Question

why do economist oppose policies that restrict trade among nations ?

Answer 1

If trade is restricted then it does have some short term benefits like reducing competition for domestic industries , infant industry protection , more demand for domestically produced goods etc . But in the long term , trade restrictions do have major disbenefits . It can seriously effect the growth and development of a nation . Let us see the disadvantages in separate points :

a) Firstly , Economists konw that trade among nations causes increase of ' specialization of activities' . Specialization makes them better off by increasing comparative advantage . Then trading based on comparative advantage leads to more consumption of goods and services with same resources available . Thus trade barriers cause limitations in consumption .

b) Secondly, trade restrictions limit ability to export products which lead to loss of revenue for some firms and industries . Also the net export section of Aggregate Demand falls .

c) Thirdly , in some industries employment falls and fewer jobs are available because selling to foreign countries is restricted so revenue of company falls .

d) Fourthly , the quality of production falls due to lack of foreign competition , this leads to resource misuse and inefficiency among domestic producers .

e) Fifthly , in most extreme cases trade restrictions can lead to trade wars .

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