134946321 Free Trade vs Protection

March 24, 2019 | Author: UttaraVijayakumaran | Category: Free Trade, Protectionism, Trade, Exports, Mercantilism
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Free Trade vs. Protectionism A atte attemp mptt to anal analys yse e the the sign signif ific ican ance ce of Inte Intern rnat atio iona nall  Trade and its ideologies ideologies in the 21st Century

Srinivas Atreya



Introduction



What is Free Trade o o



What is Protectionism o o





India% Its Trade Policies

o

 The "evelopment of International Trade Policy in India. India&s current stance on Free Trade and ho$ the present economic policy helps in creating #etter trade relations $ith other countries of the $orld.

 The 'lo#al Perspective% !o$ the countries of the $orld tune their trade policies o



 The !istory and development of Protectionism.  The Advantages of Protectionism.

 The "istinction #et$een Free Trade and Protectionism

o



 The !istory and development of Free Trade.  The Advantages of Free Trade.

!o$ the large economies of the $orld such as the (nited States) *apan and China manage their trade policies.

Why Free trade is more popular than Protectionism in the 21st century o

An analysis as to $hy more and more countries are turning to$ards Free Trade.

2

Introduction

 Trade has right from the creation of an organi+ed mar,et #een an integral part of the economy of a -ation or usiness. -o economy #eginning $ith the early /esopotamian civilisation has survived and prospered $ithout actively ta,ing part in Trade #oth internally and $ith other foreign economies. International trade has not 0ust helped nations to develop economically #ut also gro$ socially and culturally. posure of various foreign social cultures and practices #rought for$ard #y International trade has in many instances helped economies develop as a $hole. !o$ever this concept of gaining mutual #enefit from echange of goods and service had held t$o contrasting ideologies regarding the level of control placed on trade. They are Free Trade and Protectionism. oth concepts have #een in use in one form or another from times immemorial and each hold their advantages and do$nfalls. There continues to #e a de#ate as to $hich trade policy is #etter suited in helping in the gro$th of an economy. !o$ever) li,e any economic ideology) oth Free Trade and Protectionism are dynamic concepts and each of them has had its place in history and $ith changing times and economic situations) policies of #oth ideologies have helped nations move ahead. In contemporary times) $ith rapid glo#ali+ation and the unprecedented gro$th of the $orld economy in a short period of time) Free Trade policies are preferred as they help in maintaining a steady stream of resource #oth intellectual and material to #e echanged and mutually #enefitted upon. An attempt to try and understand each aspect of these ideologies $ill never cease to eist and $ith changing situations) the applica#ility and usage of each of these concepts $ill continue to develop and change.

What is Free Trade 3It is the maim of every prudent master of a family) never to attempt to ma,e at home $hat it $ill cost him more to ma,e than to #uy...If a foreign

4

country can supply us $ith a commodity cheaper than $e ourselves can ma,e it) #etter #uy it of them $ith some part of the produce of our o$n industry) employed in a $ay in $hich $e have some advantage5. It $as this insight #y the 16th  century economist Adam Smith $hich concisely eplains the seminal principle of Free Trade. Trade is one of the most essential economic activities in the 21st century and no state can effectively

stand

to

develop

$ithout

actively

ta,ing

part

in

it.

'lo#ali+ation) especially after the Second World War has allo$ed #usinesses and nations across the $orld to mar,et their products and services $ith other economies leading to a rapid gro$th in international trade. The development of communication and travel has ushered in an era of countless ne$ trends) services and commodities all $ith endless possi#ilities. All this has resulted in a rise in human interaction and has lead to the opening up of $orld economy. Trade $ithout restrictions has #rought in the era of glo#ali+ation and human advancement.

 The main idea of free trade is that it follo$s a laisse+7faire approach) $ith no restrictions on trade and it is a type of policy that allo$s traders to act and transact $ithout interference from the government. Countries $hich engage

in

trade

internationally

$ithout

trade

#arriers

form

the

fundamental #asis for free trade. It is an esta#lished fact that 'lo#al trade allo$s countries to use their resources #e it la#our) technology or capital more efficiently. Free Trade encourages greater efficiency among local esta#lishments) leads to greater product choice) and price reductions $hile encouraging local firms to epand and eport. The main purpose of free trade agreements is to allo$ faster and more #usiness #et$een the t$o economies so that they maintain the stream of mutual #enefit.

Free Trade as a concept #ases itself on the t$o theories of the Classical theory of A#solute advantage #y Adam Smith and the Comparative Advantage Theory #y "avid 8icardo. Smith) in his study recogni+ed that fe$er the impediments to trade) the richer everyone $ould #ecome. !e critici+ed the royal charters) tariffs) 9

cartels) monopolies and his opposition to restraints on trade made Smith the progenitor of Free Trade. 8icardo epanded on the free7trade idea of Adam Smith #y eplaining $hy international trade is essential. According to him) each nation has a competitive advantage as everyone has something they do #est and if they trade $ith each other) #oth parties $ill live #etter.

Free Trade today is essential for any economy&s gro$th and survival. /aintaining international trade relations not only #rings economic #enefit #ut also #rings that economy closer to the rest of the $orld #oth socially and culturally and almost all economies in the $orld today are dependent on other economies for resources #oth human and material. The development of science and technology has made the $orld smaller in terms of travel and #etter informed in terms of information and this has led economies $hile #eing fiercely competitive to also #e cordially co7 operative. Trade mechanisms li,e the -AFTA and WT: have #een designed #y the ma0or $orld economist to help in maintaining a healthy trading relationship #et$een #usinesses or economies.

A rief !istory of Free Trade  The development of trade and its role in the development of the $orld economy is deep rooted and goes #ac, to the earliest of civilisations. The need to coeist and maintain trade relations $ith other economies for goods and services $as realised millennia ago #y the founding fathers of our great civilisations. Trade $as a ma0or component of not 0ust the economy #ut also the society and much $as at sta,e in order to maintain trade relations $ith other nations and economies. conomists $ho had advocated free trade #elieved that trade to #e the reason as to $hy certain civili+ations prospered economically. This $as illustrated #y Adam Smith $hen he pointed out that increased trading had helped in the flourishing of not 0ust the /editerranean cultures of gypt) 'reece) and 8ome) #ut also of ast India and China. ;

It $as during the medieval ages $hen uropean nations such as ngland) France and Portugal started competing and #uilding trade empires across Asia. These nations recogni+ed the potential of the valua#le spices and other eotic commodities found in India) China and other south ast Asian countries $ent after them. These traders and trading esta#lishments $ere highly

competitive

and

they

aggressively

lo##ied

against

trade

restrictions. /ost of the uropean Trade Cartels succeeded in esta#lishing massive trading ports complete $ith factories #y influencing the small ,ingdoms and their rulers using persuasive tactics and politics and amassed huge fortunes in a very short time.

!o$ever) Free Trade has held more significance from the #eginning of the 1
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