Regulated trade is a policy system that seeks to establish rules for how countries import and export goods. Regulated trade aims to prevent unfair competition and deceptive business acts while also placing importance on preserving the environment, offering consumer protection, employee safety, and transparency of labeling, among other guidelines that benefit foreign and domestic economic systems.
We most often see regulated trade in the form of trade agreements. These agreements open borders to foreign interests so businesses can offer products and services to a greater number of people.
At the same time, regulated trade can be used to protect domestic industries by levying tariffs on specific products being imported. These tariffs artificially raise the price of goods coming into the country so that domestic industries that can’t compete on price are protected.
However, many economists want to throw trade regulations out the window and opt for free trade that lets global markets decide who should win or lose in any specific industry.
Policymakers, on the other hand, argue that this isn’t possible because voters who have been negatively affected by free trade agreements want regulated trade to help protect their jobs.
So which is the right answer? Should regulations be tossed, or should governments seek to close borders and protect their citizens?
Benefits of Free Trade
- Economic Growth – Exporting production, design, or manufacturing can free up resources to invest in research and development that leads to new, higher quality, and better-paying jobs in both home and foreign markets.
- Innovation – When economies don’t have to compete on a global stage, they are less likely to innovate. At its best, innovation leads to reduced cost, better quality products, and more consumer choice.
- Less Corruption – With regulated trade, any government can selectively decide to enact tariffs on specific products; this can lead to interest groups influencing government officials to provide them special protections that stifle innovation and entrepreneurship. Trade agreements also feature loopholes and may unfairly target some industries more than others.
Benefits of Regulated Trade
- Intellectual Property Protection – Regulations built into trade agreements can prevent foreign companies from stealing ideas and flooding the market with a competing product at a lower price.
- Protections for Workers – Low skilled workers can earn more and have a better life when they aren’t competing with nations that have a lower standard of living,
- Less Destruction – By restricting the outsourcing of labor, there are fewer opportunities for companies to buy up inexpensive resources overseas and exploit local populations and a lack of labor regulations.
- Tax Revenue – Local tax collection sometimes exceeds what is generated by tariffs, meaning that states and local governments benefit more by keeping production and labor domestic.
So which is best? Well, there is no right or wrong answer. These issues are massive and include hundreds of countries, differing monetary systems, governments, leaders, and people.
Experts agree that trade policy should include regulations that restrict businesses and countries from unfairly controlling entire industries through reduced labor costs, inadequate environmental protection policies, and violence.
They should also encourage nations to meet global standards for workers and the environment, and seek to actively prevent theft of ideas and to help educate workers who lose jobs as a result of outsourcing. But, no trade agreement should overstep and seek to control markets because, in the long-term, these regulations will likely fail and wind up costing more jobs, lost revenue, and harm consumers.