What Caused the Rise of Globalization Essay Example | Topics and Well Written Essays - 1250 words

What Caused the Rise of Globalization - Essay Example These price variations encourage people to trade and hence the cost advantages provided by production in different countries triggered the start of globalization. Free Trade refers to the open transactions between two countries without any form of interference from the government of these two nations in the form of tariff, quotas or another form of trade restrictions. Many countries have understood the importance of free trade's necessity in terms of efficient consumption and production, economic growth and other economic benefits that are brought about by trading between two or more countries. Many people consider free-trade leads to efficiency and their claim can be assessed by seeing the effect of tariff or import tax on imports. Here it must be kept in mind that imposing a tariff on international trade is a complete opposite of free trade and hence we are going to look what difference does the imposition of tariff poses on the supply and demand. Suppose that at first, no trade was occurring as a result of which the original demand and supply curve, D & S respectively are the country's demand and supply. At the point, equilibrium occurs at point Y at the interaction of two points. However, if a country indulges in free trade SW curve becomes its supply curve and new equilibrium occurs at Y1. The result why the equilibrium quantity of supply is lower than for the demand curve S is because some countries can produce these products at a lower price than others because of comparative and absolute advantages discussed below and as a result, our country will stop the production of this good citing that other countries can produce it cheaply. This is a point of controversy among supporters of free trade and people who are against free trade. The people who oppose free trade argue that domestic production will reduce from Y to Y1 as result of free trade and hence this implies closing down of factories, downsizing, and unemployment of local factors of production. They say that free trade is an evil that should be stopped from penetrating a local market for the reasons discussed above. However, the supporters say that this leads to more efficient use of global resources as efficiently as more products are being produced where they can be produced cheaply. Although it might be beneficial on a global basis, it should be discouraged in the developing economies which are seeking to maximize employment rate and implementing policies for the growth of local industries. Faced with this problem many countries often charge a tariff on imports which increase its price and hence reduces the impact of imports on local industry and market. This increase reduces the local supply from Y to Y2 which is creates a lesser impact on domestic supply but still, it is large enough to affect the domestic industry and hence receives criticism from people who suffer from unemployment etc. However, once aa high tariff is charged raising th e price of