Arguments put forward in support of free trade.

  

Date Posted: 12/11/2012 6:23:14 AM

Posted By: saucer  Membership Level: Gold  Total Points: 4885

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This refers to trade where there are minimal government restrictions on exports and imports. This means that there are no tariffs, quotas, exchange controls or subsidies.

The following are some of the arguments put forward in support of free trade as an economic policy:

1. The benefits of world specialization and cooperative advantage: that free trade allows a country to produce what it can best produce cheaply for exchange in the international markets.

2. It allows competition, which leads to quality products, which in turn leads to quality products, which in turn leads to high standards of living, efficient industries and an enlarged scale or production.

3. It leads to the transfer of technology and skills which results in a lower cost of production, economies uses of resources, and high profits.

4. Increased output: world and national output would increase due to free and fair competition, increasing employment opportunities, stable and low prices, mass production and economic uses of resources according to the principle of competitive advantage.

5. Consumers would benefit from a range of goods and services at low prices.

6. Import restrictions encourage other countries to impose similar trade barriers against the nation. Making exporting industries lose markets and jobs.

7. There would be expansion of foreign markets, thus leading to competition and industries would enjoy economies of scale.

8. It brings member states closer politically and socially. This is achieved through establishing trading blocks like the European Union and the East African Community, among others.

9. Reduces regional differences in terms of economic development and wage differentials.

10. Due to full inability of factors of production, monopolies are prevented.

Argument against free trade.

1. Free trade can prevent a country from being self- sufficient in the production of goods and services since it relies on imports.

2. Infant industries need protection from foreign competition during their initial stages in order for the country to develop an industrial base.

3. A country needs to restrict imports

in order to correct the deficit in her balance of trade and balance of payments accounts.

4. Protectionism helps to protect domestic consumers and firms against dumping practices of foreign firms.

5. Free trade may lead to the creation of unemployment as consumers would
Prefer to buy imported goods and services, thus reducing demand for local goods and services, leading to retrenchment of domestic resources.

6. Countries restrict imports in order to conserve foreign exchange, which is used to import essential goods and services, repay foreign loans and help to reduce balance of trade and balance of payment deficit.

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