Bilateral trade is the exchange of goods between two countries leading to an increase in trade and investments. This can happen between two countries like the United States and Australia that have a bilateral trade agreement, or between a country and a bloc of others like Japan and the European Union.
This kind of agreement aims to remove trade barriers between two countries in the form of tariffs, quotas, and government subsidies, which can give one party an unfair advantage over the other. An understanding can also prevent another country from dumping goods into another country which has a negative effect on local producers. When both parties reach an agreement, the result is an expansion of trade between them, which leads to greater access to each other’s markets.
As compared to multilateral trade, which involves many parties with different interests, bilateral trade agreements are simpler to negotiate. Once agreed, the businesses can reap the rewards faster than in a complicated settlement where it takes longer to roll out. The flow of goods between both will lead to an increase in productivity, generating more jobs with better pay for employees. Some of these agreements would have in place better labor standards and environmental protections. An increase in productivity leads to cheaper goods for consumers who will respond by spending more, leading to a cycle of economic growth.
Bilateral trade agreements are excellent when both countries specialize in different industries. There’s a big opportunity to reach new customers without having to compete with manufacturers in another country. This is especially good for SMEs who don’t have to compete with large corporations. When bilateral partners agree not to engage in dumping, they protect local businesses from getting squeezed out of the market.
Two responsible partners coming into an understanding of trade will recognize the importance of protecting their most valuable intellectual assets. Bilateral trade agreements ensure this by a mutual agreement to protect intellectual property and copyright law. The advantage for both parties is increased innovation with guarantees that their creative professionals will benefit from their ingenuity and hard work.
For emerging economies, the benefits accrued from bilateral trade can improve their potential for going into bigger and better deals, which stimulates further growth. This can come in the form of multilateral agreements or other bilateral agreements with different economic targets.
As the global economy becomes more complex, many countries are looking for simple, mutually beneficial deals that keep their economies growing while they contemplate better alternatives. Whether they do so as part of a group or enter an agreement on their own, bilateral trade has the benefit of growing their economies, improving the lives of their citizens, and exposing SMEs to new opportunities. Established economies and emerging markets are rapidly increasing the number of bilateral free trade agreements to boost growth.
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