Question

Explain the benefits and drawbacks from trade. Why might a country decide to limit trade? As an economist, would you recommend free trade? Your answer should take approximately 1 page and draw from the material in Week 1. The proper formatting is as follows: 12 point Times text, double spaced, 1" margins. You must cite all references. Failure to cite a reference will result in a zero on the entire exam

Answer 1

Benefits-

• It fosters economic growth- Even when some restrictions such as tariffs are applied, all nations engaged tend to realize enhanced economic growth.
• It aids consumers- Trade restrictions such as tariffs / quotas are executed to protect local firms. When trade restrictions are eliminated, customers tend to experience lower price levels as more goods imported from nations with lower labor expenses become available at the local level.
• It augments foreign investment- When not encountered with trade restrictions, international investors tend to put funds into local firms aiding them expand and compete. Additionally, several developing and isolated nations advantage from an influx of funds from American investors.

• It stimulates technology transfer- In addition to human expertise, domestic firms get access to the latest techniques invented by their multinational partners.

Drawbacks-

• It causes employment loss thru outsourcing- Tariffs tend to avoid job outsourcing by keeping commodity pricing at competitive levels. In absence of tariffs, commodities imported from foreign nations with lesser wages cost less. Whilst this may be seemingly good for customers, it makes it difficult for local firms to compete, compelling them to lessen their workforce.
• It encourages theft of IP- Several foreign governments, specially those in developing nations, usually fail to take IP rights seriously. Without the protection of patent laws, firms usually have their innovations & new techniques stolen, compelling them to compete with lower-priced locally-made fake goods.
• It permits poor working conditions- Likewise , governments in developing nations seldom have laws to regulate & safeguard safe / fair working conditions. As free trade is partly dependent upon a lack of governmental restrictions, females & children are usually compelled to work in factories carrying out heavy labor under poor working conditions.

• It can harm the environment- Emerging nations have limited, if any environment protection rules. As several free trade opportunities comprise the exporting of natural resources such as iron ore, clear-cutting of woods & un-reclaimed strip quarrying usually devastate local environments.

A nation may decide to limit trade as free trade causes employment loss thru outsourcing. We would recommend free trade as it fosters economic growth , aids customers, .augments foreign investment.