Question

If most economists agree that trade openness is good for growth, why do many governments resist liberalising trade? Relate your answer to the ideas of Joseph Schumpeter. It may help to discuss some of the channels through which trade liberalization enhances efficiency. [15 marks]

Answer 1

Liberalizing trade means the process of removing the barriers of trade between two nations and freeing up the trade. Liberalizing trade does the following :

• Minimizes the taxes
• Minimizes the quotas
• Removes the non-tariff barries in the trade.

Although liberalization of trade provides many advantages, but government resist liberalizing the trade because of the following reasons :

• unemployment issues : liberalizing the trade results to vary the balance within an economy. Some of the companies earn more profit due to the liberalization and they grow higher and higher but some companies fall off and decline. Thus the workers in these companies can lost their job and result to the situation of unemployment.

• costs reharding environment : when the trade is liberalized, there is a chance of utilizing the environment in a much severe manner and thus the environment get harmly affected.

• infant industry argument : liberalizing the trade is not benefit or good for the developing countries because they cannot take part in the free trade.

Infant industry argument states that trade protection is carried out to expand the economies of the developing nations and to build new companies. Almost all the narions have a certain period of trade protectionism. But there remains a problem that some nations are no possible to acces the tariff protectionism.

That is why liberalizing the trade provides benefits to the developed nations but not to the developing nations.

Thanks!..