Free Trade and Protectionism

Topics: International trade, Developing country, Free trade Pages: 3 (1145 words) Published: December 10, 2012
The issue of Free Trade and Protectionism is one of the most important debates in International economy. According to free trade, they believe in opening the global market, with as few restrictions on trade as possible. On the other hand proponents of protectionism believe in concentrating on the welfare of the domestic economy by limiting the open-market policy. Both sides have strong view points, but it is important to analyze the benefits and disadvantages of free trade and protectionism to determine what is convenient for each country depending on its economic development. Protectionism is the government practice of restricting imports and exports between one country and another. Tariffs are sometimes placed on imports or exports, raising the price for doing such things. In contrast, free trade removes such restrictions. The aims of protectionism are to preserve jobs. By increasing the cost of importing, businesses are encouraged to produce products within the country where the products will be sold. Free trade advocates argue that protectionism leads to higher prices because workers at home are not necessarily willing to work for lower wages. Free trade could lead some problems in the economy of a country. The first problem is the assumption trade is sustainable. A nation exporting non-renewable resources may discover that its best move (in the short run) is to export until it runs out. The flip side is overconsumption, in which a nation (like the U.S.) borrows from abroad and sells off assets in order to finance a short-term binge of imports that lowers its long-term living standard. Free trade economics defines both these problems out of existence by conceiving economic efficiency as merely the optimal satisfaction of consumer preferences, so if consumers want a short-term binge, then free trade is "efficient." Another problem is the assumption that free trade does not increase income inequality. If it does, free trade may...
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