Unilateral Trade Agreement

by Walter Johnson; Updated September 26, 2017

A trade agreement joins two or more states in a joint commitment to expand their trade. Normally, this includes domestic structural reforms such as lowering tariffs and reducing bureaucratic regulations. A unilateral trade agreement is technically not an agreement, but the actions of one country to expand its market and reform its economy.

Free Trade

Free trade is an ideological approach to international business. According to libertarian economists such as Douglass Irwin, when cross-border markets are free of government interference, efficiency increases and consumers have more choice in products and prices. The result is that consumers win, since cross-border competition causes prices to fall. The basic concept here is that to “open” the economy to foreign influences, products and practices will have positive spill over effects onto domestic production. The economic problems with unilateralism will soon be compensated for with increased efficiency. To force domestic producers to compete against superior foreign ones only means that domestic producers will have to improve their efficiency. Over time, therefore, everyone wins.

Unilateralism

"Unilateral" in international economics means “from one country.” Unilateral free trade simply means that one country reduces its import restrictions without any formal agreement for reciprocation from its trade partners. The assumption is that free trade brings benefits regardless of the actions of its trading partners. Protectionism, or the increase in barriers to external trade, is considered a problem because it shields domestic producers from foreign competition, which permits domestic producers to relax their standards in the absence of competition. It, in effect, amounts to a subsidy for domestic capital.

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Benefits

A country can liberalize its trade policy without reference to its partners. Under normal circumstances, this means that one country on its own can lower tariffs, make international investment easier, lower taxes, reform its border customs in an attempt to attract foreign capital. If foreign capital is attracted, the country can learn from their superior production techniques, while prices for similar products will fall given the new competition. A country can liberalize its trade laws because it believes these things will help it. Free trade, even if not reciprocated, can attract needed capital and ability into a country.

Problems

Unilateral domestic reform means that other states are under no obligation to reciprocate. This means that country X can open its markets to country Y, while country Y can close its markets to X. This seem inherently unfair, since country X is open to foreign competition, which might hurt its domestic producers. Country Y, on the other hand, can protect itself from foreign competition. It seems that country Y gets all the benefits of protection while still taking advantage of the labor and natural resources of country X.

About the Author

Walter Johnson has more than 20 years experience as a professional writer. After serving in the United Stated Marine Corps for several years, he received his doctorate in history from the University of Nebraska. Focused on economic topics, Johnson reads Russian and has published in journals such as “The Salisbury Review,” "The Constantian" and “The Social Justice Review."

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