Question

Many countries today claim to be in favor of free trade, even though most of them continue to impose many restrictions on international trade.

Explain why nations impose trade restrictions if free trade is their goal.

Answer 1

Most of the developing countries give preference for free trade to increase the foreign relations and desire for higher capital inflows. This will increase the level of foreign direct investment. The rise in foreign investment will increase the functioning of the economic activities and attract more investors to the market. This will increase the overall production and improve the economic activities also. But the government impose several trade restrictive measures to make a control over the huge export oriented firms. These firms were giving more preference over the higher level of import of capital goods from the foreign countries. This will negatively affect the existing domestic economies.
The imposition of trade barriers are considered as protectionist policies where the domestic countries make a restriction over the importation of goods and services produced in the foreign economies. Some anti globalisation movements were introduced by the nations which emphasis over the better level of production within the domestic economy. But this kind of trade restrictions will reduce the economic efficiency and growth level. Import licenses, export licenses, subsidies, voluntary export restraints, currency devaluation etc. are the major trade barriers followed by the developing countries.