Question

In essay form (500 words or so), provide arguments for and against free trade. Between a policy of free trade and that of import substitution, what works in practice? Explain, with special reference to India. Use comparisons with other countries if needed.

Answer 1

Free trade a trade policy that does not resrict imports or export

Arguments free trade

Advantages of Specialization :free trade secures all the advantages of division international of labour. Each country produce specialized goods in which it has a comparative advantage over its trading partners. This lead to an optimum and efficient utilization of resources and hence, economy in production.

All-Round Prosperity:. Free trade enables countries to obtain goods at a cheaper price. This leads to a rise in the standard of living of people and Thus, free trade leads to higher production, higher consumption and higher all-round international prosperity to the world.

Competitive Spirit:In economy, free trade keeps the spirit of competition As there possibility exist of intense foreign competition under free trade, domestic producers do not want to lose their grounds. Competition enhances efficiency.

Free from Interference :Free trade is free from bureaucratic inter­ferences. Bureaucracy and corruption are associated very much with unrestricted trade.

Arguments against free trade

Penetration of Foreign harmful Goods: Aountry may change its consumption and production habits because of free trade, even harmful commodities such as drugs enter the domestic market. To prevent such, restrictions on free trade are required to be impose

Advantageous not for LDC: free trade may be beneficial to the advanced countries but not to the backward economies. For less developed countries, Free trade has brought enough misery to the poor if past experience is any guide. India was a classic example of colonial dependence of UK’s imperialistic power prior to 1947. Free trade principles have brought colonial imperialism in its wake.

Destruction of Home Industries/Products :Because of free trade, imported goods become available at a cheaper price in home country Thus, lead to unfair and cut-throat competition between domestic and foreign industries. In the process, domestic industries are wiped out. Indian handicrafts industries suffered tremendously dining the British regime.