Free Trade: A Comparative Analysis

Only a few governments ‘heed the logic' of embracing free trade. According to Joan Robinson, governments seek trade amongst nations as an opportunity to earn revenue. Hence, most governments discourage free trade as it bares no returns. The imposition of a tariff contributes to government revenue, however it discourages free trade. According to 71.3% of economists, the imposition of tariffs and quotas usually reduce general economic welfare. This debate regarding the establishment of free trade amongst nations has haunted economists for centuries. This chapters presents an argument, which favors 71.3% of economists who support free trade.
‘Free Trade’ has its fair share of critics, 6.5% of economists believe that the imposition of tariffs and

Since Britain held a comparative advantage over other countries, in the production of cloth, they could produce in bulk and the trade the excess supply for corn. Clearly, with reference to the scenario above, Britain did not hold any form of comparative advantage in the production of corn. According to Torrens, the aim was to produce at lower costs, in other words, specialize. A country can relish the benefits of trade, only when the cost of trading is less than the cost of production (in terms of opportunity costs). If countries indulge in trade, based on comparative advantages, they will be able to import goods at a lower price. Consumers, especially ones belonging to lower income groups, will be better off and problems such as ‘food shortages’ can be avoided. In 1845, French economist, Frederic Bastiat, stooged about how French candlemakers required trade protection from the sun, as it was difficult to compete against during the day. He supported the idea of Free Trade and believed that trade protection only benefits domestic producers, whereas consumers are unable to access cheaper and finer products, which foreign markets have to offer. He questioned France’s refusal to import oranges from Portugal, even though the production of oranges was 50% higher in France. ‘Why should France bare extra expenses?’ he asked. Such a scenario only benefits domestic orange producers, not France as a

Nations usually straighten out this problem by either exporting currency or exporting financial claims. Some use trade protectionism measures to reduce the Trade Deficit. However, when a nation suffers from ‘twin deficit syndromes5’, an imposition of tariffs is not the answer. Tariffs only impact imports, they have minimum impacts on government borrowing requirements nor do they encourage private savings. Apart from this, according to Milton Friedman, countries such as the U.S. have made mistakes by using trade protectionism in the pursuit of free trade. In 2009, the U.S. decided to impose heavy tariffs on Chinese imports until China stopped undervaluing their currency. Such actions result in trade wars, as countries retaliate by further hurting their trading partners. Milton Friedman believed that an eye for an makes the whole world blind, hence he testified against this strategy by asking nations to set an example, instead of retaliating and further hurting their trade partners. According to him, retaliation makes it worse, as it hurts both the parties. ‘The best way to open the other markets is for us to set them an example’ advised