Can International Trade Ever Really Be Free?

Authors Avatar

Can International Trade Ever Really Be Free?

Countries all over the world are endowed with diversified resources. This specific resource endowment essentially means particular countries will always possess the advantage in the production of unique goods. For example, Brazil is well known for its’ coffee production, the Middle East being the greatest oil producer, and South Africa is famous for its’ gold production. These countries have the advantage that others do not have, and this is what Adam Smith’s theory of absolute advantage is suggesting (Brooks et al 2004).

Nonetheless, when a country has an absolute advantage over another country in production of certain goods, both of them could benefit from trading those goods. This is another theory of Ricardo’s comparative advantage as Yeats (1979) states that countries will benefit from each other by specialising, that is, a country can produce certain goods at less foregone opportunity cost than other countries can. In other words, by specialisation, both countries would utilise their resources at the maximum and thus, raising the production level. Furthermore, free trade attracts international competition and hence, it stimulates the domestic firms to innovate and apply up to date technology in order to compete internationally. Consequently, both countries will be mutually beneficial. By trading internationally, poor countries could be helped out of poverty.  

Join now!

Despite all of the advantages of free trade, countries consistently constitute trade restrictions to other countries. In general, they are tariff-based policies as well as non-tariffs measured policies which constitute protectionism. The arguments against free trade go as follows:

Infant industries will likely to face fierce competition by dominant international firms from overseas and accordingly, having difficulties to start up the business since they are inevitably inefficient during the first run as they have to experience diseconomies of scale and the infant industry argument had been accepted as a valid exception to the case of free trade (Baldwin, ...

This is a preview of the whole essay