Question

Few countries truly practice free trade. Yet, most economists continue to argue that free trade is a desirable policy . This rests on 2 main arguments. First, is the case for the efficiency gains from free trade that is basically the cost-benefit analysis . Second - many economists believe that free trade produces far more gains that go beyond the cost -benefit analysis. What are your thoughts, and what might be some of the gains that go beyond the cost-benefit analysis?

Answer 1

A free trade agreement is a pact between two or more nations to reduce barriers to imports and exports among them. Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.

The concept of free trade is the opposite of trade protectionism or economic isolationism.

In the modern world, free trade policy is often implemented by means of a formal and mutual agreement of the nations involved. However, a free-trade policy may simply be the absence of any trade restrictions.

A government doesn't need to take specific action to promote free trade. This hands-off stance is referred to as “laissez-faire trade” or trade liberalization.

Governments with free-trade policies or agreements in place do not necessarily abandon all control of imports and exports or eliminate all protectionist policies. In modern international trade, few free trade agreements (FTAs) result in completely free trade.

Few issues divide economists and the general public as much as free trade. Research suggests that faculty economists at American universities are seven times more likely to support free-trade policies than the general public. In fact, the American economist Milton Friedman said: “The economics profession has been almost unanimous on the subject of the desirability of free trade.”

Free-trade policies have not been as popular with the general public. The key issues include unfair competition from countries where lower labor costs allow price-cutting and a loss of good-paying jobs to manufacturers abroad.

The call on the public to Buy American may get louder or quieter with the political winds, but it never goes silent.

European Union is a notable example of free trade today. The member nations form an essentially borderless single entity for the purposes of trade, and the adoption of the euro by most of those nations smooths the way further. It should be noted that this system is regulated by a bureaucracy based in Brussels that must manage the many trade-related issues that come up between representatives of member nations.

A Cost benefit requires that all costs and benefits be identified and appropriately quantified.Additionally, the ambiguity and uncertainty involved in quantifying and assigning a monetary value to intangible items leads to an inaccurate cost benefit analysis.

So the efficiency gain from free trade policy is the cost benefit analysis.