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5. Competition:
Free trade policy encourages competition from abroad which induces domestic producers to
become more alert and improve their efficiency.
6. Restricted exploitation:
Free trade prevents growth of domestic monopolies and consumers exploitation due to
competition from abroad.
7. Greater welfare:
Free trade permits large varieties of consumption goods and improves consumers welfare.Thus,
free trade is the best commercial policy.
Disadvantages
1. Not level playing field - . Free trade policy runs smoothly if all the countries follow the
same. If some countries do not adopt it, the system cannot work gainfully.
2. Unfavourable terms of trade - Free trade may prove advantageous to developed and
technologically advanced nations, but less developed countries are certainly at a
disadvantage on account of unfavourable terms of trade.
3. Unhealthy competition - Competition induced under free trade is unfair and unhealthy.
Backward countries cannot compete with advanced countries.
4. Unequal distribution - Gains of trade are not equally distributed under free trade due to
unequal state of development of different countries.
5. Free trade policy void - A country with unfavourable balance of payments finds it
difficult to overcome this situation under free trade policy.
6. Self-reliance - Free trade may encourage interdependence and discourage selfsufficiency. But, in the matter of defence each country should have self-reliance and selfsufficiency as far as possible.
Protective trade
Protectionism is the economic policy of restraining trade between states (countries) through
methods such as tariffs on imported goods, restrictive quotas, and a variety of other government
regulations designed to allow (according to proponents) fair competition between imports and goods
and services produced domestically.
The potential for corruption: Putting administrative controls might also lead to corruption.
Increased costs of production due to lack of competition: Constant protection to the domestic
producers and lack of competition propagates inefficiency and lack of initiative to control cost.
Higher prices for domestic consumers: As we can see due to tariffs and quotas domestic
consumers end up paying more.
Increased costs of imported factors of production: Imported goods become expensive which
might also lead to imported inflation.
Reduced export competitiveness: Continuous protection to domestic industries (such as
subsidies) might make them inefficient in terms of cost and technology. In the long run they
might become uncompetitive in the exports market.
Short Term Impact - If protectionism is use for short term as a protective measure it can give
following advantages.
Long term Impact - In long-term, protectionism has lots of disadvantages or threats for home
industry.
Conclusion
Perhaps the most important policy issue of an international trade course is to answer the question
Should a country pursue free trade or some type of selected protection? The reason is that both
free trade and selected protection have both positive and negative aspects. No one policy choice
is clearly superior. Nonetheless, economists who have studied trade theory and policy tend to
support free trade more.