What Are The Arguments Against Free Trade

Improved Essays
According to the doctrine of Adam Smith, free trade is to best policy between two nations in the case of that trade between two countries is based on an absolute advantage. When one country is more efficient in producing one commodity but is less efficient in producing another commodity than other country, the gains from trade will be achieved for both countries through specializing in in the production of the commodity which has an absolute advantage, and exchange with other country for the commodity which hasn't an absolute advantage. (Salvatore, 2001, p35) The theory of absolute advantage does not take in to account the gains from trade between countries if one of the countries has absolute advantage over all lines of production.

David Ricardo (1817), in his theory of comparative advantage explained that specialization and
…show more content…
In the Ricardian model, a country gains whenever it becomes completely specialized in the commodity which it has comparative advantage in it. All parties gain from trade in Ricardo. Thus, we could not be able to explain why some agents are against free trade and why there are barriers to trade. (Tamasiga, 2013, p11)

According to the Ricardian theory, the movement toward free trade generates an increasing of the welfare of both countries as specialization and trade will increase the set of consumption possibilities, compared with autarky system, and will increase in consumption of both commodities locally. These gains are described as improvements in the efficiency of production and consumption.

Moreover Free trade increases the efficiency of aggregate world production, as more of commodities are produced with the same number of workers. Free trade also raises aggregate consumption efficiency, which means that consumers have a more set of choices and prices available to them (Suranovic, 2012,

Related Documents

  • Improved Essays

    So the country produce goods in large scale and this leads to reduce cost of the production as well as price of commodities. International trade increase the efficiency of production due to international competition because producers have to produce better quality goods at the minimum cost to competing with other producers in the world. Because of this competition consumers can consume better and quality goods at a minimum price. International trade is essential factor for the growth of globalization, transportation…

    • 2265 Words
    • 10 Pages
    Improved Essays
  • Improved Essays

    Why Consumers Need Trade

    • 1236 Words
    • 5 Pages

    The pros to a Trade agreement are the consumers’ needs are met, making them want to spend more money into the market on goods and services that they want. Then it also benefits in imports and export agreements with the expansion of products being placed out for consumers to choose from and creates a competitive market to increase the quality of products sold to the buyers. This all has positives and there is a bad side with nations having different tariffs on their goods and services. This can create a lot of conflict, but is the reason we need the trade agreements so that nations can create a better economy for everyone. Trade agreements all around are good for all nations to be in to help satisfy the consumers’ needs and wants.…

    • 1236 Words
    • 5 Pages
    Improved Essays
  • Improved Essays

    By reinvesting capital, the overall capital of the nation will grow and therefore increasing the wages of the workers. This increases the wealth of a nation as a whole because a society cannot be deemed as successful and happy if laborers are poor. Through the division of labor, productivity increases; therefore, laborers are richer and happier. Division of labor can yield efficiency, and efficiency allows people to produce at a higher rate. What this implies is that Capitalism drives people to produce more and compete because if one individual is making more than another, that individual would have the intention to surpass the other because it is in human nature to work for self-interest.…

    • 852 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    Arguments Of Free Trade

    • 1583 Words
    • 7 Pages

    Free trade is a system where discrimination against exports and imports is excluded. Trade between different countries without a government regulations of quotas, tariffs, subsidies or restrictions on services and goods. Restrictions including taxes, tariffs and non-tariff barriers. ”One of the strongest arguments for free trade was made by classical economist David Ricardo in his analysis of comparative advantages explains how trade will benefit both parties(countries, regions or individuals) if they have different opportunity costs of production.”(R.Fouda.p.351)One of the biggest economy in the world is the UE. It is the largest importer and exporter, the recipient of investment and one of the biggest investors.…

    • 1583 Words
    • 7 Pages
    Improved Essays
  • Improved Essays

    Roles reversed, say the U.S has a higher demand for a certain product they could import the good to meet domestic demand cheaper. Based on the opportunity cost and comparative advantage concept, all countries participating in international trade are highly benefited. As well as participating in international trade would positively impact the trade balance, or the value of a nations exports minus the value of its…

    • 736 Words
    • 3 Pages
    Improved Essays
  • Superior Essays

    Favored Nation Clause

    • 1499 Words
    • 6 Pages

    The Most Favored Nation clause refers to a level of status given to a country by another and is enforced by the World Trade Organization. When a nation grants this clause to its trading partner, it means that the state seeks to increase trade with the other country. Through Most Favored Nation countries can offer each other specific trading advantages such as reduced tariffs, fewer trade barriers, and better import quotas (Acconci, 2005). These are also the factors that countries consider when giving MFN status to the other nation. If it would result in increased efficiency The MFN treatment cates room for most countries to acquire goods from the most reliant supplier and this is in line with the principle of comparative advantage.…

    • 1499 Words
    • 6 Pages
    Superior Essays
  • Improved Essays

    Globalization promotes economic growth which mean the world leaders want to create more jobs, and lower prices for consumers. Furthermore, the world leader insist the effect of this process would cause companies to increase competitive which they feel will work in the consumers favor. Another pro to globalization would be it provides an upgrade for developing countries’ capital and technology. By doing this, it assists the developing countries in becoming more established while…

    • 1091 Words
    • 4 Pages
    Improved Essays
  • Great Essays

    Free trade is mutually beneficial because it allows for every state to use their comparative advantage to produce the goods that they can to maximum efficiency and then trade them with other countries who are also producing to the maximum efficiency their goods. This allows for the economy to reach its market equilibrium in which supply equals demand. Free trade also helps the market reach the optimal equilibrium because tariffs are taxes on products imported from other countries. When a tax is placed on a product it is felt by both the producer and the consumer. A tax also forces the consumer to pay a higher price then they would have without the tax and the producer to sell less of a product then they would have without a tax on the product.…

    • 1492 Words
    • 6 Pages
    Great Essays
  • Great Essays

    Since monetary policy allows more spending and more money the economy will grow to a certain extent. When our economy grows, It will make America more empowering. We want America to be empowering. So lets hope the United States government emphasizes a monetary policy and uses that approach because it will help…

    • 1677 Words
    • 7 Pages
    Great Essays
  • Improved Essays

    As volumes of trade increased, a newer theory was offered in the 18th century by Adam Smith, who introduced the concept of absolute advantage. Smith was the first to point out that unrestricted trade and free international competition benefit a nation more than the Mercantilist thinking (Schumacher, 2012): according to Smith, specialisation and concentration of workers on a single task in a factory would lead to greater skill and overall higher productivity than what would be achieved if these workers attempted to carry out many different activities. Hence, workers that specialise have an absolute advantage over others (Yu, 2011). Similarly, if other workers abroad focused on another activity, nations could trade their commodities with each other. Society as a whole would gain as resources would be used more efficiently and total production of both commodities from the same resources would be higher.…

    • 920 Words
    • 4 Pages
    Improved Essays