CONTRADICTIONS OF FREE

TRADE

Presented By
RITHIKA D
1st Agri economics
What is Free Trade?

 Occurs when there are no artificial barriers put in

place by governments to restrict the flow of goods
and services between trading nations.
 Why shouldn’t countries protect their own
producers from Free Trade?

■ Some countries are forced to accept goods from abroad, while others
protect their markets with
- Import tariffs: also known as custom duties, which are taxes imposed
on goods when they enter a country or one of a group countries such as
EU.
- Quotas: which are quantitative restrictions on the import of goods.
- subsidies: are sums of money given by the government to producers.
Free trade policy
The term free trade policy is used to describe a liberal trade policy that promotes the free
movement of goods and services between nations.

 The following are the some of the arguments on terms of Favour of free trade.
1. Promotes efficiency
2. Promotes economic growth
3. Encourages competitiveness
4. Reduce prices
5. Promotes economic welfare.
6. Greater international cooperation
7. Less intervention of government in trade
1) Promotes economic efficiency .
 The strongest argument in favour of free trade is that It promotes the
international specialization and division of labour.
 Each country specializes in the production of the goods And services in which
has a comparative advantages over it’s trading partners.
 These leads to optimum use of resources and lowers cost of production.

2) Promotes economic growth.

 Because of the free trade global output will increases.

 Countries with cost advantages can produce goods larger scale on the global
market.
3) Encourage competitiveness
 Free trade provides competitiveness as provide there are few or no barriers to
trade , domestic industries are open to competition from global producers.
 Free trade prevent the domestic monopolies and exploitation of consumers.

4) Reduce prices
 Free trade allows Countries to import to come in without barriers.

 Imports can meet domestic shortages and lowers prices.

 Imports that are not subjected to tariffs are sold at lower prices will bring
competitiveness to domestic markets.
 Lowered prices can benefits consumer and provides welfare.
5) Promotes economic welfare
 Free trade policy helps to optimize the world trade and to maximize the
world production.
 These helps generate higher level of employment, Income and consumption.
 The improvement in the standard of living of people due to large scale
production , increases the economic welfare.

6) Greater international cooperation

 Free trade policy necessaries for countries to be dependent on each other .

 Since each country tends to specializes in the production of goods in which they
have comparative advantages the have to rely on their trading partners for those
goods which they do not produce.
7) less government intervention in trade

 If a country fallows free trade policy , it will have

less intervention in trade generally a restrictive
trade policy leads to Corruption at the bureaucratic
level.
Advantage and Disadvantage of Free Trade with
regarding to developed and developing countries
Advantages
 Higher Employment Rates
 Less Child Labour
 Access to New Markets
 Higher Levels of Investment Capital
 Increased Life Expectancy
 Disadvantages


Unrealistic Policy
Non-Cooperation of Countries
Economic Dependence
Political Slavery
Unbalanced Development
Dumping
Harmful Products
International Monopolies
Reduction in Welfare of Certain Groups
 Harmful to Less Developed Countries:
Free trade is harmful for the LDC for the following reasons:
i. Competition under free trade is unfair and unhealthy. The LCD find it difficult
to compete with the economically advanced countries.
ii. Under free trade, gains of trade are unequally distributed depending upon the
level of development of different countries. The terms of trade are favourable
for the developed countries, and unfavourable for the poor countries.
iii. LDC generally experience unfavourable balance of payments.
iv. Free trade policy adopted by the British government in India led to the
destruction of Indian cottage and small scale industries.
v. The LCD cannot protect their infant industries under the policy of free trade.
vi. Free trade may endanger economic and political independence of the backward
nations.
Arguments against free trade

 Jobs arguments
 Unfair competition argument
 Strategic protection argument
 Infant industry argument
 Advantages not for LDC s
 Destruction of home industries / products
 Inefficiency becomes perpetual.
 Danger for overdependence.
 Penetration of harmful foreign goods
1. Jobs argument

