Free Trade Vs Fair Trade

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Introduction

Adam Smith, author of The Wealth of Nations, shows support for free trade and emphasises it as a trade policy which ought to be adopted. Krugman and Obstfeld back Smith's support by stating that the efficiency of trade is increased by free trade and accumulates the national income of countries. Free trade is a theory which suggests that each nation benefits in specialising in an economic activity from which it gains absolute advantage, enjoying absolute superiority over other nations in a specif economical activity (Peng). With free trade follows opportunity, replacing regulation and growth of economic activity. (Rugmann and Collinson).

Arguments for free trade

Trading Barriers

If nations adopted a free trading policy the total cost of tariffs, duty on imports, would be reduced; resulting in a cost efficient method of international trade. Alongside specialising in an economic activity within one nation, a reallocation of resources for more efficient nations allows trade to be fair and enhance the quality of resources.

The reduction of trade barriers enables the local prices of goods to reduce too, which will eventually lead to an enhancement in the economical welfare situation of nations by reducing the limitations of new entrants into the markets. The removal of barriers would mean a free and fair opportunity for all nations to gain impartial access into any market benefitting them with a fair chance in competition. Another beneficial outcome is that with new economic activities taking place in foreign subsidised countries will see an increase in employment for local potential workers, lower business costs and a circulation of the local finances enhancing the economy of the nation. However, a noteworth...

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...ction.aspx. Last accessed 6/1/2011>

Cullen,S. (2009). Feature: Protectionism in the EU? . Available: http://www.politics.co.uk/features/economy-and-finance/feature-protectionism-in-the-eu--$1273249.htm#. Last accessed 6/1/2011.

The Literacy Encyclopedia. (2005). Corn Law. Available: http://www.litencyc.com/php/stopics.php?rec=true&UID=%20225. Last accessed 6/1/2011

Jones. G, Helm. T and Wilson. G. (2007). British workers for British jobs says Brown. Available: http://www.telegraph.co.uk/news/uknews/1553710/British-workers-for-British-jobs-says-Brown.html. Last accessed 6/1/2011.

The IMF. (2010). Factsheet: IMF at a Glance. Available: http://www.imf.org/external/np/exr/facts/glance.htm. Last accessed 6/1/2011

References: Journal Articles

• Lieberman, Marvin B., and David, B Montgomery. "First - mover advantages." Strategic Management Journal 9 (1998) : 41-58

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