Reasons for Free Trade

Free trade can be defined as the situation whereby governments impose no artificial barriers to trade that restrict the free exchange of goods and services between countries with the aim of protecting domestic producers from foreign competitors.

The argument for free trade is based on the economic concept of comparative advantage. Comparative advantage is the economic principle that nations should specialize in the areas of production in which they have the lowest opportunity cost and trade with other nations, so as to maximize both nations' standards of living.

FREE TRADE
|Advantages |Disadvantages |
|Free trade allows countries to obtain goods and services that the |An increase in short term unemployment may occur as some domestic |
|cannot produce themselves, or in sufficient quantities to satisfy |businesses may find it hard to compete with imports. However, the short|
|domestic demand. |term rise in unemployment should correct itself in the long term, as |
| |the domestic economy redirects its resources to areas of production in |
| |which it has a comparative advantage. |
|Free trade allows countries to specialize in the production of the |Free trade can create barriers that make it more difficult for new |
|goods and services in which they are most efficient. This leads to a |businesses and new industries to emerge as they are not protected from |
|better allocation of resources and increased production within |larger foreign companies. |
|countries, and throughout the world. |