The Importance of Free Trade
Last updated on October 4th, 2019 at 04:38 pm
It may appear strange, but there is a plausible reason that makes governments restricts trade. When domestic companies in a country are facing too much competition from foreign companies, the government decides to restrict trade to assist the domestic companies grow (Keith, 2001). Governments could also restrict trade to develop business within its boundaries rather than advising business to go out of the country. Such protectionist policies assist prices to remain stable and assist domestic industries gain some strength over international competitors.
In the nations which are still developing, trade restrictions are applied to block the market for certain advance products such as electronics. Many domestic firms lack the appropriate strength or capital to match other well performing companies from abroad. Therefore, governments offer incentives for growth by allowing them have control over the market until they rise (Smith, 2004).
The developed nations apply trade restrictions to help decreasing industries. For instance, this is seen in the agriculture sector. In as much as subsidies are used many times, some restrictions will be noticed. The farmers in the United States cannot be able to compete with the developing countries because of the high costs. Hence, the United States cannot allow such a sector to die. Many theoretical reasons abound but mostly because of the main food supply. The country cannot rely on foreign food supplies completely.
Another reason that causes governments to restrict trade is that many struggling companies could lobby to have restrictions enforced. For instance, Harley Davidson in the first years of the World War II, strived hard to match the European masters. They begged the government to apply restrictions to imports. The government did so and as it is Harley remains among the largest firms in the United States of America.
Trade restrictions can also assist firms at times where there is a decreasing level of demand. At the time the level of demand was reasonably high, domestic firms did not feel too much pressure coming from foreign competition. When the demand of goods declines, domestic companies may not be able to compete with the low cost production chains and lines that foreigners come up with.
Allowing Free Trade
Free trade refers to an economic premise which considers the evaluation and purpose of importing and exporting goods and services without any form of control (Pugel, 2009). Many countries in the world participate in such trade to make sure that their people get enough economic resources or consumer products that meet their diverse requirements.
Free trade can assist countries come up with superior policies of economy for the citizens. Companies which are interested in satisfying the demand from the consumers for a number of goods will identify the cheapest sources or products to meet and increase their supply. Countries participating in free trade permit companies dealing with importation to bring in products from foreign nations without restrictions or tariffs. Nations that have tariffs or restrictions on any kind of imports into the country normally double the cost of conducting business in the home market.
Free trade enhances wage benefits in a country. Countries are enabled to enhance the opportunities for jobs in the labor market. Business firms which are permitted to optimize a country’s natural economic resources can create a comparative edge when developing consumer products. This comparative edge normally permits firms to give better wages to their employees because countries or firms are in a position to develop the specific products. The incapacity of other countries or firms to develop supplementary products in the markets enables firms to ask for greater consumer prices and double gross profit.
Nations can better the quality of living of their people through free trade. Free trade facilitates the entry of cheap goods in a market. Low process enables people buy more products with less money. The growth of the national economy also improves in the process because of more purchases from consumers (Saleemi, 2008).
Countries that rely on each other for trade
There are several countries which rely on each other for trade. For instance, China and America interact with each other through trade. Japan and some African countries also do business together. In the America which has states, trade restrictions are not applied (Hanth, 2007).
Can we agree with the application of trade restrictions? They are used to safeguard the local industries. This appears to be a double-edged knife. In as much as trade restrictions safeguard the local economy, it fails to develop free trade and also fails to keep prices of consumer goods low.
Hanth, P. (2007). Modern Economics. New York: St Lucie Press.
Keith, H. (2001). Restricting Trade. New York: Sage Publications.
Pugel, T.A. (2009). International Economics (14th ed.). New York, NY: McGraw-Hill
Saleemi, N. (2008). Free Trade. London: Prentice Hall.
Smith, K. (2004). The Importance of Trade Restrictions. New York: Routledge Publishers.
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