Benefits of Free Trade Are Outweighed by the Cost it Generate For Business
Uploaded by donater1 on Jan 09, 2013
Trade between countries and within the countries fall within the fundamental principles of economics (Taylor & Weerapana, 2011, p. 739) and it also forms an indispensible part in our day to day life delivering us utility, demand realization of the customers and profit maximization of the producers. Abolition of barter system and introduction of money has neutralized the concept of double coincidence of wants and indivisibility problem with exchange of goods and services becoming rationalistic and mutually beneficial (Ganßmann, 2012, p.16). In trade paradigm between different countries, the government plays various roles with interventions like fixing tariffs, quotas and various restrictions applied to the exchange of goods and services. In this connection the concept of free trade carries a significant importance. The concept of free trade or unrestricted trade is generally attributed to the exchange of goods and services where zero intervention policies are implemented by the government of the trading partners (Hajela, 2009, p.55).
Now in free trade there are several benefits and cost emergence within businesses (Hajela, 2009, p.55). To name a few, benefits of free trade includes investment in sectors which enjoy comparative advantage, maximization of output, lower consumer prices and so on and costs of free trade are monopoly development, unbalanced development dumping and so on (Lusztig, 1996, p.2). In this paper, the target will be assess critically assess the argument that benefits from free trade are outweighed by costs that is generated by it for the business. First of all we will focus on the formal definition of free trade as proposed by the father of economics, Adam Smith.
2. Definition of free trade
Father of economics, Adam Smith who is a staunch supporter of free trade defines it as “that system of commercial policy which draws no distinction between domestic and foreign commodities and therefore neither imposes additional burdens on the latter nor grants any special favors to the former” (Dewett, 2007, p. 439). This definition is crucial as it gives a signal that it is an unbiased policy which reflects the agents engaged in free trade are not vested with undue advantage and operate in an indifferent situation. Now we will explore the benefits and costs of free trade in a little detail.
3. Benefits and costs analysis- Theoretical approach
3.1 Potential benefits
One of the most obvious benefits of free trade is mutual advantage which benefits all the parties engaged in free...