Free Trade is the policy of international trade.

1. FREE TRADE
 MEANING
 ADVANTAGES
 DISADVANTAGES
BY
S.SHIVADHARSHINI
III-B.COM-”G”
215105739

2. MEANING
 The act of opening up economies for trading is known as free trade
or trade liberalization.
 This is done by bringing down trade barriers like tariffs.
 Trade liberalization also allows goods and services from everywhere
to compete with domestic products and services.

3. ADVANTAGES OF FREE TRADE
 International specialisation
 Increase in world population and
world consumption.
 Safeguard against the advent of
monopolies
 Links with other countries
 Higher earnings of the
production
 Benefits to consumers
 Higher efficiency and optimum
utilisation of resources
 Evil effects of protection

4. INTERNATIONAL SPECIALISATION
 It enables the different countries to produce goods that have comparative
advantage.
 International trade enables countries to obtain the advantages of
specialisation.
 A great variety of products may be obtained.

5. INCREASE IN WORLD POPULATION
AND WORLD CONSUMPTION.
 International trade permits an industry to take full advantages of the economies of
large-scale production.
 If certain goods were produced only for the home market, it would not be possible to
achieve the full advantage of large-scale production.
 So, free trade increases the world production and the world consumption of
internationally traded goods.

6. SAFEGUARD AGAINST THE ADVENT
OF MONOPOLIES
 The home market may exercise some control over the similar products .
 E.g. motor cars, paper and electrical goods,
 Free trade is often an efficient way of breaking up domestic monopolies.

7. LINKS WITH OTHER COUNTRIES
 International trade and commercial relations often lead to an interchange of
knowledge, ideas and culture between nations.
 This often produces a better understanding among those countries.
 It leads to amity and reduces the possibility of commercial rivalry and war.

8. HIGHER EARNINGS OF THE
PRODUCTION
 As they are engaged in the production of those goods in which the country has
comparative advantage.
 Free trade increases the earnings of all the factors .
 It would increase the productivity of each factor.

9. BENEFITS TO CONSUMERS
 The consumers of the different countries get the best quality foreign goods, often
of a wider range of choice, at low prices.
 Free trade stimulates home producers, who face to foreign competition, to put
forth their best effort and thus increase managerial efficiency.
 The resources (both human and material) of each country are utilised in the best
possible manner.
HIGHER EFFICIENCY AND OPTIMUM
UTILISATION OF RESOURCES

10. EVIL EFFECTS OF PROTECTION
 Free trade is also advocated because it can remove the evil effects of
protection such as high prices, growth of monopolies, etc.
 It is also immune from such abuses as ‘corruption and bribery’
 It also prevents the creation of vested interests which often arise under a
protectionist system.

11. DISADVANTAGES OF FREE TRADE
 Excessive Dependence.
 Obstacles to the Development of the Home industries.
 Empire – Builder.
 Import of Expensive Harmful goods.
 Rivalry and Friction.

12. EXCESSIVE DEPENDENCE
 As a country depends too much on foreign countries, an outbreak of war may
upset its economy.
OBSTACLES TO THE DEVELOPMENT OF
THE HOME INDUSTRIES
 If foreign goods are imported freely, the domestic industries of the developing
countries would not be able to develop rapidly .

13. EMPIRE – BUILDER
 Under free trade, the foreign traders particularly the dominant ones may try to become
empire-builders in future.
 In the past free trade gave rise to colonialism and imperialism.
IMPORT OF EXPENSIVE HARMFUL
GOODS
 A country may also import expensive and harmful foreign goods.

14. RIVALRY AND FRICTION
 Finally, free trade sometimes creates rivalry and frictions among the trading
nations.
 In other words, commercial rivalries resulting from trade often lead to war.

15. CONCLUSION
 At present times, no country in the world follows the policy of free trade.
 Every country imposes some restrictions on the import and the export of goods
in the broader interest of the country.
 Finally, as T. Scitovsky has pointed out, free trade can be shown to be beneficial
to the world as a whole but has never been proved to be the best policy for a
single country.