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Advantages And Disadvantages Of Free International Trade

1468 words - 6 pages

1a) Advantages of free international trade
1. Increasing the production.
Countries are enabled by free international trade to specialise or to focus in the production of the goods in which they have a comparative advantage. Specialisation countries can take the benefit of efficiencies generated from increased output and economies of trade. The size of the firm’s market are increased by the international trade which results in lower average costs and increasing in productivity, as it ultimately leads to increase in production.

2. Production efficiencies.
The efficiency of resources allocation is improved by the free international trade, as the higher productivity and increasing in total domestic output of commodities and services are leaded by the more efficient use of resources . increase in competition promotes the use of new technology, innovative production methods, marketing and distribution methods.

3. Foreign exchange gains.
When a country sells exports overseas, it receives a hard currency from the other countries which buy the goods. When the country get the money from selling exports overseas they use it again to pay for imports such as electrical equipment and cars which are produces more cheaply by overseas.

4. Economic growth.
More competitive industries, increasing in productivity, efficiency and production levels creates rising living standards, higher rates of economic growth and increasing real incomes to the countries which are involved in free international trade experience.

5. Consumers benefits.
Consumers get the advantage in the domestic economy as they can now get a variety of goods and services. Increasing in competition ensures goods and services. As the inputs also are supplied at the lowest prices. For example, if the 1998 tariff levels still applied, it would cost 35% more if Australia imported vehicles, as well as clothing and footwear would also cost around 24% more.

6. Increase in employment.
Workers will be displaced and employment will increase in exporting industries as import competing industries close down in the competitive environment. With free international trade a lot of jobs will be created in the country, especially in industries of manufacturing and services which can absorb the unemployment that created by restructuring as firms down their workforce.

Disadvantages of free international trade.

1. Structural unemployment may occur in the short term with the removal of trade barriers. This will have impact on large numbers of workers, as well as their families and local economies. In growth industries workers often will have difficulties to find employment.
2. Business, consumers and employees are more weak to downturns in the economies of trading partners. For example, recession in the USA leads to decrease in demand for UK’s exports, leading to falling in export incomes, lower GDP and incomes, decrease in domestic demand and rising in unemployment.
3. Some of the countries with surplus...

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