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Free Trade Vs Protectionism

Free trade advocates argue that removing trade barriers makes countries wealthier by allowing goods and services to be produced more efficiently in places with competitive advantages. Protectionism supporters counter that restricting trade can preserve domestic jobs and industries, help build new sectors, and safeguard strategic areas. However, most economists agree that some trade limits are reasonable but excessive protectionism can reduce overall prosperity.

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163 views

Free Trade Vs Protectionism

Free trade advocates argue that removing trade barriers makes countries wealthier by allowing goods and services to be produced more efficiently in places with competitive advantages. Protectionism supporters counter that restricting trade can preserve domestic jobs and industries, help build new sectors, and safeguard strategic areas. However, most economists agree that some trade limits are reasonable but excessive protectionism can reduce overall prosperity.

Uploaded by

shashi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Free Trade Vs Protectionism: Overview

One view says that we should make it as easy as possible for goods and services to
move between countries. This approach is based on the argument that more trade
makes us wealthier and is therefore a good thing. It is known as free trade.
Another approach says that we should restrict trade. We might do this to protect
certain jobs. We might think that we need certain industries – such as food
production or steel-making – just in case things go wrong in the wider world. We
might want to restrict imports from countries with lower labour or environmental
standards so they can’t undercut our industries. This approach is known
as protectionism.
Many economists agree that some restrictions on trade are desirable, but that we
should be careful, as such restrictions can make us poorer overall. For example,
limits on agricultural imports may be good for British farmers, but they also increase
food prices.

The following sections set out some of the arguments in more detail.

Arguments for Free Trade


There are several key arguments in favour of free trade:

 Free trade increases the size of the economy as a whole. It allows goods and services
to be produced more efficiently. That’s because it encourages goods or services to be
produced where natural resources, infrastructure, or skills and expertise are best
suited to them. It increases productivity, which can lead to higher wages in the long
term. There is widespread agreement that rising global trade in recent decades has
increased economic growth.
 Free trade is good for consumers. It reduces prices by eliminating tariffs and
increasing competition. Greater competition is also likely to improve quality and
choice. Some things, such as tropical fruit, would not be available in the UK without
trade.
 Reducing non-tariff barriers can remove red tape, thus reducing the cost of trading. If
companies that trade in several countries have to work with only one set of
regulations, their costs of ‘compliance’ come down. In principle, this will make goods
and services cheaper.
 In contrast, protectionism can result in destructive trade wars that increase costs
and uncertainty as each side attempts to protect its own economy. Protectionist rules
can tend to favour big business and vested interests, as they have the resources to
lobby most effectively.
Arguments for Protectionism
While free trade increases the size of the economy as a whole, it isn’t always good
for everyone:

 As more countries experience industrial development, traditional domestic


industries can decline. In the UK, for example, the shipbuilding industry has declined
in the face of international competition since the 1950s and currently steel
production faces increasing competition. Protectionism can help preserve jobs in
these sectors, or at least slow the process of change.
 Protectionism can also help build up new industries. In sectors with high start-up
costs, new firms might find it difficult to compete if there is not support from
government in the form of tariffs or subsidies. Once they have become competitive,
such barriers can be removed.
 Protectionism can be used to safeguard ‘strategic’ industries such as energy, water,
steel, armaments and food. For example, ‘food security’ may be seen as important so
that we can feed ourselves if something terrible happens to disrupt the system of
world trade.
 Some people worry that free trade deals can lead to a lowering of standards. Such
deals might require us to let in goods and services even though they don’t meet our
standards, which might then be cheaper than those made by domestic industries. For
example, some people have been worried recently that a free trade deal with the US
might let in imports of chlorine-washed chicken. There might also be pressure to
reduce our standards for workers’ rights or environmental protection so that our
companies can compete with companies in countries that have lower standards.

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