JingJie
general_sion@hotmail.com
Never forget
ThreeThree2007
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O levels tommorow >.< ........
Try this on for size =D .
Arguments for and against Free trade:
Free Trade is a system in which the trade of goods and services between or within a country flows unhindered by government restrictions. Intervention includes taxes and tariffs and non-tariff barriers such as regulatory legislation and quotas.
The reverse of Free Trade would be the policy of Protectionism, which is the economic policy of restraining trade between nations through methods such as tariffs on imprted goods, restrictive quotas and other restrictive government legislation to discourage imports and prevent foreign takeover of national companies.
In adopting free trade, the country is allowing the maximized efficiency of factors of production through specialization, where countries can produce goods and services in which they have the least opportunity cost. As such, world resources would be most effectively allocated on a global scale.
Consumers would also face an unrestricted choice of goods and services without free trade as a resultant of unrestricted access to imports.This hence provides a better standard of living as well as a wider range of choice.
In opening the nation's firms to external competition, monopolies are prevented from forming due to the wide range of choices available to consumers (ie; large amount of substitutes). This would furthermore increase the efficiency of firms to produce due to similar foreign competition.
This would likely lead to the transpassing of a country's Production Possibilities boundary, leading to a shift to the right in the curve from optimal resource allocation due firstly to specialization, by cheaper imports of raw materials and throught he sharing of knowledge and technology. As such, the country is able to produce more and this would hence facilitate development of the economy in general from a better Balance Of Payments position n the global market.
In this scenario, trade retaliation does not occur due to unbiased treatment of various goods and services.
However, on the flip side, cheap imported goods may increase local structural unemployment. Consumers would likely choose more attractive foreign imports to local imports if prices of these imports are cheaper and unaltered by taxes or tariffs. Due to a deficiency in demand for local products, firms would face lesser revenue and production would reduce, hence layoffs would occur. Firms may also choose to reduce prices to remain competitive. In doing so, the firm has less funds to channel into the labor force, leading again to retrenchment.
Infant industries are also in risk of being taken over or forced out of business by foreign companies which offer lower prices. Demand for local goods would unavoidably fall due to more incentives to purchase foreign goods. Small infant industries would unlikely be able to sustain itself in such a hostile environment and likely run into subnormal profit, forcing firms in the industry to shut down.
A high level of demand for foreign goods would facilitate a subsequently high level of imports. This would likely reduce a country's BOP surplus or increase the BOP deficit, leading to further problems in a country's reliability for investmentand others associated with a drop in BOP position.
Furthermore, supplies of imports sometimes prove unreliable and results in countries unable to obtain the raw materials they require to facilitate production. This leads to more serious problems such as shortages and structural inflation.
In conclusion, in an ever developing, ever globalizing world economy, Free Trade would be an attractive incentive to most countries, especially due to gains from specialization and increased consumer choice, along with encouragement of foreign investment in the local economy. However, some countries may choose to adopt protectionism in order to shield local industries from foreign competition and provide opportunities for such industries to grow. In addition, during cases of global recessions, a country may adopt protectionism in order to increase demand for home-made products, hence increasing the circulation of money within the nation, providing more jobs and cushioning the nation from some of the impacts of the recession. Hence, both protectionism and Free trade are likely policies to be taken depending on the current global situation, each with its pros and cons.
EPIC'D thought i would kill two birds with one stone by posting as well as studying for my Agonomics tommorow >>.<<
As usual, heres a song before I go.
Through the Fire and Flames - DragonForce
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11:09 AM
Make a Stand