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Business Economics - Essay Example

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FREE TRADE AND PROTECTIONISM Macro and Micro Economics University Name Outline Introduction Advantages of Free International Trade Negative Effects of Free Trade and Protectionism Conclusion References Introduction Discussions trying to figure out what is the best: the policy of protectionism, which leads to the development of national industry, or free trade, which allows directly to compare national costs of production with international indicators, have become a subject of centuries-old dispute among economists and politicians…
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Download file to see previous pages In the mid-1960s, the international economy was prone to step away from protectionism and support more economical liberalisation; meanwhile during the next decade, quite an opposite tendency took place and various countries started to shut off from one another with the help of tariff and especially non-tariff barriers in order to secure their own inner market from foreign competition. Today’s conditions of tough competition stimulate governmental representatives to take the question of the state’s foreign-economic activity and its forms more seriously, making the right choice between two different policies that are able to exert influence on every area of government’s life. Advantages of Free International Trade The liberalisation of international economic relationships necessitates the transition to open economy having an antimonopoly character. As a rule, a lot of states are interested simultaneously in both liberalisation and protectionism. The theoretic justification of free trade policy, which is considered to be profitable for all states and nations, was formed by Adam Smith, Davis Ricardo, Francois Quesnay and others (Dunkley 2004). The movement of free trade proponents was founded in the last quarter of the 18th century in England, and it was connected with the industrial revolution. The position of English free traders was directed against agrarian duties, which supported high prices for farm commodities in the interest of large landowners (Schumacher 2012). In this respect, under the influence of customs reform, the free trade policy completely won in Great Britain in the mid-19th century and later on, the tendency and idea of free markets spread in France, Germany and Russia (Irwin 2009). In the 20th century, the principles of liberalisation were put into practice based on the performance of international organisations and regional economic unions. The policy of free trade supposes minimal governmental interference in foreign trade, which develops on a basis of free market forces of demand and supply. The main methods of free trade are dumping, which means sales of products at artificially decreased prices, and non-tariff ways of regulation, which include reviewing and standardisation. The advantages of free trade are multifaceted and have been proved with theoretical aspects as well as practical results. First of all, free trade allows improving prosperity of trading nations because it opens opportunities for international specialisation of production and exchange based on the principle of comparative advantages. The gains of international trade can be measured with the difference between profits received in the conditions of international exchange and financial results obtained with the lack of foreign trade or, as Marshall suggested, comparative analysis of producers’ and consumers’ profit levels may also evaluate benefits of free trade policy. Secondly, such foreign economic attitude mitigates the development of competition and stimulates innovations. Finally, all these consequences contribute to the improvement of product quality, which is a positive aspect for potential consumers. ...Download file to see next pagesRead More
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