Four Benefits of Free Trade


Recently there has been much debate in the news on whether the US should strip taxes imposed on imports and exports and agree to free trade terms to selected countries around the world. This has led to both positive and negative reactions. This week’s post discusses four advantages of free trade agreements, next weeks will discuss four disadvantages.

1) Increase in Productivity: When 2 countries agree on free trade it enables each country to specialize in producing commodities in which they have a comparative advantage. Specialization enables countries to capitalize on the efficiencies of within their economy and increase their output. International trade increases the potential size for each firm’s market, this in turn leads to lower average costs.

2) Efficient Productivity: Allowing free makes the allocation of recourses within an economy more efficient. This creates higher productivity and boosts the total output of goods and services.  Opening up to free trade also increases competition, which may lead to more innovation in the respective markets and new technologies.

3) Gain in Consumer Surplus: Opening up to free trade benefits every consumer as they can now obtain a larger variety of goods and services. In addition, the consumers can buy goods and services at lower costs due to increased competition and reductions to the cost of inputs.

4) Economic Growth: Countries that are involved in free trade both experience economic growth.  In terms of businesses, free trade rewards risk taking by increasing sales, profits, and market shares. Companies can now choose to increase their profits by expanding their operations in new market sectors, and creating higher paying jobs. According to Denise Froning, the average pay for a person working in a trade related job is about 15% higher than non-trade-related jobs..

 Works Cited:

 Froning, Denise. “The Benefits of Free Trade: A Guide For Policymakers.” Conservative Policy Research and Analysis. Heritage, 25            Aug. 2000. Web. 17 Nov. 2011.

 Edge, Ken. “HSC Online.” NSW HSC Online. Web. 17 Nov.

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