Question

Most governments accept the proposition that a relatively free flow of international trade is desirable for the health of their individual economies. But heated debates still occur over trade policy. Explain valid arguments for and against trade.

Answer 1

Free flow International trade has both positive and negative effect on the economies of various countries but it also brings the highly specialized firms and companies into the competition.

Advantages of International Trade

• It opens up a new market for the exports of a country .Thus, there is a bloom in the export sector.
• Brings new technology as well as funding by thye various firms from the developed countries. thus increasing the overall productivity in some sectors of the economy
• Opening up the market brings various choices for the consumers and gives a better options from all around the world.
• It opens up a chance for Job outsourcing i.e. oening up job oppurtunities in the country by various firms outside as they can get that in a lower oppurtunity cost. eg There has been a shift in the call centers of various firms to India as there is a huge amount of people available at a lower cost.

Disadvantages of International Trade

• It leads to the concept of Dual economies in the under devloped countries in which only the export sector improves while the other sectors remain backward in the economy.
• There is a huge chance of creation of unemployment as firms getting shut down as they are not able to compete with the product of developed countrieswhich are produced and sell at quite a low price in comparison to the domestic product.
• Economies which are too dependent on foreign trade are the ones which are worst hit at the time of recession. As the foreign trade slows down their economies fall quite adversely Hence creating a major Problem. E.g. Germany is a country where the economy is most dependent on the foreign trade while in China, the impact of foreign trade on the economy is not so significant, and the indicator of that, is the level of well-being of the population, which continues to grow, despite the situation in the foreign trade.
• Underdeveloped countries have suffered with fatal effects of a continuous weakening in their capacity to import. It has lead to the weakening of the capacity of their existing primary producing industries to support their growing population. It has resulted in a failure to transmit to them the benefits of technical progress. Thus there has been a transfer of funds from the poorer countries to rich countries hence deteriorating there economies even more

International trade is important but there should be a check on the trade with rules regulations and taxes so that it is beneficial for the home economy as well.