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Write an assignment on Arguments in favor and against free trade
Essay: Arguments in favor and against free trade
Solution
Free trade is the trade in which there are no restrictions on the buying and selling of goods and services between nations, and there are no constraints like tariffs, quotas, duties, etc. (Parikh, 2013).
Arguments in favor free trade
Firstly, with free trade, the costs for the companies in various countries get reduced. This is done when the companies produce the products using the cheapest resources that are available to them. With free trade, companies can import the raw materials for the production of goods domestically (Erikson, 2014). Then they are also able to invest directly in the economies of foreign countries and hence the goods can be produced at the lower costs. The intervention of the government is not required when the goods have to be exported to the economies in domestic countries. The technologies in businesses allow the companies to outsource the service departments like technical support and customer support. Also, when the countries involve themselves in the free trade practices, they tend to increase the favorability of their business environment for outsourcing purposes. Secondly, the purchasing power of businesses increases. The business houses have the opportunity to buy goods from foreign countries if the exchange rate is favorable to them. Though the goods can be produced domestically, but the companies have the benefit of getting them from other countries at a lesser rate. Thus the profits of companies increase when they have the advantage of currency exchange rates. Thirdly, the comparative advantage is given to the countries (Evans, 2016). By comparative advantage, it means that the countries can make certain goods better than the others in the competition or better than other countries. The Large labor pool is generated, and other technical abilities are also present for the production of consumer goods. With the comparative advantage due to free trade, the countries are able to maximize their production efficiency for their labor force. Highly desirable goods are thus created, and the nations can generate higher profits from the export of those goods or items. All this is possible when the trade is free and free trade agreements are entered into with other countries. Fourthly, with free trade, the economic growth of countries improves. The dependence and reliability on the fixed number of people domestically reduce. There are more opportunities to those countries that are engaged in free trade rather than those who are not engaged in free trade. When the country is small or is not much developed, and then they need to involve themselves in the free trade because they get the resources for the production of consumer goods and services (Parikh, 2013). Also, when goods are exported with free trade, the emerging economic environments give them the opportunity to acquire more and more economic resources.
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Arguments against free trade
Firstly, infant industries face problems due to free trade. There are industries in the developing countries that are new as compared to other existing industries. They have to struggle a lot in competing with the competition internationally when the trade is free. They need to be protected so that they can progress. Also, they have to gain experience so that they know how to compete with other industries (Anderson, 2016). But when the trade is free, their development and progress get hampered. Secondly, senile industries face problems. The industries that are in the phase of decline and become inefficient, they need more amount of investment for regaining their efficiency. With free trade, these are avoided. They need to be protected because that acts as an incentive for investment and reinvention of the industries. If they are not protected, then a lot of people lose their jobs, there is the loss of resources too. Thirdly, the diversification of the economy is hindered. There are many developing countries that still depend on agricultural products for their growth. They have a comparative advantage in these products. But with free trade, they might lose this comparative advantage. The demand for these products becomes more elastic which was less elastic earlier. Therefore, the economy gets impacted due to decline in earnings from the agricultural products. Fourthly, the political establishment gets endangered. The policy of free trade depends on laissez-faire (Felbermayr, 2015). This is possible only when the political system is strong and developed. So, the free trade policies have the potential to harm the economic and political independence of the countries that are not much developed. Fifthly, the marketplace of the country is affected by the policy of free trade. Perfectly competitive markets are required for free trade, and there are very fewer economies that have perfect competition. For this, the countries will have to cooperate with each other, and this is not a very practical expectation from the countries. Sixth is that the economic independence between countries increases. When the war happens or if there is the possibility of war, then free trade becomes a cause of concern. Political subservience may also be created by free trade. The seventh argument is that with free trade, the countries may export harmful products. So this will harm the people in the country, and there will be harm to the economy as well (Irwin, 2015). Eighth is that the balanced economic growth is hindered when the trade is free. In free trade, there is more emphasis on the specialization. So, lop-sided and unbalanced economic growth may happen. Also, free trade kills the industries that are involved in import substitution.
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Erikson, E., 2014. Introduction.
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Evans, P., 2016, July. When and Why Do Synergies Work? Comparing Synergistic Movements to Stop “Free Trade” to Synergies Between Transnational Labor and Feminist Movements. In Third ISA Forum of Sociology (July 10-14, 2016). Isaconf.
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Parikh, K.S., Fischer, G., Frohberg, K. and Gulbrandsen, O., 2013. Towards free trade in agriculture. Springer Science & Business Media.
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Anderson, J.E. and Yotov, Y.V., 2016. Terms of trade and global efficiency effects of free trade agreements, 1990–2002. Journal of International Economics, 99, pp.279-298.
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Felbermayr, G., Heid, B., Larch, M. and Yalcin, E., 2015. Macroeconomic potentials of transatlantic free trade: a high resolution perspective for Europe and the world. Economic Policy, 30(83), pp.491-537.
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Irwin, D.A., 2015. Free trade under fire. Princeton University Press.
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