Free Trade

Free Trade

Free Trade

Free trade is the openness of trade among nations so that they may benefit from each other's specialization. It refers to the opening of barriers towards trade. Although free trade agreements are formed between nations in order to gain mutual benefit, there is a general view that free trade also hurts the economy in the long run as some good are imported despite having the potential to produce them. (Kowalski, 2006)

In order to maintain their jobs, people would prefer things to be produced at home. However, free trade gives people access to cheaper goods. In order to determine the benefit of free trade, the government will have to consider whether it wishes to save the jobs of a few or provide cheaper goods to the masses. In most cases, governments try to find a median between the two extents since the masses demand cheaper goods and at the same time wish to maintain their jobs. For example, if a country produces cars and also imports them people will have an option of going for cheaper cars which will result in the loss of jobs. In market economies the results are usually in the favor of consumers.

Another reason free trade is considered good is that is more economically viable. Whenever a country is heading towards recession, the demands are low priced good quality goods. The best way to achieve this is to concentrate on mass production and specialization as it allows nations to efficiently allocate resources. In this way, every nation benefits from its specialization (MacArthur, 2001).

Exporting goods can fetch better prices for companies since the demand for it may be higher. In such cases, manufactures tend to export their goods in order to gain better prices. This can also lead to shortages in the local market but overall, the benefit is usually higher than what it would have been selling the product in the home country.

In order to benefit from free trade, countries have formed economic blocs in which they work together in order to take advantage of each other's strengths. The number of economic blocs has increased considerably and now almost every country is part of an economic bloc as these blocs are important in a world where prices are continuously declining and recession is forcing countries to find other sources of trade (MacDonald, 2000).

These agreements are not only limited to trade; they also involve foreign direct investments. Investing in the member states of the economic blocs is open to everyone. In this way, areas that need investment are developed which in turn develop the output and its quality. The overall benefit is that countries that do not have much investment opportunities invest in other countries thus benefitting from increased returns and lower risks.

Benefits of Joining an Economic Bloc

Economic blocs are formed in order to cooperate with each other in terms of trade. Since every country has its strengths and weaknesses in manufacturing, economic blocs provide them the opportunity to overcome their weaknesses and benefit ...