Free Trade China

The article focuses on how the vision of free trade between countries has been affected by global recession. International trade is that part of economics which deals with transactions between countries in terms of goods and services, financial flows and factor movements.
Free trade refers to a treaty where there is no restriction on the movement of goods and services between countries (does not mean complete removal of all duties on commodities). The World Trade Organization has, for long, been pushing the case of free trade but in the current economic situation of global recession, it seems highly impractical. During a global recession or economic crunch, it is already difficult for economies to survive; on top of that, free trade between countries would allow certain countries to export (possibly dump) their products into other countries. These exports may have better quality or prices that are lower than domestic equilibrium prices and thus give birth to intense foreign competition. Foreign competition refers to external forces created by foreign companies which sell their goods in a country. The goods sold by foreigners compete with locally produced goods. An effect of foreign competition could be seen in the graph (overleaf).

Since imports have a lower price than domestically produced goods, price level drops and more consumers can now afford the commodity. The problem, however, is that not a lot of domestic suppliers are willing to supply at this price level and thus domestic industries output decreases from Qe to Q1 and foreign imports increase to Q1-Q2.
This reduces the demand for locally assembled goods or services and would not only cause unemployment for the locals but also increase the dependency of one country on another.
The headline of the article says: “US-China trade friction rising”. This “friction” depicts a scenario where both countries try to tackle foreign competition and take advantage of the other. In order to tackle foreign...