Question

2. There are four main reasons why economists typically oppose the use of trade restrictions. (1). From a global perspective, free trade increases total output. (2). International trade provides competition for domestic companies. (3). Restrictions based on national security are often abused. (4). Trade restrictions are addictive. Discuss each of these reasons.

Answer 1

Answer : Free trade means that free flow of goods and services from one country to another without any tariff or quotas. There are four reasons for which economist generally opposed trade restrictions are :

1. Free trade increases total output :​

It means that free trade increases the production of specialised goods and services in the country. There is benefit from economics of scale which will ultimate lead to lower cost and higher production. Specialisation in particular good lead to increased production of goods and services. Now the whole world is the market which increases there production at large level.

2. International trade provides competition for domestic companies :

It means that with free trade, domestic companies face more competition from abroad. There will be incentives to reduce the cost and increase the quality of the good. Consumers are benefited from free trade because it get best quality at lower prices.Free trade has discourage domestic monopolies and provides best quality product to the consumer at reasonable price.

3. Restrictions based on national security are often abused :

National security means safety of the nation against different threats. Free trade encourage the welfare of an people and their economy. Consumer as well as producer gained from free trade. So, free trade build a friendly relationship between countries and progress of an economy as whole.

4 . Trade restrictions are additive :

It means that restriction on trade become habit of a country for the welfare of themseleves. As tariff and quotes generate revenue for the government. Increased revenue cannot foregone by government so they become habitual of applying quotas on the export. They established domestic firms and create monopoly in the country.