Answer to Question #229035 in Macroeconomics for NS BUTHELEZI

Question

argue how free trade rather then protectionisim can favour countries

Answer 1

Free trade is an agreement between two or more countries to remove trade barriers for imports and exports. Free trade agreements are known to better the economic growth and economic development of the member countries. Free movement of products and services are allowed without any hurdle of trade barriers instituted by states. Free trade enables countries with an absolute advantage over others in producing certain products at the cheapest cost possible to benefit those countries who do not have an absolute advantage in those products. This enhances trade cooperation and trade specialization as countries that produce products at the minimum cost are allowed to specialize in producing those products and be the primary seller or supplier of the said commodity. General free trade increases the productivity in the region.

 

Elimination of tariffs as a significant cornerstone in the pact of free trade entered by the member countries is mainly beneficial to consumers of various products between the member states. Free work is good for consumers. The free trade agreement also increases the level of competition, which contributes to the production of quality products and services at the end of the day.

 

Adoption of free trade agreements reduces the trading cost or the cost of doing business. Countries in the agreement can have a cost compliance component, which significantly contributes to lowering the cost of doing business.

 

Contrary, protectionism is devoid of the mentioned benefits that accrue to both or all parties in the pact. Protectionism, instead of advancing cooperation it seals off countries and discourages trade cooperation. The protectionism approach is very destructive as it increases the cost of doing business, the prices of goods and services become expensive, and protectionism tends to favour in a big way those companies which have already established themselves.