Perhaps the most significant issue on policies within the subject of international trade is answering the question of whether a specific state should practice free trade or any other kind of selected protection. This debate has been in place for the past century as different interest groups be it the government, academics, policy analysts, philosophers and legislators try to figure out the best policy to apply in a country. In light of this debate, this paper will compare the two trade policies and give recommendations on the preferred policy according to the research carried out. The main reason for this stalemate is that both free trade and protected trade have aspects that are both positive and negative. Even though no policy choice is superior to the other, free trade is seen as a better form of trading as compared to protectionism (Love and Ralph, 2009). As it stands, economists under trade theory and policy lean on the side of free trade more than any other debatable economic policy under open thought. Most people are not in full awareness of the reasons for this near consensus. This paper explains the economic case for free trade as the most pragmatic policy choice a government can pursue.
Free trade in the most general term is the international trade (exchange of goods and services but not of capital and labour) left unhindered to run its natural course without the interference of high tariffs, non tariff barriers like quotas, unilateral or onerous processes or any other restriction to free trade (Suranovic, 2010). In this system, a government within a particular state does not show favoritism against imports or get in the way of exports by applying unnecessary tariffs (to imports) or even subsidies (to exports) and in other cases issuing quotas. In accordance with the law of comparative advantage, this policy allows trading parties to benefit mutually from trade of goods and services. Under the World Trade Organization (WTO) treaty signed in 1995 by 124 countries, there is a systematic process of cutting back tariffs by an average of 40% within a fixed time period (Suranovic, 2010). The Wealth of Nations, published by Adam Smith led so many people to supporting free trade among countries (Love and Ralph, 2009). Paul Krugman even said that if there was to be an economists’ prayer, it would have the words “I advocate free trade”.
In this time and age, with the vigorous market globalizations, developing and already developed nations have really embraced free trade policy as the best means for reduction of consumer prices and opening up markets (Suranovic, 2010). Despite this advantage to any nation, the policy has been criticized by human rights organizations as being the worst in terms of degrading the rights of workers and its harmful effects to the environment. It is clear that the many benefits of the free trade may mask the unintended effects. However, ways to mitigate these issues are perceived as protectionism (Suranovic, 2010). By definition, protectionism is the intentional practice by governments to control government industries and the labour force through provision of subsidies for their produce and imposition of tariffs against any competing foreign commodities. Even if local industries are safe from external exploitation, the policy has been charged for the closure of trade from foreign nations, increase in prices and limiting choices for domestic consumers in terms of commodities and services. A nation that carries out protectionism practices may easily be subjected to the same by other nations that may impose their own import tariffs and award subsidies to their own industries in the country (Love and Ralph, 2009). Therefore this practice is clearly not healthy for industries.
In conclusion, free trade involves agreements between countries to drop any form of import barriers so that foreign goods and services are allowed to compete on a level ground with the local products. This not only opens up markets for the less developed countries but also improves the economic conditions of the trading partners. Here, jobs are easily created as every countries interest is represented (Suranovic, 2010).