Question

Neither free trade nor prohibited trade comes with benefits only. Both come with benefits and costs. Therefore, free trade is no better or worse than prohibited trade. Comment.

Answer 1

From decades economists have advocated free trade as believe that the markets will reach equilibrium on its own and will benefit consumers and firms. Yes, it will help consumers as they will get goods at a cheaper rate when compared to prohibited trade and helps only those businesses which can compete without protective tariffs. In reality, free trade results in unemployment, tax hindrances, and also increased vulnerability for new firms and pricing policy. When trade barriers are absent firms that are less competitive have to exit the market putting thousands into the unemployed market and dumping is an activity that can be induced easily in free trade. This activity will result in companies selling their goods at lower prices abroad so as to push all the other firms out hence will enjoy monopoly power. This is relatively less in restricted trade as there are certain rules and regulations for dumping. New industries or developing industries always benefit from tariffs or even tax breaks whereas in the free market in the absence of these tariffs the new firms find it very difficult to get a foothold hence leading to a decline in the number of firms and also entrepreneurs.