23 February 2012

Arguments for Free Trade

In theory, international trade increases the efficiency of the world by specializing in the production and exchange of comparative advantage, given certain assumptions. In other words, a country that engages in international trade has advantages in terms of two immediate improvements in living standards and economic growth. The standard of living that can be achieved is greater than would be available for a competitive economy that works without trade (autarky). In addition, it may, he political and economic advantages, in that countries become more economically independent, they are less likely to engage in hostile actions. Nevertheless, countries continue to apply a series of measures to control the amount of free trade. Why then do countries ignore the obvious benefits of free trade policies?
In developed industrial economies, the arguments for intervention in free trade are:
(I) The danger of over-specialization in a narrow range of products resulting from comparative advantage.
(Ii) The preservation or encouragement of traditional industries.
(Iii) strategic reasons, EX. defense.
(Iv) The protection of special interest groups such as the agricultural sectors.
(V) The protection of infant industries.
(Vi) Improved terms of trade.
(Vii) A countermeasure against dumping.
(Viii) the reasons for the income.
(Ix) Strategic Trade Policy.
(X) Earn externalities.
In monetary terms the costs of protection are not always obvious. In the case of the argument (ii) above, the United States for example, the cost of protection for each job in the textile industry was calculated to be approximately four times the average salary of an employee of textile . In the case of the argument (v), the automotive industry in Korea., Production of commuter aircraft in Brazil and the EU's protection of its markets and video compact discs, can be described as success in the protection of "infant industries." Such successes are rare and failure is all too common. In addition, the "infant industry" argument as a form of protection has a number of problems:
(I) The main beneficiaries of the import-substitution (infant industry) process in developing countries were foreign companies that have local behind tariff walls.
(Ii) Often the process of attracting companies participated heavy government-subsidized imports of capital goods and intermediate goods by domestic and foreign companies. In response to this problem, developed countries, and Ku in particular, have identified factors of local content, forcing many foreign companies to use a high proportion of domestic intermediates in the production of the final product of a foreign company. Without such conditions foreign companies can be simply screwdriver operations ", the import of the majority of their parts from overseas and they only put-together in the country.
(Iii) Many industries do not grow and are content to hide behind protective tariffs with governments to reduce tariffs hate.
Countries are thus faced with a dichotomy. On one hand free trade maximizes efficiency, economic welfare, and offers the possibility of economies of scale. While on the other, a certain level of protection may be "rational". Furthermore, what is done can not be economic-politically expedient, for example, the impact of trade liberalization may not affect all parts also. Consumers can receive a discount of $ 2 to $ 3 in price, but this can cause the loss of an entire industry.