Free trade refers to the unrestricted or free movement of goods and services between different countries in the world. The concept of free trade was developed by classical economists Adam Smith, David Ricardo, and others. Under this trade system, government does not impose tariff and non-tariff barriers. There is no unnecessary burden or no government interventions.
Arguments for or advantages of Free Trade:
1. Optimum utilization of resources:
Under free trade policy, every country specializes in the production of those goods and services in which it has maximum profit, by using the resources fully and efficiently.
2. Benefit to consumers:
Every country produces only those goods that can be produced at least cost in good quality, traders in other countries import such goods and make these available to consumers at cheaper prices.
3. Benefit to Producer:
International trade widens the market for producers from domestic to international region. Producers can produce and sell more quantities of goods and services and also can earn more profit.
4. Technological Improvement:
Producers are compelled to produce quality goods at minimum cost, modern and cost reducing technology becomes necessary. This improves every nation to endeavor to bring about technological improvement.
5. Creates International Relation:
Due to free trade policy, it makes good relation among its trading partners and creates cooperation environment between countries in the world.
Arguments Against or disadvantages of Free Trade:
1. Dominates Infant Industries:
The new industries of developing countries are called infant industries which cannot compete with the industries of developed nations in terms of price, quality, and quantity.
2. Creates Dependency:
Due to the imbalanced industrial development in the economy, it increases dependency of developing countries on developed countries and ultimately it reduces economic development.
3. Unhealthy Competition:
In free trade economy, each and every country is encouraged to increase export and there is excessive competition in production and sales. As a result, it promotes unhealthy competition among the countries.
4. Trade of Harmful Products:
Commodities are easily exported and imported under free trade policy. There may be high chance to trade socially restricted or injurious or harmful goods in order to earn more profit by business sector.
5. Harmful to Underdeveloped Countries:
Under developing are unable to compete with developed countries because of the existing resources, production technique, cost of production and quality of products which is a threat for them.