Free Trade And Protectionist

By: Anthony Blocker

Free Trade

Free Trade: Is An Open Trade Between Nations Without Any Barriers To Imports.

Pros: It allows for complete open competition across the global with foreign businesses. Consumers have the opportunity to purchase items cheaper which was made overseas. This in turn frees up resources which can be used for other goods or services.

Cons: It benefit domestic businesses. If consumers decide to go with a foreign product this contributes to the trade deficit. This also takes money out of domestic businesses which in turn effects whether or not they'll be able to provide jobs.
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Protectionist - Government Policy That Attempt to limit Imports.

Pros: Benefits businesses by creating trade barriers. Tariffs discourage foreign businesses from investing in your country. Consumers don't see the tax. They only see the price that is attached to the item. The increase price in turn discourages consumers from purchasing something they can purchase cheaper domestically.

Cons: This does not benefit consumers, as it gives domestic businesses the opportunity to create a monopoly. Consumers have to deal with higher prices and have very few alternatives.

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Advantages of Free Trade:

  • Comparative cost advantage
  • More factor earnings
  • Cheaper imports
  • Enlarged market
  • Competition
  • Greater welfare

Advantages and Disadvantages of Protectionism

Strengths of Protectionism

– One strength of protectionism is that it keeps the domestic economy flowing. Since there is a decrease in imports, domestic firms have less competition, and so are able to continue.

– The domestic economy also strengthens, because the unemployment rate will be minimal. This is because the domestic firms are able to produce and sell more goods with a lot less difficulty, giving firms less incentive to decrease its cost by decreasing its work force. The people with jobs will keep consuming, allowing a flow of the economy.

– Protectionism allows the green, fledgling firms to function and develop at a decent rate, because these firms are not pressured by the foreign, more experienced firms. The fresh firms can grow until they themselves are able to complete in international markets, promising positive aspects for the domestic economy in the future.

– Protectionism also prevents dumping. This is where foreign, grand economies enter an economy and sell their goods at a price lower than the costs of production. Consequently, the consumers of that specific economy are spending more, than the consumers in the overseas areas.

Weakness of Protectionism

– There are also weaknesses in using the system of protectionism. For example, protectionism can cause a reaction from other countries, ruining the relationship of the two nations. This is a major issue right now between the United States and China. U.S. put restrictions on the Chinese tires, so China retaliated by putting up barriers against different U.S. goods, such us their chicken. This hostility decreases the specialization level of the two nations, harming their economy. Also, protectionism prevents nations from maximizing their specialization level, using up factors of production moronically insufficiently.