Freed trade is a trade policy that does not restrict either imports or exports. It is applied to international trade. The trade is carried out without quotas, tariffs and other restrictions.
It is meant to raise the economy of both developed and developing nations. However, it can also have negative impacts on the nations. The trade is carried out without tax being imposed on the goods.
Pros of Free Trade
- Increased economic growth
Free trade increases the economic growth of a country as it will be able to import and export a lot of goods freely hence the country will be in a position to benefit from its surplus and the money may be used in other areas of the economy.
- Technology transfer
There will be a transfer of technology from developed countries to developing countries and this will improve the services being provided in the countries hence the high rate of production.
- Foreign direct investment
Other countries will be able to invest in the trade as they will have the market for the goods that are produced in their countries hence making use of the raw materials in their country.
Other countries will be able to get expertise from other countries hence improving their production rate and the quality of the goods that are produced hence benefiting from other countries’ expertise.
- Lowers government expenditure
Many governments support the local industries. When the trade barriers have been removed, they will be able to use the money in other areas of the economy hence lowering its expenditure.
- Improved business climate
When there are no trade barriers, the country may benefit from trading with other nations as there will be different climate and they are bound to improve on the production of their goods as they will be able to interact with other business people from other countries.
- Production of high-quality goods
There will be competition in the market and each country will strive to produce good quality goods so that they may attract many customers hence high-quality goods in the market.
Many countries will get an avenue to advertise their goods and that will make them be known in the market hence easy to boost their sales.
Cons of Free Trade
- Reduced revenue
The government will not be able to benefit from the taxes that are imposed on imports hence the revenue of the country will reduce.
- Erosion of cultures
As trade goes on, people from different nations will meet and share different cultures of which in the end some will adopt cultures from different nations hence the cultures may be eroded.
- Overusing of natural resources
When there is free trade, a lot of traders will be allowed in the country and this may end up causing the natural resources such timber and minerals being overused as each and every trader will strive to benefit from the resources which will at the end affect the environment.
- Poor working conditions
The workers from developed countries will seek employment from developing countries and this will make them suffer from being subjected to poor working conditions and less pay hence affecting them financially and emotionally.
- Small industries may not compete
When there is free trade, people will tend to concentrate on the big industries and the emerging industries may not come up hence affecting their emergency hence affecting the economic growth of the country.
- Theft of intellectual property
The other countries will be able to steal information from other countries without necessarily paying the intellects to give them the information hence theft of intellectual property.
- Massive job losses
When the trade is free, certain domestically produced goods may not have a market hence the domestic industries will have to shut down due to insufficient workforce hence massive job losses.
- Importation of illegal goods
When there is free trade, some goods that are not allowed in the country will be brought in and the members of the public may use them which will, in turn, affect their health.
Many countries come together and remove trade barriers on their goods in order to promote trade in their countries but it also comes with its own effect as the emerging industries will face challenges and they will not be able to come up due to competition from the already developed industries.