Free Trade Case Study

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Q1: Depending on your role within the international economy, governmental subsidies for exports may either be a benefit or hindrance. In the case of a rich country’s government providing subsidies on the export of agricultural products, doing such could indeed hurt the economies of poorer countries. One way that the economy of poorer countries could be hurt is that their domestic agriculture industry may not be able to match or compete with the prices of the imported products, which may lead to a loss in domestic development in the agricultural industry while reducing the incentive for new firms to enter the agricultural industry within that poorer country. With regards to the infant industry argument, the poorer country could restrict the…show more content…
The second presented argument is that free trade provides benefits that are tallied as costs when protection policies are pursued (Krugman et al., 2013). The third argument presented by the textbook in favor of free trade is that the political process will effectively block or provide barriers to the pursuit of “sophisticated deviations from free trade” (Krugman et al., 2013, p. 222). As for how each of these arguments have stood the test of time, some may argue that free trade provides negligible benefits while others may argue that the ability of free trade to produce those benefits help to support the soundness of those arguments for free trade. As an example, after assessing an agreement within the European Union known as the Single European Act or simply 1992, it was found that the removal of hindrances to trade within the EU and a standardization of regulations had only produced slight improvements to the GDP of EU countries after being in place for 16 years (Krugman et al., 2013). In summary, there are three main arguments for free trade, which have the ability of withstanding the tests of time despite how small the gains from the pursuit of free trade may be.…show more content…
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