Preview

Reasons for Free Trade

Good Essays
Open Document
Open Document
3723 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Reasons for Free Trade
Free trade can be defined as the situation whereby governments impose no artificial barriers to trade that restrict the free exchange of goods and services between countries with the aim of protecting domestic producers from foreign competitors.

The argument for free trade is based on the economic concept of comparative advantage. Comparative advantage is the economic principle that nations should specialize in the areas of production in which they have the lowest opportunity cost and trade with other nations, so as to maximize both nations' standards of living.

FREE TRADE
|Advantages |Disadvantages |
|Free trade allows countries to obtain goods and services that the |An increase in short term unemployment may occur as some domestic |
|cannot produce themselves, or in sufficient quantities to satisfy |businesses may find it hard to compete with imports. However, the short|
|domestic demand. |term rise in unemployment should correct itself in the long term, as |
| |the domestic economy redirects its resources to areas of production in |
| |which it has a comparative advantage. |
|Free trade allows countries to specialize in the production of the |Free trade can create barriers that make it more difficult for new |
|goods and services in which they are most efficient. This leads to a |businesses and new industries to emerge as they are not protected from |
|better allocation of resources and increased production within |larger foreign companies. |
|countries, and throughout the world. |

You May Also Find These Documents Helpful

  • Powerful Essays

    Mkt 310 Exam 2 Study Guide

    • 2196 Words
    • 9 Pages

    * Free Trade – The absence of government barriers to the free flow of goods and services between countries.…

    • 2196 Words
    • 9 Pages
    Powerful Essays
  • Powerful Essays

    Fins2622 Notes

    • 6821 Words
    • 6 Pages

     Free Trade: David Ricardo (support free trade) o Theory of comparative advantage: For two nations without input factor mobility, specialisation and trade could result in increased total output and lower costs than if each nation tried to produce in isolation.  Both nations can benefit from trade if each specialises in good that they have the lowest opportunity cost, even if one economy is more efficient in making everything.  However, Comparative advantage in not static, and changes over time in reality.  Also, comparative advantage assumes that factors of production can’t move between countries  therefore comparative advantage is set to be outdated  production and employment usually moves to the lowest cost economies  Reality: Countries encourage exports, but limit imports o Due to mecantalism  i.e. total world wealth is limited and trade is a 0‐sum game if one country benefits, the other loses in order to win, you encourage exports  HOW? Through colanising  therefore legislated that the country could only trade with colonised country.  Who gains from free trade?  Some say that comparative advantage is just a way for developed economies to gain  Because before, developed economies were very protected (in order to establish their industries), and now they want everyone to do free trade (to benefit themselves). Since developed economies developed their industries a long time ago, they usually have a comparative advantage in high technology products (which lead to greater growth compared to agricultural products), whilst the developing countries specialise in the lower growth agricultural products.  Creation of international institutions: GATT, WTO  Creation of trade blocs…

    • 6821 Words
    • 6 Pages
    Powerful Essays
  • Satisfactory Essays

    Harvey N M2 A2

    • 621 Words
    • 2 Pages

    Peter Hann describes free trade as, “generally considered by economists to be beneficial to international trade by encouraging competition, innovation, efficient production and consumer choice” (Hann, 2011 para. 1). Free trade allows freedom of international exchanges; with this there are advantages as well as disadvantages. Some advantages consist of cost advantages, factor earnings, cheaper imports, and an enlarged market (Chand, 2015). Cost advantage allows free trade to warrant a portion of possessions and resources. This in turn leads free trade into the most efficient conduct of economic affairs. Factor earnings and cheaper imports allow production factors to increase while import rates decrease. Enlarging the market is an advantage of free trade because it increases the market allowing labor to be possible. The disadvantages of free trade consist of all countries being in conjunction and working together. Meaning it will only work and be productive if all countries participate, if there is one country that decides not to partake in free trade, it will not work. It is also unfair to and creates a disadvantage to countries for those countries that are unable to compete with larger, advanced countries (Chand, 2015).…

    • 621 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    One of the most significant arguments in favor of free trade is its ability to improve economic efficiency. If free trade opens up a market to imports, the consumer benefits from the low priced imports. If free trade opens up a market for imports, then producers benefit from the new place to sell. Supporters of free trade state that free trade in an economy improves welfare for society…

