Question

We have learned that there are significant gains from trade and that free trade improves the wealth of all nations. However, as your book points out, while international trade can make a country as a whole better off, it can also make some agents worse off.

Please elaborate on this point and provide some examples of agents (firms, individuals or categories of individuals) who have been or could be negatively impacted by free trade. Would you continue to endorse and encourage free trade? What would you do to help these agents offset the negative impact of free trade?

Please make sure that your post is clear and extensive and that you support your opinions with solid references from your research. Please include at least three solid references at the end of your post.

Answer 1

There are pros and cons to free trade. As free trade brings many benefits to a country, it also makes many worse off. Some of the disadvantages of free trade are:

1. Harm to domestic industries: Free trade causes damage to the countries’ domestic industries. Entry to new industries in domestic industry increases the competition and makes the domestic industry worse off.

2. Labor cost: Big countries import cheaper products from poor countries. That makes the labour of poor countires worse off because they could have been paid higher but yet paid low.

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3. Environmental Issues:Free trade deals causes very serious environmental damage by allowing companies to expand their manufacturing facilities to other countries by increasing access to natural resources in those countries. This results in the depletion of natural resources and causes an environmental destruction.

Many countries and many industries have been declared closed because of the introduction of free trade in the market. One of them includes handicraft industry of India.

After the introduction of liberalization policy post 1990, cloth making machines were introduced in the Indian market which made the cloth available at cheaper prices in Indian market. This caused the loss to handicraft industries and they were deeply affected by the free trade.

But free trade should be encouraged in the world always. It is a good policy measure and helps a county to grow as well. As far as cons of free trade are concerned, certain regulations should be imposed by the government to protect the rights of those who get affected by free trade.