Glamor Economics

Chapter 15

Chapter 3 Section 2 Trade Barriers Accelerate the Great Depression—Market Functions

The market is a trading place that emerges as the times require, and it is the result of the choice of social and civilization development.The degree of development of the market also often reflects the economic vitality of a country.Historical experience tells us that openness leads to better development. From the Great Depression in the first half of the 20th century to the economic prosperity in the second half of the [-]th century, we can see this more clearly.

In 1930, the U.S. government erected unprecedented trade barriers, wrongly believing that U.S. manufacturers could not successfully compete with foreign manufacturers because of low wages and manufacturing costs in foreign countries. The Smoot-Hawley Tariff Act attempted to protect the U.S. market from foreign competition with high tariff barriers.The results were disastrous.Trading partners then retaliated by restricting foreign imports to protect their markets. In the early 20s, world trade fell by 30%, leaving tens of millions unemployed and exacerbating the Great Depression.Since then, successive U.S. presidents and successive Congresses have continued to lay the foundation and build consensus for peaceful economic cooperation and shared prosperity under the framework of the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization.Free markets and trade have made the United States the most open major economy in the world.

The market provides a platform and place for the development of free trade and is an important driving force for economic development.From the Great Depression of the United States in the 20s to the prosperity and development in the middle and later periods, we can see the importance of markets and trade for economic development.In a nutshell, markets and trade mainly have the following functions:

1. Markets and trade can promote social division of labor

The market and trade can form a mutually beneficial division of labor. Trade between two regions is often due to the comparative advantage of one region in producing a certain product, such as better technology and easier access to raw materials.

In the globalized market and international trade, countries can compare their interests and factor shortages according to natural conditions, and specialize in the production of products that are more beneficial or less disadvantageous.This international division of labor can bring many benefits, such as the benefits of specialization, the optimal allocation of elements, the saving of social resources and technological innovation, and so on.

2. Freedom and trade create wealth and raise national income
Free trade can expand national income.When each country develops sectors with comparative advantages according to its own conditions, factors will be allocated and used reasonably and effectively, and then exchanged for more things with less cost through trade, thereby increasing national wealth.

3. Markets and trade can increase social welfare

Markets and trade can increase social welfare.Marketization and trade division of labor have provided employment opportunities for more people, enabling more people to have the ability to raise families and pursue their dreams.Economic development also provides the necessary material basis for the country to improve social welfare.

4. Markets and trade can boost economic growth

Market and trade can strengthen competition, survival of the fittest, reduce monopoly and improve economic efficiency.Under the conditions of globalized market and free trade, enterprises have to compete with foreign counterparts, which will eliminate or weaken monopoly power, and in the long run, can promote a country's economic growth.

Free trade is conducive to increasing the rate of profit and promoting capital accumulation.Through the regulation of commodity import and export, costs can be reduced, income levels can be increased, capital accumulation can be increased, and the economy can continue to develop.

In addition, the market also has functions such as adjusting income distribution, information guidance, and market regulation.It is an important coordination mechanism for economic operation.

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The most primitive form of trade is barter, the direct exchange of goods or services.Modern trade generally uses a medium for bargaining, such as money.

(End of this chapter)