Why Countries Restrict Free Trade: Key Arguments
Arguments Against Free Trade
Free trade, though beneficial in many ways, has been criticized on several grounds. The main arguments against free trade are as follows:
Infant Industry Argument
New and emerging industries in developing countries cannot compete with well-established foreign industries. Protection through tariffs or quotas is necessary until these industries become strong and efficient.
Unemployment
Free trade may lead to closure of domestic industries that cannot compete with cheaper imports, resulting in unemployment and loss of livelihoods.
Dumping by Foreign Countries
Foreign firms may sell goods at very low prices (below cost) to capture the domestic market. This practice can destroy local industries.
Economic Dependence
Excessive reliance on foreign countries for essential goods can make a nation economically dependent and vulnerable during wars or global crises.
Balance of Payments Problems
Free trade may increase imports more than exports, leading to an adverse balance of payments.
National Defense
Certain strategic industries are vital for national security. Free trade may weaken these industries if they are overtaken by foreign producers.
Unequal Competition
Developed countries with advanced technology and capital can outcompete developing countries, leading to unequal gains from trade.
Loss of Government Revenue
Free trade reduces tariff income, which can be an important source of revenue for developing countries.
Cultural and Social Issues
Free trade may encourage foreign influence and consumerism, harming local culture and traditional industries.
Conclusion
While free trade promotes efficiency and global welfare, these arguments highlight the need for selective protection, especially for developing economies.
If you want, I can also write this as a 7.5-mark exam answer or short notes format.
Arguments Against Free Trade
Free trade, though beneficial in many ways, has been criticized on several grounds. The main arguments against free trade are as follows:
Infant Industry Argument
New and emerging industries in developing countries cannot compete with well-established foreign industries. Protection through tariffs or quotas is necessary until these industries become strong and efficient.
Unemployment
Free trade may lead to closure of domestic industries that cannot compete with cheaper imports, resulting in unemployment and loss of livelihoods.
Dumping by Foreign Countries
Foreign firms may sell goods at very low prices (below cost) to capture the domestic market. This practice can destroy local industries.
Economic Dependence
Excessive reliance on foreign countries for essential goods can make a nation economically dependent and vulnerable during wars or global crises.
Balance of Payments Problems
Free trade may increase imports more than exports, leading to an adverse balance of payments.
National Defense
Certain strategic industries are vital for national security. Free trade may weaken these industries if they are overtaken by foreign producers.
Unequal Competition
Developed countries with advanced technology and capital can outcompete developing countries, leading to unequal gains from trade.
Loss of Government Revenue
Free trade reduces tariff income, which can be an important source of revenue for developing countries.
Cultural and Social Issues
Free trade may encourage foreign influence and consumerism, harming local culture and traditional industries.
Conclusion
While free trade promotes efficiency and global welfare, these arguments highlight the need for selective protection, especially for developing economies.
If you want, I can also write this as a 7.5-mark exam answer or short notes format.