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The Advantages and Disadvantages of Free Trade - Essay Example

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The Advantages and Disadvantages of Free Trade

It is also because of free trade that multilateral organizations such as the World Trade Organization, North American Free Trade Agreement, and Asia-Pacific Economic Cooperation were formed. Generally, the aim of these formations is to reduce tariffs and to abolish these ultimately in order to remove barriers to free trade. Globalization itself is an offspring of the free trade concept. The objective of globalization is to remove national borders and to have a world economy that is governed not by states but by the abstract laws of the market. However, free trade has been found to have serious flaws too. It may have advantages but its disadvantages are also just as significant. Because of this, the debate on whether it is really good or bad to the economy of a country has been brought to the fore. One camp insists that free trade brings about economic development that would benefit society while the other asserts that it leads to more serious social inequalities and unfair trading practices. In order to determine whether it is really beneficial or not, it would be necessary to discuss the advantages and the disadvantages of free trade. By doing so, one can weigh the pros and cons and come up with a conclusion as to whether free trade is generally positive or negative. The Advantages of Free Trade One of the very first points that are often raised regarding the advantage of free trade is related to increased production. In order for a country to trade with others, it is compelled to heighten its production of commodities in which it is specialising in. The premise here is that every country has a comparative advantage. David Ricardo explains that “a nation was said to possess comparative advantage in those products for which its labour was relatively productive” (Yoffie 1993: 4). If a country has to exchange goods with another it would be compelled to increase its production to equalize the trade. It is through the increase of production that other benefits and advantages of free trade would follow. Whatever comparative advantage a country may have would be lost though if production is inefficient. One that does not engage in international trade would naturally be less inspired to improve the efficiency of its production. In a world with a free market system though, competition among the traders inevitably becomes intense. Consequently, such competition would prompt the manufacturers or producers not just to enhance the quality of their products but also raise the efficiency of their production. Through better efficiency, more could be produced and less wastage is achieved. If the commodities produced by a particular country are of better quality than those of its competitors, these would gain the advantage in the market. This is obviously good for the economy of the said nation. Improving production efficiency would also prompt technological advances. Apparently, it is only through automation that many types of commodities can be produced in large quantities while raising the level of its quality. With the manufacture of more machines and devices in support of automation, production or the creation of value by a society consequently increases. The two aforementioned advantages of free trade lay the basis for the following other benefits. Free trade is beneficial to the consumers or the buying public in a country that is engaged in it. ...Show more


The Advantages and Disadvantages of Free Trade The dominance of capitalism has become undisputed as other economic systems that once challenged it has seemingly failed to prove themselves as viable and as having the capability of boosting the development of any nation…
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