evaluating economic
indicators like interest rates and GDP), to forecast future price movements. For instance, a trader might
buy the euro (EUR) against the U.S. dollar (USD) if they believe the European Central Bank is about to
raise interest rates, which would typically strengthen the euro. The goal is to close the position later at a
more favorable exchange rate, capturing the difference as profit. This high-risk, high-reward activity is
the main driver of trading volume for most participants.

Another, less common method for profit is arbitrage. Arbitrage involves exploiting temporary price
differences for the same currency pair across different exchange markets. For example, if EUR/USD is
trading at 1.1000 on one platform and 1.1005 on another, a trader could simultaneously buy the currency
on the cheaper platform and sell it on the more expensive one. This is a risk-free strategy, as the trader
locks in a profit without exposure to market fluctuations. However, due to the speed and efficiency of
modern electronic trading systems, arbitrage opportunities are extremely rare and only last for fractions of
a second. They are typically executed by high-frequency trading firms with sophisticated algorithms.

In conclusion, while the forex market serves various purposes for international business, the primary
ways individuals and firms make money are through speculation and arbitrage. Speculation, which
involves predicting future currency movements, is the dominant method and requires careful analysis and
risk management. Arbitrage offers risk-free profits by exploiting tiny price inefficiencies, but it is largely
the domain of automated, high-speed trading. Both methods highlight the dynamic and competitive nature
of the global currency market.
 Unit 3 – Key terms
1. Balance of payments: A statistical summary of a country’s total trade, other economic
transactions and financial flows at a given time
2. Balance of trade: The balance between exports and imports of a country
3. Code of conduct: A non-binding intergovernmental instrument to regulate certain types of
behavior of governments or private corporation
4. Commercial policy: Governmental acts, policies, practices to influence trade of goods and
services
5. Competition policy: Approaches of governments to the promotion and protection of competition
6. Competitive advantage: A industrial development theory which holds that the success of a firm
or an industry is based on cost advantages in the production of a relatively standardized product or
product-based advantages related to the development of a differentiated product
7. Contingent multilateralism: Multilateral actions should be taken whenever possible to improve
market access
8. Contingent protection: Protective mechanisms triggered to counter the effects of dumping,
subsidies and unexpected import surges that cause injury to domestic industry
9. Internationalization: The extension of economic activities across national borders to harness the
benefits of lower costs in other economies, with countries specializing in a particular stage of
production
10. Globalization: A decline in cost of doing business across space
11. Protectionism: A climate of economic policy formulation which sees merit in prevent the
exposure of domestic producers to the rigors of the international market
12. Free trade: The free movement across borders of goods, services, capital and people
13. Trade liberalization: The gradual or complete removal of existing impediments to trade in goods
and services
14. Trade policy: The complete framework of laws, regulations, international agreements and
negotiating stances adopted by governments to achieve legally binding market access for domestic
firms
15. Bilateral trade agreement: An agreement between two countries setting out the conditions under
which trade between them will be conducted
16. Multilateral trade agreement: Intergovernmental agreements aim at expanding and liberalizing
international trade under non-discriminatory, predictable and transparent conditions set out in an
array of rights and obligations
17. Multilateralism: An approach to the conduct of international trade based on cooperation, equal
rights and obligations, non-discrimination and the participation as equals of many countries
regardless of their size or share of international trade.
Internationlization & Globalization
Internationalization

Internationalization (I18n) is about designing a product or service so it can be easily adapted to

For example, a software company creates a website that can automatically change its language, currency,
and date format based on a user's location. This allows the company to sell the same product in many
different countries with minimal changes.

Globalization

Globalization is a much broader concept. It’s about a company creating a unified strategy to operate and
compete on a global scale. This involves making decisions about where to produce products, how to
market them, and how to manage the supply chain to be as efficient as possible. The main goal is to
standardize processes and save costs.

For instance, a car company decides to manufacture the same car model in different factories around the
world and uses the same marketing campaign everywhere to achieve a large-scale, consistent brand
presence.

Key Differences
Featur Internationalization Globalization
e
Scope Narrow, focused on products. Broad, focused on business strategy.
Goal To make a product adaptable. To achieve global efficiency.

In short, internationalization is the technical work of making a product ready for the world, while
globalization is the overall business strategy of running a company on a global scale. Internationalization
is a key part of any company's globalization effort.