Importance of Free Trade

By | December 24, 2016

Free Trade is a theory in Economics that revolves around the analysis and the functions, pertaining to import & export of goods without any restrictions. Many countries engage in free trading for ensuring their residents gets adequate consumers goods and/or economic resources to meet their wants and needs. This concept has its foundation in the theory of comparative advantage that got propagated during the beginning of the 19th century by British economist, David Ricardo.

importance of free trade

Dr. Ricardo advocated the concept of free trading with its foundation on the comparative benefit. Comparative benefits come up in instances a country can produce more goods than others. In such instances, the country with higher production can export the excess goods to other nations that have restricted the availability of such goods and products. Free trade influences the style of utilizing financial resources in the production of consumer goods. If a country has limitations on the availability of specific economic resources, it can export it to other nations that can transform it into consumer goods or higher valuation.

Free Trade policy assists nations to develop the worthiest economic policies for its residents

Organizations that are ready to meet customer demand for different items will explore the resources and goods, coming for the modest rates to enhance the volume of supply
Countries that adopt this policy allow businesses to import goods and resources from foreign countries. Businesses in such countries never face government restrictions or require paying taxes & duties for the import they make.

Also read: Importance of education

Opens up new market

The biggest benefit in adopting free trade policy is that it opens up new markets for businesses. Depending on the availability of resources and competency of the countries to process the resources, automatically the resources will flow to those parties that have the bets framework to produce the goods. In course of this movement, the process creates new markets for resources and finished products.

Benefits related to Wage

Countries can generate more job opportunities, adopting the Free Trade policy. As this policy fosters better flow of resources and goods, it automatically boosts the economy of the country. In addition, the availability of more resources and goods enhances the propensity of the consumers to avail the products. This creates more demand for the resources and the finished goods. As this policy gets a few nations a competitive edge for their ability to produce the goods, companies can charge higher prices that bring drastic improvements in their book profits. Businesses can significantly boost their revenues and eventually, it brings improvements in the wage standards. Companies get to a position wherein it can offer better compensation packages as well as more benefits to its employees.

Free trade paves the way for improvements in the standard of living

Countries can enhance the standard of living for its residents when it adopts the Free trade policy. This policy paves the way for the modest-priced goods to come into the market. Low consumer price boosts the purchasing power of the consumers. As the purchasing power rises, consumers can purchase goods in higher volumes, putting a lesser amount of money. It not only paves the way for improving the standard of living but, it produces better national economic development that comes through the rise in the volume of consumer purchases.

Eradicates child labor

In developing countries, child labor is a social trauma and it degrades the standard of living. As free trade fetches wage benefits, workers would have more money in their hands. Hence, you will not send their children to work for the sale of extra earning. On the other hand, as workers will have more money in their hands, they can use the fund for financing the education of their children.

A commonly hold misconception on Free trade is that it reduces the volume of jobs inside the country from the enhancement in the volume of the goods imported from foreign countries. This theory is held by the conservatives and it holds more detrimental effects, outstripping any advantages of saving jobs. This conservative approach on free trade results in a sharp rise in the consumer price index. It is for the reason that countries will not get the supply of the economic resources at the modest rates to produce goods.  Likewise, businesses will get compelled for paying higher wages to get the manual jobs done that also contributes to the enhancement of consumer price. Thus, countries should take the call in this regard, considering the pros and cons in details and their respective standing in terms of availability of resources and their competency to transform the resources to goods.

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