HUDU MUBARIK BAWAH

GROUPE 1

FREE TRADE

DEFINITION:

Free trade can be defined as the unrestricted purchase and

sale of goods and services between countries without the
imposition of constraints such as tariffs, duties and
quotas. In this regard, a government of a country does
not discriminate against imports or interfere with exports.
Free trade empowers markets to make the final decisions on
international economic life. Protected trade, or international
trade dominated by the state, empowers political actors to
be the final arbiters of international economic life.

FEATURES OF FREE TRADE

 Trade of goods without taxes (including tariffs) or other trade

barriers (e.g., quotas on imports or subsidies for producers)

 Inability of firms to distort markets through government-

imposed monopoly or oligopoly power

 Globalism - In an economic sense, the states of the globe are

irrelevant, only the demands of the global market has any
economic relevance ,under free trade, the globe becomes
progressively smaller as corporations and bankers serve a
global, rather than a national, market.

 Trade agreements, which encourages free trade - Markets are

based on contracts between buyers and sellers. Free contracts
are an important characteristic of free trade. Protected trade,
on the other hand, is international economic activity
controlled, at least in part, by the state

 Unregulated access to market information.

HUDU MUBARIK BAWAH
GROUPE 1

ADVANTAGES OF FREE TRADE

 Higher Levels of Investment Capital. With new capital entering

a developing country, it begins an upward productivity cycle
that stimulates the entire economy.

 Free trade drives competitiveness. Free trade does

require businesses and workers to adapt to the shifting
demands of the worldwide marketplace. Thus leading to
critical competitions.

 Cheaper goods and materials can be bought easily from foreign

suppliers 

 Less child labour. Free trade allows companies to invest in

equipment and pay higher wages to adult workers through
foreign investment. With higher family incomes, children are
able to attend school rather than work.

 Easy and quick access to New Markets.

DISADVANTAGES OF FREE TRADE

 Harmful Products: Under free trade, injurious and harmful

products may be produced and traded. Trade restrictions are
necessary to check the import of such products.

 Dumping: Free trade may lead to cutthroat competition and

dumping. Under dumping, goods are sold at very cheap rates
and even below their cost of production in order to capture the
foreign markets.

  Prevents infant industries in a country from developing as it won't

have economies of scale like larger firms abroad making it harder
for them to compete on price

 Loss of jobs in countries

HUDU MUBARIK BAWAH
GROUPE 1