 One of the main arguments against free trade is that, when trade
introduces lower cost international competitors, it puts domestic
producers out of business.
 While this argument isn't technically incorrect, it is short-
sighted.
 When looking at the free trade issue more broadly, on the other
hand, it becomes clear that there are two other important
considerations.
 .
 First, the loss of domestic jobs is coupled with reductions in
prices of goods that consumers buy, and these benefits shouldn't be
ignored when weighing the trade offs involved in protecting
domestic production versus free trade.
 Second, free trade not only reduces jobs in some industries, but
it also creates jobs in other industries. This dynamic occurs both
because there are usually industries where the domestic producers
end up being exporters (which increases employment) and because
the increased income held by foreigners who benefited from free
trade is at least partly used to buy domestic goods, which also
increases employment.
2. Unfair competition argument

 People often like to point out that it's not fair to allow competition
from other nations because other countries don't necessarily play by
the same rules, have the same costs of production, and so on.
 These people are correct in that it's not fair, but what they don't
realize is that the lack of fairness actually helps them rather than hurts
them.
 Logically, if another country is taking actions to keep its prices low,
domestic consumers benefit from the existence of low-priced
imports.
 3. Infant industry argument
 In some industries, pretty significant learning curves exist such that
production efficiency increases rapidly as a company stays in business longer
and gets better at what it is doing. In these cases, companies often lobby for
temporary protection from international competition so that they can have a
chance to catch up and be competitive.
 Theoretically, these companies should be willing to incur short-term losses if
the long-term gains are substantial enough, and thus shouldn't need assistance
from the government.
 In some cases, however, companies are liquidity constrained enough that it
can't weather the short-term losses, but, in those cases, it makes more sense for
governments to provide liquidity via., loans than to provide trade protection.
4. Strategic protection arguments

 Some proponents of trade restrictions argue that the threat

of tariffs , quotas, and the like can be used as a bargaining chip in
international negotiations.
 In reality, this is often a risky and unproductive strategy, largely
because threatening to take action that is not in a nation's best
interest is often viewed as a non-credible threat.
5. Sub standard working conditions & low wages
 Cheap production often comes at a high human cost. To save
labour and production costs companies often move their
production to “less developed” countries, and capitalise/exploit on
the lack of labour protection laws there.
 Local workers are often forced to work under dangerous and in
humane conditions. One of the most severe examples of this was
the collapse of a garment factory in Bangladesh in 2013, which
had produced clothing for European companies (amongst others).
 In addition, workers are often forced to work for extremely little
pay and in the most severe cases even include child labourers.
6. Free trade is Bad for environment
 Production requires resources and through free trade companies gain
access to the natural resources of other countries.
 In “less developed” countries vigorous environmental protection laws
are often lacking, which allows companies to use fast harvesting
methods, such as clear cut-logging, which are 
harmful to the environment and very unsustainable.
 The vigorous exploitation leads to a depletion of resources, which has
severe negative long-term effects on the local environment. It also
means that the resources are no longer available for the local
population, leading to negative impacts on the local economy.
7. Advantages not for LDC s
 Free trade may be advantageous to the advanced countries but
not to the backward economies.
 Free trade has brought enough misery to the poor, less
developed countries, if past experience is any guide.
 India was a classic example of colonial dependence of UK’s
imperialistic power prior to 1947.
 Free trade principles have brought colonial imperialism in its
wake.
8. Destruction of home industries /
products
 it may spoil or destroy domestic industries.
 Because of free trade, imported goods become available at a cheaper price. Thus, an
unfair and cut-throat competition develops between domestic and foreign industries.
 In the process, domestic industries are wiped out.
 Indian handicrafts industries suffered tremendously dining the British regime.
9. Inefficiency became perpetual

 Free trade cannot bring all-round development of industries. Compara­tive cost principle states
that a country specializes in the production of a few commodities.
 On the other hand, inefficient industries remain neglected.
 Thus, under free trade, an all-round development is ruled out.
10. Danger for over dependence

 free trade brings in the danger of dependence. A country may face economic depression if its
international trading partner suffers from it.
 The Great Depression that arose in 1929-30 in the US economy swept all over the world and all
countries suffered badly even if their economies were not caught in the grip of the then
Depression.
 Such overdependence following free trade also becomes catastrophic during war.
11. Penetration of harmful foreign goods

 Finally, a country may have to change its consumption habits. Because of free trade, even
harmful commodities (drugs, etc.,) enter the domestic market.
 To prevent such, restrictions on trade are required to be imposed.

 In view of all these arguments against free trade, governments of less developed countries in the
post-Second World War period were encouraged to resort to some kind of trade restrictions to
safeguard national interest.
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