Question

One of the most important topics in our course, especially given the current political environment is free trade. Please post brief responses to the following in YOUR OWN words:

1. Why do businesses, most economists and policy makers support free trade in theory?

2. Provide arguments for and against the current President's opinion on free trade.

Answer 1

The trade policy in which trade of goods and services can freely move over the international boundries, is known as free trade policy.

Free trade policies are supported by most of the economist and policy makers because of the following reasons:-

1. Consumer welfare:- Free trade policies results in consumer welfare as the consumers have access to international quality goods and servies for maximum satisfaction.
2. Trade based competetion:- With the applicance of free trade policies, there is a presence of trade based competetion amaong the different countries around the globe.
3. Growth oppurtinities:- Due to the large area to serve, the business organisations have higher growth opportunities.
4. Benefits of specialisation:- The firms can secure benefits of specialisation in a certain fields of business or market. This leads to the easy recovery of the amount spend of R&D in a certain object or service.
5. Healthy competetion among the firms:- Free trade policy give rise to healthy competetion among the firms around the globe to serve best quality goods in best prices. Every firms have a trade competetion with every firm around the globe.

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Arguments in favor of current president's opinion on free trade:-

1. Loss to home industries:- When there is free trade policy in the country, the consumers have the access to goods available around the globe or say behind the international boundries. This leads to fall in the consumption of local goods which are manufactured in the country, hence make loss to home industries.
2. Dumping of obselete technology:- Sometimes the foreign countries dump their obselete technology of outdated technology in the country which reults in the loss to the country.
3. Not beneficial for the backward/small industries:- Free trade policy mostly result in cut-throat competetion among the countries, which makes a great loss to small industries in the country.
4. Foreign dependency:- due to the Free trade policy, the consumers start using foreign goods to a great extent which result in the foreign dependency.

Arguments againsts the President's opinion:-

1. Helps in earning precious foreign exchange:- Free trade policies helps in earning the precious foreign exchange. A country like US exports more than it imports which results in positive Net Foreign Trade and it helps in earing the precious foreign exchange.
2. Industries will get higher area to trade:- The large US industries will get higher area and no. of consumer by free trade policies. This will also help in profit maximisation.
3. Expansion of business:- Business have the opputinities of expansion around the globe as they can freely move the goods and services over the international boundries.
4. Rule in the forign market:- If large scale industries are free to trade around the globe, they will be able to rule the foreign market with the presence of their goods and services.
5. Dumping of obselete technology:- Their are many backward countries (like Pakistan and Bangladesh) in the world for whom the obselete technology of outdated goods of US are also precious. With the presence of free trade policies, the US industries will be able to earn large amount of money by supplying obselete technology in the backward countries.