Economics 12 Notes for Economics Notes

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Free trade

The international trade without governmental intervention is called free trade. In this case, the government doesn’t restrict export and import through any types of tariff and non tariff barrier there is free movement if products from one country to another country. Each country can promote export only if it produces qualitative goods with little cost. For it, there should be improvement in technology, exploration of new resources, development of human resources, and improvement in qualities and so on. Most of developed nations advocate in favor of free trade.

Arguments in favor of free trade

Technical know-how:
If there is free trade each country can import technical equipments, plants, machines, tools and manpower from other nations. The consumption or use of these capital goods and human resource can increase in technical know how.

Every country can take more benefit specializing in the production of goods which can be produced using local resources, technology and human resource. International specialization leads to proper allocation of world’s resources and leads to production of goods under very favorable conditions.

Varieties of products:
In the domestic market, large number of goods and services can be supplied even it all required commodities are not produced within a country. There is free import and this is possible.

Wide market:
The domestic products can have wide market even in the foreign countries.

Large scale production:
Since, each domestic product can be sold even in foreign market, there is large scale production. It is helpful to raise the income level and employment level too. There also arises completion among the local and foreign markets. It helps in production of qualitative products too.

Compensation of lack of resources:
If there is free trade lack of some resources can be compensated by the resources available in the country. The resources are imported either with manpower or exchanging with resources available in the country.

High employment level:
Free trade helps the country to create employment opportunities. Each product is produces not only to fulfill domestic demand but also to fulfill the demand in foreign market. Therefore, there in increase in production and so there is requirement of increment in labor in field of insurance, trade, industry, transportation and so on.

Capital formation:
For the capital formation the investment is required. For the investment, investible fund is required. The investible fund comes from income generation by export.

Good diplomatic relationship:
The countries involved in international trade give and take products and services benefiting each other. They will have good diplomatic relationship.

Diversification and modernization:
The free trade helps the country to diversify the industries and to modernize the way of life. The varieties of goods for luxury, efficiency, high productivity etc are imported from different countries and the life made more luxurious, well facilitated and efficient.

Arguments against free trade

Import dependency:
If there is free trade, the countries that are less developed cannot compete with the developed countries. There is increase in import but not in export. The domestic market will be under the control of foreign industries.

The country import dependent in nature has the fear of being colonized. It is because foreign industries take the control of domestic market firstly and then control of domestic resources and government.

The developed nations may sell their cheap and wasted goods to the less developed countries and prices are usually high.

National Identity:
Every county has its own socio-cultural and linguistic values. The people have their own identity but if there is free trade there may be import of the products against such socio-cultural values. Moreover, the goods injurious to health and society may also be important.

Infant industries argument:
There may be industries just established. If there is free trade such infant industries cannot compete with the foreign industries. The foreign products are qualitative advanced and less costly than domestic products.

The countries involved in international trade may have dispute due to unequal benefits from the trade to them. The disputes may take them the war.

Balance of payment argument:
If the country cannot export more even there is free trade and if there is increase only in import. There is outflow of money in large amount than inflow of money. The balance of payment of the country becomes unfavorable.

Employment argument:
The import dependent country cannot give employment opportunities to the people. There is high unemployment if the country fails to compete with other countries in international trade.

Improper use of resources:
If there is free trade the resources may be used to produce only the goods demanded in the foreign countries. It may bring exhaustion.

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