Question

How would you respond someone who is arguing in favor of greater protection of domestic industries against free international trade?.Justify your arguments with a trade model of your choice. (It can be the Ricardian Model or the Hecksher Ohlin Model) You can also include graphs. Please EXPLAIN IN DETAIL. The longer the explanation the better

Answer 1

If someone who is arguing in favour of greater protection of domestic industies against free international trade, I would like to explain the advantages and disadvantages of free international trade so that he/she will get better idea about the free international trade.

Advantages of free international trade:-

1.Free international trade assures all the advantages of international division of labour. Each country will expert in the production of those goods in which it has a comparative favour over its trading partners. This will lead to an excellent and efficient usage of resources and, hence, economy in production.

2.Global output enhances since specialization, efficiency, etc., make production big scale.

3.Free international trade maintain the spirit of competition of the economy.

4.Free international trade provides each country to get commodities which it cannot produce at all or can only produce inadequately.

5.Free international trade secures against discrimination.

Disadvantages of Free international trade:-

1. Free international trade may not be advantageous to lower development countries.

2., Free international trade may destructs domestic industries. Because of free trade, imported goods become available at a lower price.

3.Free international trade cannot bring over all development of industries.

4.Free international trade brings in the risk of dependence.

Heckscher-Ohlin Model

The Heckscher-Ohlin model explains that countries export what they can most expertly and plentifully produce. Also referred to as the H-O model , it's used to calculate trade and, more specifically, the balance of trade between two countries that have changing specialties and natural resources.

The model explains the export of goods desireing factors of production that a country has in bounty. It also explains the import of goods that a nation cannot produce as perfectly. It takes the position that countries should correctly export materials and resources of which they have an surplus, while surely importing those resources they want.

The model explains the profits of international trade and the global profits to everyone when each country puts the most effort into exporting resources that are domestically naturally surplus. All countries gain when they import the resources they naturally lack. Because a nation does not have to depend solely on internal markets, it can take advantage of elastic demand. The cost of labor grows and marginal productivity decreses as more countries and emerging markets develop.