This paper examines the definition, history and status of free trade in the world today.
In history a lot of countries acted in accordance with protectionist trade policies which means they had a lot of barriers, tariffs, and limits towards the trade with other countries. The aim was to protect their own economy. However, in today's world there is much more free trade which means "the buying and selling of goods, without limits on the amount of goods that one country can sell to another and without special taxes on the goods bought from a foreign country".
The theory of free trade was first invented in 1776 by Adam Smith. And although it goes back to colonial times, free trade remained a theory for centuries. Ever since Adam Smith's concept of free trade, merchants tried to remove trade barriers between countries again and again. But especially during the industrialization period the countries used trade barriers to boost their economy. As late as after the second world war, the US for example started to lower import tariffs. The idea of lowering tariffs is that more trade takes place, countries can specialize economically in what they do best and afterwards exchange these products for goods that they don't produce most efficiently or that they don't have easily available.
That in turn means the people are freer to choose their position in the economy, the worlds resources are used more efficient and the wealth of nations is growing. In a nutshell it means a country can compete in the global market by specializing to its fundamental economic strengths and by doing this increase economic growth. Some international institutions such as the World Bank, International Monetary Fund, and the World Trade Organization (WTO) were founded to promote free trade in place of protectionism and so helped to build the world how it is today in terms of trading.
Table of Contents
1. Definition, history, and status of free trade
2. Advantages of free trade
3. Disadvantages of free trade
4. Conclusion
5. Excursus: trade war USA vs. China
Objectives and Topics
This document examines the theoretical foundations of free trade, analyzing its economic benefits such as comparative advantages and global market competition, while contrasting these with critical arguments like job outsourcing, environmental degradation, and the infant industry argument.
- The historical development and current status of free trade policies.
- Economic advantages, including GDP growth and increased consumer choices.
- Critiques of free trade, focusing on outsourcing and market protectionism.
- The impact of protectionist measures, exemplified by the US-China trade conflict.
Excerpt from the Book
2. Advantages of free trade
The most famous advantage is described by the theory of a comparative advantage by David Ricardo which is based on Adam Smith’s idea. In 1776 Adam Smith wrote the book “The Wealth of Nations” and explained that free trade was beneficial to trading partners. The idea was that countries enter into a free trade agreement, produce a product, and then provide that product for another country at a cheaper rate than the receiving country could produce it. David Ricardo expanded Smiths idea and argued that countries should do what they do better and cheaper than other countries. In conclusion Ricardo noted that concentrating on core competencies give nations a comparative advantage. The trade between countries with products every country specializes in opens up markets which leads to an increase in gross domestic product (GDP) and invites new, foreign investments.
Furthermore, free trade policies also have created a higher level of competition in today´s open markets which leads to continual innovations and therefore to better products. Additionally, more competition leads to more goods and services at lower prices and thereby to a substantially increase in standards of living. But free trade not only affects the quality and price of products. Trade also enables access to a greater variety of goods and services.
Summary of Chapters
1. Definition, history, and status of free trade: This chapter outlines the historical evolution of trade policies, contrasting protectionism with modern free trade concepts and the role of international organizations.
2. Advantages of free trade: This chapter explores the economic benefits of trade, primarily focusing on David Ricardo's theory of comparative advantage and the subsequent increase in global living standards.
3. Disadvantages of free trade: This chapter addresses critical arguments against unregulated trade, specifically focusing on job outsourcing, protection of infant industries, and environmental concerns.
4. Conclusion: This chapter synthesizes the previous arguments, noting that while valid critiques exist, protectionism is generally considered an ineffective long-term strategy compared to global integration.
5. Excursus: trade war USA vs. China: This chapter provides a practical case study of how recent political decisions and tariff implementations have negatively impacted the global free trade environment.
Keywords
Free trade, Protectionism, Comparative advantage, Globalization, WTO, Import tariffs, Job outsourcing, Infant industry, Economic growth, GDP, Market competition, Trade agreement, Sustainability, USA-China trade war, International trade.
Frequently Asked Questions
What is the primary focus of this work?
The work provides an overview of the economic theory of free trade, examining its historical background, benefits, and critical challenges in the contemporary global market.
What are the central themes discussed in the text?
The central themes include the theory of comparative advantage, the impact of globalization on local industries, environmental sustainability, and the geopolitical implications of trade conflicts.
What is the main objective of the research?
The objective is to weigh the arguments for and against free trade to understand why it remains a central, yet debated, component of the global economy.
Which scientific method is utilized in this paper?
The paper utilizes a qualitative analysis based on economic theory, historical development, and a case study approach to evaluate current trade policy impacts.
What is covered in the main body of the work?
The main body covers the definition and history of free trade, the theoretical advantages according to Adam Smith and David Ricardo, common disadvantages such as outsourcing, and a concluding reflection on current trade tensions.
Which keywords characterize this paper?
Key terms include free trade, comparative advantage, protectionism, globalization, WTO, and economic growth.
How does the "infant industry argument" challenge the free trade model?
It suggests that developing industries need temporary protection from international competition to build sufficient infrastructure and economies of scale before they can compete globally.
What role does the US-China trade war play in the author's argument?
It serves as a concrete example of how political protectionism can lead to a deterioration of the advantages typically associated with free trade, such as efficiency and lower costs.
- Quote paper
- Philipp Rothe (Author), 2020, Chances and Risks of Free Trade Policies, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/906982
