134946321 Free Trade vs Protection

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

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Introduction

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What is Free Trade o o

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What is Protectionism o o

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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

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

 The "istinction #et$een Free Trade and Protectionism

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 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.

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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

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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