Question

"Unrestricted free trade between nations will raise the economic welfare of countries that participate in a free trade system". Do you agree with this statement? Porter argues that government can play a proactive role in promoting national competitive advantage in certain industries. Do you support Porter's argument? (300words)

Answer 1

Part 1-

      Unrestricted free trade means: there are no trade restrictions such as tariffs and quotas etc. by government on trade between nations. The trade can take place without any government imposed barriers.

We agree with the statement that unrestricted free trade between nations will raise the economic welfare of the countries because of its following advantages:

• Beneficial for consumers: the free trade is beneficial for consumers as it reduces the price of commodities for the consumers. If a commodity has high price in home country and low price in foreign country then after importing the commodity will be available to the consumers at lower prices.
• Increases exports: free trade increases exports of commodities in which we have absolute advantage and comparative advantage.
• More choice of goods: free tarde make choice of goods easily available for the consumers so that they can get more benefited commodity at low prices.
• Trade creation: free trade leads to more trade creation as consumers shifts from high- production cost commodity to low-production cost commodity.
• Better use of factors: free trade make use of factors of production more efficient as the country through factor endowments will export the commodities whose factor of production are abundant and will import the commodity whose factor of production are scarce.
• No societal loss: free trade leads to more economic welfare as there will be no dead weight loss or societal loss which occurs due to imposition of tariffs
• Increases flow of foreign currency: free tarde practices increases flow of foreign currency in the country which is beneficial for the foreign exchange and valuation of the home currency.

Part 2-

Porter argues that government can play a proactive role in promoting national competitive advantage in certain industries. We support porter’s argument because nations have some advantage in their certain resources through which they can develop their industries globally and compete with international industries so government should provide them safe competitive environment, market exposure at domestic level etc. so the industries can perform well globally and increase benefits from trade for the nation.       

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