The open trade doctrine that allows a country to operate a free trade economy where it can trade with business operators from other countries and , also allow them to invest and trade in her economy, this practice has liberalize the international trade system and make the world a global village. The neo-liberalists views in international trade has always supported a globalize and open market order in which every countries is expected to open up its market and imbibe the culture of free trade, free economy entry and exit of labor and the opening of the state economy to the international market for active competition.
Neolibrals have fostered the movement to freer trade and deregulation of labor markets, arguing that overcoming the constant of limited markets is the means to increase growth, remedy trade imbalances, and lower unemployment. The state needs to be forced to comply with the laws of the market” Samuelson (2004). To a great extend the neo-liberalist doctrine has gone a long way in influencing how political decisions are made regarding public policies on trade and workers-labor relationship.
The minimum wage paid to workers in other country most times is a basis for labor union leaders in poorly remunerated economy to rise up protest for wage increment. The workers knowing the implication of low pay compared to their counterpart, how this would reduce their economic purchasing power. This factor spurs workers and makes them agitate for pay raise. Thus, this write-up would look at how trade exploits a country and makes it worse off if its workers receive much lower wages than what workers in other nations receive.
The law of comparative advantage advocated by David Ricardo came into limelight in 1816. This law has it that in the international trade arena, a country with the lest cost of production of a goods and the most comparative cost advantage, compared to other countries, should be specialize in the production of such goods. The law of comparative advantage is based on the efficient production of goods and the adequate maximization of cost advantage in the production of these goods to the advantage of the country and the global trade.
Thus, it is assumed, ceteris paribus when two countries ‘X’ & ‘Y’ produce 2 goods ‘A’ & ‘B’, if country X has more comparative advantage in the production of commodity A and country Y has more comparative advantage in producing commodity B, then each should specialize in the production of each of these product in which they have more comparative advantage to the other country. The Ricardo’s theory assumes that technology is immobile and therefore, a country that is expertise in a specific technology enjoys great comparative advantage in technological production to other countries with less technological development.
“The model’s Ricardian structure also allows for a simple examination of the gains from trade in dynamic settings, and it may be amended to examine trading equilibria with imitation and product cycles” (Taylor, 1992). The Ricardian theory has laid emphasis on trade differentiation. Here, it is expected that each country should specialize and take advantage on the production of those goods that would give it comparative advantage and lower cost.
This theory would alley the fear of all country from the dominance of countries larger economy. “Small countries have long feared economic dominance by their larger neighbors. One element of this is concern that increased economic integration would lead important segments of national industry to abandon the smaller for the larger market. Insofar as these fears are based on market size, they find no foundation in traditional theories of trade due to comparative advantage.
While such trade may restructure national industry, the direction of the change will depend not at all on relative market size” (Davis, 1996). Producers of differentiated goods under increasing returns to scale must choose a site for production. Location in the larger country is preferred, cet. par. , since this allows the majority of sales to be carried out without incurring transport costs. Hence the larger country will end up with a more-than-proportional share (though not necessarily all) of the differentiated goods industry.
The smaller country is relatively specialized in the homogeneous good. Moreover, this “home market” effect has important welfare consequences. It reinforces the advantage of the large market in terms of a lower price index for differentiated manufactures, and conversely for the smaller country (ibid). The question now is how the involvement in international trade would affect workers welfare regarding wage incentives for vibrant economies and those small and developing economies.
The globalization and free trade advocated by the neo-liberalist have not really considered the implication of wage differences how it tends to affect workers morale and wellbeing as they interact in the course of international trade. There exist a huge lacuna between the wages packages for workers in developed economy and those in developing and under developed economies. This most times has lead to the ‘Brain Drain’ syndrome. Where competent and highly skilled labors migrate to developed countries in sought for greener pastures.