Trade and Trade Barrier
Free Trade
If the government does not impose any kind of restriction on export and import of goods and services in international trade, it is defined as free trade.
Advantages of Free Trade
- Benefit of specialization
- Benefits to international consumers
- Promotes healthy competition
- Expansion of market
- Gain of technology
- Gain of capital
- Increase in production
- Cheaper price
Disadvantages of Free Trade
- Exhaustion of natural resources
- Adverse effect on domestic industries
- Economic dependency
- Dumping
- Import of harmful goods
- Reduction in savings and investment
- Economic crisis Protectionism
Protectionism
Protectionism is a policy that encourages the national industries by imposing restrictions on the import of foreign goods or by providing facilities to the domestic products.
Methods of Protection
- Tariff barrier
- Non-tariff barrier
Advantages of Protectionism
- Need for protecting infant industries
- Diversification of industries
- Generation of employment opportunities
- Correction of balance of payment
- Development of key industries
- To prevent dumping
- National defense
- To preserve natural resources
- Self-dependent
Disadvantages of Protectionism
- Creation of vested interest
- Idleness in industries
- Burden on consumers
- Creation of monopoly
- Promotion of inequality
- Perpetuation of inefficient concerns
- Danger of retaliation
