Question

Please add detailed international business information

How does the free trade affect politic/social/economic in relation to international trade?

How does the protectionism theory affect politic/social/economic in relation to international trade?

Answer 1

1. Free trade is the idea that in terms of international borders the economy should be fairly transparent. That is, goods between nations should be able to be purchased and sold freely without much interference from the government in the resulting trade. In general, the purpose of free trade is to abolish or reduce the position of economic instruments designed to benefit the products of one country over the goods of another–tariffs, quotas and subsidies:

People are fond of free trade because they assume, advocated for the first time by Adam Smith, that it makes the economy function in an economically efficient way. In other words, free trade allows producers to do the "right" things and set the "right" price for their products. The end result is that producers are making a reasonable profit; customers are not overpaying for products, and a larger amount of new wealth is being produced and dispersed worldwide.

In principle, free trade may sound pretty good, but in actual practice it may have some dire consequences. As one thing, through protective measures such as tariffs and quotas could suddenly make domestic industries vulnerable to significant disruptions. The implementation of the North American Free Trade Agreement, NAFTA, in 1994 eliminated some of the trade restrictions between the U.S., Mexico, and Canada, thus allowing some U.S. companies to close their domestic plants in favor of lower cost of production in Mexico. Hundreds of American workers have lost their jobs. Many people have been distracted by the negative consequences of free trade. Politicians as diverse as Bernie Sanders and Donald Trump have voiced opposition to free trade agreements that do not defend American interests well. Nevertheless, NAFTA was scuttled in 2018 and a new international treaty is set to take its place–provided the terms are all decided by the U.S., Canada and Mexico.

2. Protectionism in trade is a strategy that protects domestic industries from international unfair competition. Tariffs, tariffs, quotas, and currency manipulation are the four main tools. Protectionism is a defensive measure that is politically motivated. This works in the short term. But in the long run it's very damaging. In international trade, this makes the country and its companies less competitive. Governments also often support local industries to help them compete in the global marketplace. Subsidies come in the form of direct payments or tax credits. Farm subsidies are the most commonly used. It allows local goods and services to be reduced by manufacturers. Even when shipped overseas, it makes the products cheaper. Subventions work better than tariffs. In countries that rely primarily on exports, this method works best.

In a new industry, if a country tries to grow fast, tariffs will protect it against foreign competitors. It gives the businesses of the new industry time to develop their own competitive advantages. Protectionism also creates jobs for domestic workers on a temporary basis. Protecting tariffs, quotas, and discounts encourages local businesses to hire. This gain ends by erecting their own protectionism once other countries retaliate.