Definition Free trade is a type of trade policy that allows traders to act and transact without interference from government. Accordance with the principle of comparative advantage the policy permits trading partners mutual gains from trade of goods and services.
This article introduces the concept of free trade and contrasts the advantages and disadvantages for trading nations while many economists and organisations confirm the benefits of free trade, some groups do not agree with free trade and so consider it as harmful causes to lots of people, especially in developing countries, where local producers,supplier and employees are so sensitive and weake to these problem . These groups encourage the idea of ‘fair trade’ ……
Advantages of free trade ( trade liberalization)
Free trade occurs when there are no official l barriers put in place by governments to limit the line of goods and services across of countries.
When trade barriers, The same as tariffs are put in place, It keeps safe domestic producers and supplier from international competition, rather than create trade flows.
Increased production( Increase supply)
1-Free trade could be able countries to specialize in series of production which they have a comparative advantage and point.
With specialisation countries could make advantage of efficiencies came from structure of economies and resources and increased output.
International trade goes up the size and dimension of a industrys’ and firm’ market, causing in lower level of costs and increased supply and productivity , as a actual result leading to increased production.
Increase supply Increase GDP
Production efficiencies and correct and wise allocation
Free trade makes improvement the efficiency and quality of resources’ distribution and allocation for a nation economic. The higher efficient useage of resources causes to higher and more productivity and increasing overall domestic output of goods and services as a consequence it could reduce cost of production.and going up supply.
Increased competition encourages innovative production approaches, the application of state of art method, technology, supervision, management,marketing and allocation styles.
Decrease cost of production (with new technology
and efficient resources distribution
Benefits to consumers and customers
Consumers can take a benefit and enjoy in the domestic shopping as they will face greater variety of goods and services.
When we do not have tariff in free trade for imported and exported good it causes reduce the cost of production thus price of goods in market alsoThe increased competition makes sure goods and services are manufactured and supplied at the lowest prices for consumers. For instance in Australia imported motor vehicles (automotive and motor cycle)cost of production 35% higher than if the 1998 tariff stages still existed. Clothing and footwear would also cost by 24% more.
Increase consumers’ income
Increase consumption for domestic nation
Foreign exchange rate gains
In free trade position for example When Australia sells exports overseas it obtains hard currency(a sort of currency which is not likely to depreciate suddenly in wealth and value) from the countries which purchase inventories . This money is so applied to buy imports the same as electrical installment and automotive and furniture for home that are produced more cheaply overseas.( in china).
Condition of Employment
In free trade (Trade liberalization) for that sort of domestic nations which can have a best
1- production efficiency
2- efficiency of resource distribution with have a lot of resources.
3- keep low rate of foreign exchange
This kind of countries could be more productive and have more exports.
Thiese countries with higher rate of exports can take lots of benefits and also can reduce rate of own unemployment they are winner in kind of market and economic.. Employment will go up in exporting industries and workers will reduce as import competing market and industries close down in the competitive atmospheres .
Economic growth rate
With above benefit from free trade we can make a result that The countries took part in free trade environment going up living standards, increased real incomes for population and firms and higher level of economical growth. This is made by higher and more competitive atmospheres in industries , raised supply and also efficiency in applying resources and production states.
Disadvantages of free trade ( trade liberalization)
As you konw trade liberalization has so many usefulness and benefits, there are a number of arguments and difficult things put forward by some groups and protestors who disagree with free trade and trade liberalization. Those take part in:
With the removing of trade barriers and also structural unemployment might cause in the short term.
This can impact on large numbers of employees and workers,a lot of them loose their job , due to in free trade without any barriers an tariffs some countries are looser and some of them are winner for looser they have more import instead of export .For this kid of company imported goods are cheaper than same goods made by domestic suppliers and local manufacturer can ot have competition with imported goods.
Decrease supply for domestic goods
Increase rate of domestic unemployment
their families and domestic economies. Sometimes it could be so tough and difficult for those kind of unemployment to get a job in growth economic and industries and government cooperation are essential .
International free trade makes so sensitive instability of economic for which countries that are involved:(get more dependent on worldwide of economy and market).
This means that businesses, industry ,market , employees and consumers are more vulnerable to go down in the economies of our trading partners ( our trading friends), eg. Recession in the USA causes to decreased demand for other his trading partners’ exports, leading to falling export incomes and
Decrease domestic demand
There are some coutries with surplus of production .
as This style of countries with surplus products may give their extra production and goods on world markets at below cost and not real and not logical price. Some efficient and real industries may understand it difficult to have a competition with them for a long term period under same conditions and situation. More nations which their economics are under large agricultural face unfavorable conditions of trading (the ratio of total price of export goods and services divided into prices of import ones) their export income is less than the import payments and cost they can create for high value marginal imports, so it can lead to huge amount of CADs and as a result have a high foreign debt level.
Developing or infant industries may establish it difficult to become placed in a competitive market
Without any short-term protection and supporting policies by governments, according to the new industries argument. It is so tough to develop economies of scale in the front of competition from huge and strong foreign TNCs. This can be used to young industries or young economies (developing economies).
Free trade( trade liberalization trade) can cause to pollution and other environmental issues
That kind of company which to involve these costs(environmental protection costs) in their cost of production and price of goods due to under free trade market they have a lot of competitor as a result they reduce or remove this kind of cost for reduction of their cost of production in attempting to have a competition with companies dealing under weaker environmental and eco-friendly shields and protection cost in some countries or have a more share in free trade market.
Pressure to go up protection and shield within the time of global financial crisis
In time of GFC and recession in 2008/2009, influence of falling employment rate meant that protection pressures began to increase in lots of nations. In New South Wales,according to report, the government was criticized for buying special clothes for police organization and firefighters at lower prices from other countries instead of buying those uniforms from Australian manufactures. the governments in the United States and other European countries faced by same criticizes for protection pressure.
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