Free trade and protectionism

I. Understanding Free Trade

Free trade is the absence of barriers, such as tariffs, quotas, and regulations, that could hinder the flow of goods and services between nations.
It is the principle that goods and services should be traded across borders without any imposition from the government.
The theory of comparative advantage argues that by specialising in products and services they can produce more efficiently, countries gain from trading with each other.

II. Advantages of Free Trade

Increases efficiency: Because of specialisation, goods and services are produced more efficiently, leading to higher overall productivity.
Broadens consumer choice: Free trade allows consumers to access a variety of goods from different countries, enhancing consumer choice.
Economic growth: By opening up markets and encouraging competition, free trade can lead to economic growth and increasing living standards.

III. Understanding Protectionism

Protectionism refers to the use of restrictions on trade, typically in the form of tariffs, quotas and other trade barriers, to protect domestic industries from foreign competition.
It is motivated by a desire to protect domestic jobs, maintain economic stability, and uphold national security.

IV. Advantages and Disadvantages of Protectionism

Helps nascent industries: Also known as the infant industry argument, protectionism allows new domestic industries to grow without the pressure of foreign competition.
Preserves national identity and culture: By limiting foreign products, protectionism can help to preserve national customs, traditions and identities that may otherwise be eroded by homogenous globalised culture.
However, protectionism can lead to inefficiency as domestic industries with no competition may have no incentive to maintain efficiency and innovate.
It can also trigger trade wars as countries may retaliate with their own tariffs, leading to a decrease in global trade.

V. Balancing Free Trade and Protectionism

While free trade and protectionism have their own advantages and disadvantages, it is crucial to balance both approaches for optimal economic growth.
This balance can be achieved by adopting free trade while ensuring that safety nets are in place for industries and individuals who may be adversely affected.
International bodies like the World Trade Organization (WTO) play a pivotal role in arbitrating trade disputes and maintaining this balance in global trade.