Wednesday, December 11, 2013

Economy: Is Free Trade Between Europe & China A Good Idea?

(Drivebycuriosity) -  David Cameron is an ambitious man. The British Prime Minister calls for a free trade deal between the European Union (EU) and China (reuters). His proposal meets a lot of refusal, partly because Beijing ignores civil rights and occupies & oppresses its neighbor Tibet.

I think Cameron`s suggestion is a good idea and could even foster China`s reform process. Adam Smith and many other economies have explained why free trade is the best for the whole world. But as long as we cannot reach global free trade - this is far away - any agreement which reduces trade barriers between some regions would a good compromise.

Consumers in Europe and China would be the first who benefit. They would get cheaper products and a larger selection.  They also could expect more quality because producers in both countries would have to make their products better to respond to a larger competition. Therefore free trade would lift life standards in both regions.

Companies in Europe & China would also benefit because a fee trade deal would open new markets and allow them to export more goods. Therefore they could produce more which would make production more efficient (economies of scale). History also shows that in the long run competitive pressure is good even for companies because they are forced to be more productive, more innovative and more ingenious - similar to the lean & mean effect you get by exercising regularly in a gym.

Rising life standards plus increasing productivity combined with larger markets  would stimulate economic growth in Europe and China. Stronger growth in those regions also would boost the global economy.

Free trade between Europe & China also would spur tourism between both regions. This could lead to a better mutual understanding and - in combination with better trade relations (meaning also more business trips) - could support the reform process in China.

In the late 1970s, shortly after the Mao Zedong`s death (1976), China started a slow and viscous transformation from a rigid communistic control system into a modern economy. Recently Beijing announced a list of serious reforms, called a "blueprint for reform" (driveby). It contains the most wide-ranging and reform-tinged proposals for economic and social change in many years. A free trade deal could inspire a political learning process and temper fears of Western style democracies. Thus free trade could accelerate reforms and even support democratic tendencies.

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