Introduction
Free trade is a free market idea that is applicable to global trade and it is advocated by political parties and hold various economic positions. Historically, free trade was known to have increased from 1815 up to the outbreak of the World war. Trade openness experienced significant increase during 1920s.The broad and wide consensus made by economists is that free trade has a positive impact to the economy. Under this policy, each country can freely devote their factors of production such as capital and labor, and this is considered a benefit to the country. According to economics, removal of barriers of trade would lead to gain in human welfare and gain of consumers in the market since commodities are purchased at low cost. I shall discuss the advantages that are correlated to free trade. It also implies that countries can import or export commodities without trade barriers such as importation duties and tariffs.
Advantages of Free Trade
The comparative advantage-Free trade would result to a comparative advantage where countries starts specializing on a certain commodity which would therefore result into, I increase in economic welfare of citizens among each country (Krugman, 98). The comparative advantage gives countries ability to sell commodities at low price than their competitors which would therefore increase sales margins (Baier& Bergstrand, 45). Comparative advantage lowers the opportunity cost as argued by economists.
Free trade leads to creation of trade. This occurs when consumers switch from high cost producers to low cost of producers. This is evidenced by the fact that removal of tariffs leads to low prices which thereby increasing consumer surplus. Free trade will automatically lead to significant increase in imports and exports (Krugman, 45).
Sako, (23) claimed that increase in competition. More trade means domestic firms would face a lot of competition from the international firms thereby they will have incentive to cut cost which will eventually increase efficiency. It prevents domestic monopolies from charging unfair prices for consumers. Efficiency in production will result to high quality in production.
Tariffs may sometimes encourage inefficiency in the market. Tariffs hinders firms and companies from cutting costs of production. This will lead to economic inefficiency since it increases prices of goods and services that are imported which causes consumption to be expensive. In other words, consumers tend to buy goods at a relative high price which causes disequilibrium. Under free trade, consumption is encouraged since the prices tend to fall making consumers purchase at low prices. It plays a major role in helping the productivity of workers in firms and making inefficient companies die which would therefore lead to efficiency.
Economies of scale result when countries specialize in production of certain commodities or goods lowering average costs especially for industries with high fixed costs. The importance of economies of scale is that it provides a framework for low prices. This will automatically lead to significant increase in consumption. However, exporting firms would have advantage because of cheaper prices for their commodities (Dean& Kimmel, 78).
Surplus raw materials are put into use. Trade is the key driver for development of nations around the world. The raw materials available are made into use since they are traded with other countries. Looking to a country like Qatar, which is rich in oil reserves as the raw materials. If trade did not exist, it would be meaningless for the country to have raw materials. With trade, the raw materials are a beneficial factor since it aids in growth of GDP of a country (Eisen, & Mormann, 129).
Increased number of goods to be exported since number of industries and firms have increased. The comparative advantage will result to significant improvement in the welfare of the society. Lower tariffs on exports of commodities will result to high quantity of exports which would therefore lead to job creation. Increased employment opportunities will reduce level of poverty among people therefore economic growth (Doan & Xing, 156).
Trade is a factor of growth; this is according to world trade organization (WTO) which has recorded significant economic growth which are related to free trade. Trade contributes more than 50% of economic growth globally. Through trading, technical SMEs such as traders are recognized and promoted through reduction of tariffs and other trade barriers. (Gallagher& Robinson, 132).
Hybrid SMEs are one of the beneficiaries since they are given chances for innovation of different in the markets. This improves the quality of goods to be exported.
Instructional SMEs plays an important role in educating the emerging SMEs on the technique of innovation. Free trade promotes the instructional SMEs because they are given promotion by receiving various awards.
Conclusion
Free trade is a beneficial factor to any given country and should be encouraged by the government. More trade policies should be developed and implemented if valid. This will ensure more developments therefore better environment for trade.
Works Cited
Baier, S. L., & Bergstrand, J. H. (2017). Do free trade agreements actually increase members’ international trade? Journal of international Economics, 71(1), 72-95.
Dean, A., & Kimmel, S. (2019). Free trade and opioid overdose death in the United States. SSM-population health, 8, 100409.
Doan, T. N., & Xing, Y. (2018). Trade efficiency, free trade agreements and rules of origin. Journal of Asian Economics, 55, 33-41.
Eisen, J. B., & Mormann, F. (2018). Free Trade in Electric Power. Utah L. Rev., 49.
Gallagher, J., & Robinson, R. (2019). The imperialism of free trade. The Economic History Review, 6(1), 1-15.
Krugman, P. R. (2017). Is free trade passé? Journal of economic Perspectives, 1(2), 131-144.
Sako, M. (2019). Free trade in a digital world. Communications of the ACM, 62(4), 18-18.