This document discusses free trade and protectionism in economics. It defines free trade as a policy without tariffs or other trade barriers between countries. The advantages listed include comparative cost advantage, increased factor earnings, cheaper imports, an enlarged market, competition, and greater welfare. However, the document also notes arguments against free trade such as imperfect competition and one-sided development. Protectionism is then defined as encouraging domestic industries through subsidies or tariffs on foreign goods. The document provides several economic and non-economic arguments for protectionism, such as terms of trade and infant industries, as well as defense, patriotism, and preservation of certain industries. It concludes by acknowledging some of the difficulties in assessing and implementing these policies.

1. N.DHINAKARAN
ASSISTANT PROFESSOR OF ECONOMICS
VIVEKANANDA COLLEGE
TIRUVEDAKAM WEST
MADURAI DISTRICT - 625234 TAMILNADU

2. Free Trade
• Meaning:
Free trade policy refers to a trade policy without any tariff, quantitative
restrictions and other devices obstructing the movement of goods between
countries.
Free Trade policy implies absence of any artificial restrictions on or obstacle
to the freedom of trade of a country with other nations.

3. Advantages of Free Trade
• Comparative cost advantage
• More factor earnings
• Cheaper imports
• Enlarged Market
• Competition
• Restricted exploitation
• Greater welfare
• Develops Transport and communication
• Promotes International Co-operation
• Best Policy for Economic Development

4. The Case Against Free Trade
• Laissez Faire and Perfect Competition do not Exist
• One –side Development
• Production of inferior and harmful goods
• Cut –throat Competition and dumping
• Emergence of Multinational Corporations and Monopolies
• Exploitation and Colonisation of countries
• Economic Dependence
• Business Cycle

5. Protection
• Protection is the policy of the encouraging home industries by paying bounties
(or giving subsidies) to domestic producers or more usually by imposing
customs duties on foreign products.
• The term protection refers to a policy whereby domestic industries are to be
protected from foreign competition.
• The aim is to impose restrictions on the imports of low – priced products in
order to encourage domestic industries, through imposing duties which raise the
price of foreign goods by more than the price of domestic goods.

6. Economic Arguments for Protection
• Terms of Trade Argument
• Bargaining or Retaliation Argument
• Anti – dumping Argument
• Diversification Argument
• Infant industry argument
• Promotion of Employment Argument
• Pauper labour Argument

7. Non – Economic Arguments
• Defence Argument
• Patriotism Argument
• Preservation Argument
• Difficult Decisions
• Vested Interests
• Difficulties to Remove Duties
• Monopoly Profits
• External Economies do not Exist

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