Question

What are the essential arguments in favor of free trade and against free trade? Discuss in detail.

Answer 1

Arguments in favour of free trade are the following-

i) Efficient utilisation of resources- with free trade countries specialise in the good they have comparative advantage in. It leads to efficient utilisation of resources.

ii) competitive market- free trade ensures competition which further leads to social welfare.

iii) access to all kinds of goods and services- One can buy goods which cannot be produced within the country. It provides you wide variety of goods and services.

Arguments against free trade-

i) destruction of home small industries- small industries are usually not able to cope with competition from foreign market. As a result they end up shut down.

ii) overdependence- It increases the dependence of home country on its foreign trading partners. If they face economic depression, home country might have it too.

iii) harmful for less developed countries- less developed countries can be controlled by their advanced trading partners as they fall short in many areas.