Question

Why economists believe trade is important and analyze the arguments for and against free trade, using economic reasoning.

Answer 1

Trade can be seen as the transfer of goods and services from one individual o other most commonly in exchange for money. In the economics terms, the significance of trade is quite high as it is traded by which the different individuals and countries can fulfill their requirements as it is a well-known fact that everything I not produced in any economy. Some countries will have the production of some specific product or service and will not have resources to produce others. Or the opportunity cost of producing a certain product is more than producing any other product and this country can be better off by buying it from another country. This gives a reason for the trade between different countries and individuals.

The main rationale for free trade is to promote the concept of an open market where the number of foreign countries can trade in the domestic market without or with little restrictions or barriers. The basic philosophy is to promote as much trade as possible for any good or service. With the free trade, the domestic producers also have to face a lot of competitions and thus they have an incentive to improve their efficiency, productivity, and the quality. The customers are the most benefitting segment of the economy from the free trade as the higher competition enables them to have the better quality, variety product at the least possible price.

On the other hand, the rationales for the protectionism is just opposite to the concept of free trade. The main focus of protectionism is to protect the interest of the home country and its business. This is achieved by imposing high import tariffs and low import quotas. These types of markets are dosed and small and govern under the guidelines of the government which tries to improve the trade security of infant industry. This kind of protectionist policies can harm the local business especially technology firms as they will not be able to import the latest technology.

The main consequences of barriers to trade are that the domestic producers have lots of protection against the international competitors and thus they lack the quality and efficiency of the production. On the other hand, the economy can also boost the local business by providing the protection to an infant or struggling sectors of the domestic trade.