Question

There is an ongoing debate about whether free trade is beneficial for the global economy. Choose whether you support free trade or if you prefer trade barriers. Be sure to cite specific facts and figures to support your analysis. Remember that there may be more than one perspective which could be equally valid given the circumstances

Answer 1

Ans- Free trade means the countries can import and export goods and services without any tariff or non tariff barriers in trade.

Essentially, free trade enables lower prices for consumers, increased exports, benefits from economies of scale and a greater choice of goods.

Some of the benefits from free trade are mentioned below:-

1) The benefit of comparative cost advantage- By specialising goods where countries have a lower opportunity cost,there can be increase in economic welfare for all countries involved in trade. Free trade also enables countries to specialise in those goods where they have comparative advantage.

2)Reducing tariff barriers leads to trade creation- Trade creation means when consumption switches from high cost to low cost producers.

• Removal off tariff gives lower price for consumer.

• As a result it enables in increase in consumer surplus.

• Imports will also rise.

• Overall there will be increase in economic welfare.

3) Increased exports- suppose a country has comparative advantage on a good. So the country will also see a significant improvement in economic welfare. Lower or no tariffs on export will enable a higher quantity of exports boosting employment and economic growth in the country.

4) Economies of scale- If countries can specialise in certain goods they can benefit from economics of scale and lower average cost; in industries where there are high fixed cost and high level of investment. The benefits from economics of scale will ultimately lead to lower price for consumers.

5) Increased competition- Due to removal of trade barriers the domestic firms will face competition. It will give incentive for cutting cost and increasing efficiency. It it may prevent monopolies to charge high prices from the customers.

6) Make use of surplus raw materials- Middle is country such as Saudi Arabia,qatar are rich in reserves of oil, but without trade there will be no comparative advantages. On the other hand the Japan who have the main source of raw materials will remain low gdp if their will be no trade.