Trade Protectionism and Free Trade

By Wooseob Ahn

Free trade is a policy in which a government does not discriminate against imports, or interfere with exports. This is done by applying tariffs to imports, or subsidies to exports Protectionism refers to government policies that restrict international trade to help domestic industries. It is used to improve economic activity within a domestic economy and for safety or quality concerns. Both systems have advantages and disadvantages when used.

An advantage of free trade is that it allows countries to benefit from specialization It also increases competition and efficiency by creating additional business opportunities as there are no policies reducing exports of domestic firms It will then enable firms to benefit from the best workforce, solutions, and technology from anywhere in the world with no cost. International trade increases economic interdependence and therefore reduces the potential for conflict when trading between countries, with no retaliation when trading.

However, the disadvantage of free trade is it can have a threat to intellectual property. When imports are freely traded, domestic producers will copy the product and sell them as knock-offs without fear of any legal repercussions. This will be stopped by the FTA, including provisions for intellectual property laws and enforcement Additionally, jobs in developing countries can become a free trade area. Free trade area is an area where a group of countries agree to reduce trade barriers, such as tariffs and quotas to encourage international trade among countries. When workers are in free trade areas that lack labor protection laws, workers may be forced to work in unhealthy and substandard work environments, increasing the exploitation of workers. Free trade can also contribute to rapid resource depletion and climate change as fewer resources will be available later and will limit the choices available to the consumers who ultimately make up the economy.

The use of protectionism would provide more growth opportunities as the policy provides local industries with opportunities to grow until they can compete with more experienced firms in the international market This is because protectionism reduces imports to the country and therefore increases import prices, which help domestic firms to increase competitiveness in their country. Protectionism will prevent dumping into the country, which is where foreign companies sell products at a lower price than the cost of production. By preventing dumping, it will keep product competitiveness high This will help the economy to increase economic growth, as it will increase its trade balance and therefore increase GDP from the increased exports

Protectionism will also help the economy achieve a higher employment in domestic industries as they will increase exports, and firms will employ more workers By having higher unemployment, more people will have a more disposable income, therefore increasing spending power and creating higher living standards for people.

Protectionism will result in limited choices for consumers as they would have access to fewer goods in the market as a result of limitations on foreign goods An increased price, but the same or lower quality from lack of competition would have bad effects on the economy and on consumers as it results in lost revenue and decreased consumer loyalty. It may result in retaliation, causing import prices to rise, as higher consumer prices encourage inefficient firms to stay in business This leads to less scope for speculation and economies of scale

In conclusion, there are benefits of both free trade and trade protectionism. However, in general, economists are in favor of unrestricted free trade as protectionism has been shown to harm economic growth and people’s prosperity In contrast, free trade and the elimination of trade barriers have been shown to affect the economy and economic strength positively in many countries.

Bibliography:

Free trade area. Corporate Finance Institute. (2023, April 3). Retrieved April 13, 2023, from https://corporatefinanceinstitute com/resources/economics/free-trade-area/

Protectionism (2023) Corporate Finance Institute. Available at: https://corporatefinanceinstitute.com/resources/economics/protectionism/ (Accessed: April 13, 2023)

Team, W. (2022) Free trade, WallStreetMojo. Available at: https://www.wallstreetmojo.com/freetrade/ (Accessed: April 13, 2023).