The Pros And Cons Of Free Trade

Good Essays
One of international relations theories, liberalism, supports free trade. Liberals believe that free trade benefits everyone, increases efficiency, and raises productivity. A famous liberal thinker, Adam Smith, believes that free trade enhances national economic capacity through the increase of connection between countries. He believes that free trade provides states not only to play an important role in international economic affairs, for example division of labour, property and justice, but also to promote self-interests and national defence. Smith provided an argument, with his concept of absolute advantage, that two countries could benefit from trade if they specialise in the goods they produced better than their rivals and traded with…show more content…
These thinkers are supporters of protectionism. They believe that the protection of local production increases national welfare and that the regulation of economic life enhances state power or protect a variety of national groups from competition (O’Brien and Williams, 2013).

First, states can obtain benefits from free trade policy because of the elimination of tariffs and subsidies. Supporters of free trade advocate the elimination of tariffs and subsidies oppose regulation that force companies to pay extra for doing business in foreign markets. A main principle of free trade is non-intervention from the government. Under free trade policy, uncontrolled or unrestricted access to economy allows states to open up of all international markets, and this makes all states equal competitors on the same level (Balaam and Dillman, 2011b). Many people argue that free trade is beneficial to the development of states’ economy because domestic companies do not have to pay extra taxes and tariffs in order to trade their products internationally. Free trade also brings more money into the local economy. As entrepreneurs who sell their products to
…show more content…
Free trade allows individuals to specialise in one thing they can do best, known as comparative advantage theory defined by the British political economist David Ricardo. Specialisation generates efficiencies. When they specialise in one task, people spend their time to do one thing and they learn how to do their task better. It allows people to learn how to produce more efficiently, and it creates even greater productivity. In terms of efficiency, free trade thus means that every state should play to maximise their specialisation of production and to minimise doing less efficient tasks (Kindleberger, 1995). Liberals believe that specialisation will improve the welfare of an individual country and that of the world as a whole if countries specialise in one task according to their comparative advantage (O’Brien and Williams, 2013). Moreover, nation states can expand their businesses with foreign direct investments, and this leads to more dynamic business style. Free trade opens up a door to the world for every single state, and domestic companies can export and import their commodities without paying extra tariffs or tax. Eliminating trade barriers creates a field which people can play a role internationally to compete one another in order to improve national as well as international economy (Balaam, and Dillman, 2011b). Liberal trade theorists argue that foreign investment accompanies increased trade and that
Get Access