Free Trade Essay

Outline the main advantages and disadvantages of free trade and the major reasons why a country may impose protectionist policies.

Over the past few decades, free trade has increasingly been acknowledged resulting in a global market for goods and services. Although free trade is embraced by most economies, protections imposed by governments to institute artificial advantages for domestic producers have become a dominant issue within global trade and commerce. Economically, free trade forms a bridge between many nations, allowing nations to specialize and specify resource allocation upon the basis of comparative advantage. Despite the many benefits of free trade, protectionist policies are still being implemented by governments for reasons that encompass various factors including short-term economic benefits, and political.

Free trade, seemingly, provides and avenue between foreign nations and a domestic nation for the trading of goods and services. By removing any protectionist impediments and economy can specialize in its allocation of resources to its most efficient production of goods, thus allowing for the overall decrease in the price of goods. Focusing on production of goods that has the lowest opportunity cost allows for goods that have a higher domestic opportunity cost to be imported. This decreases the overall prices of domestic goods that have a high opportunity cost for domestic producers, thus giving consumers more income to spend. Under a free trade policy, prices of goods are reflected by the true forces of supply and demand, thus this becomes a sole determinant of resource allocation.

Alternatively, free trade can, in effect, increase short-term unemployment, as domestic producers which can not compete with foreign producers are forced to cut down production, and effectively employment. Free trade can also restrict the growth of infant industries and companies which cannot compete with large transnational corporations that have an...