    • 69 Words
    • 1 Page
    Satisfactory Essays
  • Good Essays

    Print ECN 340

    • 586 Words
    • 1 Page

    Free trade agreements to promote international investment to optimize the industrial structure and resource allocation. The free trade agreement to promote economic cooperation relationship between member countries.…

    • 586 Words
    • 1 Page
    Good Essays
  • Good Essays

    In addition countries have Market access and trade creation which is when countries have easier access to each other's markets meaning that trade between members is likely to increase. Trade creation exists when free trade enables high cost domestic producers to be replaced by low cost and also allow more efficient imports. Because low cost imports lead to lower priced imports, there is a 'consumption effect', with increased demand resulting from lower prices.…

    • 419 Words
    • 2 Pages
    Good Essays
  • Good Essays

    g) The benefits of trade liberalization are assumed to be great. Yet, Nations restrict International Trade. Why…

    • 815 Words
    • 4 Pages
    Good Essays
  • Good Essays

    The mightiest movement the world has known in two thousand years. . . is sending out the gladdest message to oppressed humanity that the world has heard since John the Baptist came preaching in the wilderness that the world’s Redeemer was coming to relieve the world’s misery….…

    • 1176 Words
    • 5 Pages
    Good Essays
  • Good Essays

    $ 7500 Steelworker

    • 633 Words
    • 3 Pages

    Import and trade restrictions are implemented with the belief that they will help protect jobs of a specific industry and increase employment in those industries. Short term, the workers of these industries are the ones who will benefit from the import restrictions, as their jobs will be protected. Additionally, it will improve the economy with an increase in the demand for domestic goods, which will boost the country’s GDP. Eventually, the long-term effects of these restrictions will lead a decline in overall employment, an increase in foreign goods and an increase in domestic goods. The export industry will be adversely affected by the restrictions since we pay for our imports with our exports. If fewer goods are being exported, the jobs in the export industries will decline and there will be less of a demand from other countries to trade goods.At first, it appears the thing…

    • 633 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    2

    • 262 Words
    • 1 Page

    3. International trade enables specialization, which brings increased efficiency and greater competition to spur the market…

    • 262 Words
    • 1 Page
    Satisfactory Essays
  • Satisfactory Essays

    NAFTA

    • 322 Words
    • 2 Pages

    The progressive removal of barriers to trade and open markets has favored economic growth and prosperity in all three countries. To remove trade barriers and open markets has encouraged companies to buy inputs to produce , plus it brings new technology that the country does not have this represents lower costs and prices available to consumers at the same time decrease progressive import tariffs is a benefit to consumers who pay less for the goods they buy .…

    • 322 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Free trade is a policy by which a government does not discriminate against imports or interfere with exports by applying tariffs (to imports) or subsidies (to exports) or quotas. According to the law of comparative advantage, the policy permits trading partners mutual gains from trade of goods and services.…

    • 897 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Free Trade

    • 1303 Words
    • 6 Pages

    The policy of the free trade states that free trade is an element of capitalism that essentially means that there are no restrictions from the government about trading. The government also says that there no restrictions of importing/exporting with other countries. Free trade is also a policy were the government accepts imports and exports by applying tariffs. Tariffs are a tax imposed on imports in and out of a country. World Trade Organization, an international organization intended to reduce trade barriers, formed in 1995. WTO members (which include China since 2001) charge minimal import tariffs on each other. I think tariffs could benefit and harm free trade. Some reasons tariffs are used is to protect consumers, national security and retaliation. When protecting the consumers a government has the right to levy a tariff on products that they feel can harm its population. For example, Japan could place…

    • 1303 Words
    • 6 Pages
    Good Essays
  • Good Essays

    Two simple ways to understand the proposed benefits of free trade are through David Ricardo 's theory of comparative advantage and by analyzing the impact of a tariff or import quota. An economic analysis using the law of supply and demand and the economic effects of a tax can be used to show the theoretical benefits and disadvantages of free trade.[1][2]…

    • 1011 Words
    • 5 Pages
    Good Essays
  • Good Essays

    free trade vs protection

    • 2380 Words
    • 10 Pages

    from other forms, such as trade policy where the allocation of goods and services amongst trading countries are…

    • 2380 Words
    • 10 Pages
    Good Essays