CONTENTS

INTRODUCTION.................................................2
TRADE...............................................................3
FREE TRADE.......................................................4
ADVANTAGES OF FREE TRADE...........................5
DISADVANTAGES OF FREE TRADE......................6
ADVANTAGES OF FREE TRADE IN UNDER
DEVELOPING COUNTRIES..................................8
Market access to developing countries...........10
CONCLUSION...................................................11
INTRODUCTION

The English word economics is derived from the ancient Greek word oikonomia—meaning the

management of a family or a household.

Economics is a social science concerned with the production, distribution and consumption of

goods and services. It studies how individuals, businesses, governments and nations make

choices on allocating resources to satisfy their wants and needs, and tries to determine how these

groups should organize and coordinate efforts to achieve maximum output.

Economic analysis often progresses through deductive processes, much like mathematical logic,

where the implications of specific human activities are considered in a "means-ends" framework.

Economics can generally be broken down into macroeconomics, which concentrates on the

behavior of the aggregate economy, and microeconomics, which focuses on individual

consumers.
TRADE

Trade is a basic economic concept involving the buying and selling of goods and services, with

compensation paid by a buyer to a seller, or the exchange of goods or services between parties.

The most common medium of exchange for these transactions is money, but trade may also be

executed with the exchange of goods or services between both parties, referred to as a barter, or

payment with virtual currency, the most popular of which is bitcoin. In financial markets, trading

refers to the buying and selling of securities, such as the purchase of stock on the floor of

the New York Stock Exchange (NYSE).

Trade refers to transactions ranging in complexity from the exchange of baseball cards between

collectors to multinational policies setting protocols for imports and exports between countries.

Regardless of the complexity of the transaction, trading is facilitated through three primary types

of exchanges. Trades are executed with the payment of sovereign currency, the exchange of

goods and services, or payment with a virtual currency.

Money, which also functions as a unit of account and a store of value, is the most common

medium of exchange, providing a variety of methods for fund transfers between buyers and

sellers, including cash, ACH transfers, credit cards and wired funds. Money’s attribute as a store

of value also provides assurance that funds received by sellers as payment for goods or services

can be used to make purchases of equivalent value in the future.

 FREE TRADE

Free trade is the economic policy of not discriminating against imports from and exports to

foreign jurisdictions. Buyers and sellers from separate economies may voluntarily trade without

the domestic government applying tariffs, quotas, subsidies or prohibitions on their goods and

services. Free trade is the opposite of trade protectionism or economic isolationism.

In a free trade regime, both economies can experience faster growth rates. This is no different

than voluntary trade between neighbors, towns or states. Free trade enables domestic workers to

concentrate those goods and services where they have a distinct comparative advantage, a benefit

widely popularized by economist David Ricardo in his 1817 book “On the Principles of Political

Economy and Taxation.” By expanding the economy’s diversity of products, knowledge and

skills, free trade also encourages specialization and the division of labor.

Very few issues separate economists from the general public like free trade. Research suggests

faculty economists at American universities are seven times more likely to support free trade

policies than everyone else. As American economist Milton Friedman once explained, “the

economics profession has been almost unanimous on the subject of the desirability of free trade.”

Despite this, experts have largely been unsuccessful in efforts to promote free trade policies.
 ADVANTAGES OF FREE TRADE

1. Increased economic growth. The U.S. Trade Representative Office estimates that NAFTA

increased U.S. economic growth by 0.5 percent a year.

2. More dynamic business climate. Often, businesses were protected before the agreement.

These local industries risked becoming stagnant and non-competitive on the global market. With

the protection removed, they have the motivation to become true global competitors.

3. Lower government spending. Many governments subsidize local industry segments. After

the trade agreement removes subsidies, those funds can be put to better use.

4. Foreign direct investment. Investors will flock to the country. This adds capital to expand

local industries and boost domestic businesses. It also brings in U.S. dollars to many formerly

isolated countries.

5. Expertise. Global companies have more expertise than domestic companies to develop local

resources. That's especially true in mining, oil drilling and manufacturing. Free trade agreements

allow the global firms access to these business opportunities. When the multi-nationals partner

with local firms to develop the resources, they train them on the best practices.
DISADVANTAGES OF FREE TRADE

1. Unrealistic Policy:

Free trade policy is based on the assumption of laissez-faire or government non-intervention. Its

success also requires the pre-condition of perfect competition. However, such conditions are

unrealistic and do not exist in the actual world.

2. Non-Cooperation of Countries:

Free trade policy works smoothly if all the countries cooperate with each other and follow this

policy. If some countries decide to gain more by imposing import restrictions, the system of free

trade cannot work.

3. Economic Dependence:

Free trade increases the economic dependence on other countries for certain essential products

such as food, raw materials, etc. Such dependence proves harmful particularly during wartime.

4. Political Slavery:

Free trade leads to economic dependence and economic dependence leads to political slavery.

For political freedom, economic independence is necessary. This requires abandonment of free

trade.
5. Unbalanced Development:

Free trade and the resultant international specialisation lead to unbalanced development of

national economy. Under this system, only those sectors are developed in which the country has

a comparative advantage. Other sectors remain undeveloped. This results in lop-sided

development.

6. Dumping:

Free trade may lead to cutthroat competition and dumping. Under dumping, goods arc sold at

very cheap rates and even below their cost of production in order to capture the foreign markets.
ADVANTAGES OF FREE TRADE IN UNDER DEVELOPING COUNTRIES

(i) Advantages of specialisation:

Firstly, free trade secures all the advantages of international division of labour. Each country will

specialise in the production of those goods in which it has a comparative advantage over its

trading partners. This will lead to the optimum and efficient utilisation of resources and, hence,

economy in production.

(ii) All-round prosperity:

Secondly, because of unrestricted trade, global output increases since specialisation, efficiency,

etc. make production large scale. Free trade enables countries to obtain goods at a cheaper price.

This leads to a rise in the standard of living of people of the world. Thus, free trade leads to

higher production, higher consumption and higher all-round international prosperity.

(iii) Competitive spirit prevails:

Thirdly, free trade keeps the spirit of competition of the economy. As there exists the possibility

of intense foreign competition under free trade, domestic producers do not want to lose their

grounds. Competition enhances efficiency. Moreover, it tends to prevent domestic monopolies

and free the consumers from exploitation.

(iv) Accessibility of domestically unavailable goods and raw materials:

Fourthly, free trade enables each country to get commodities which it cannot produce at all or

can only produce inefficiently. Commodities and raw materials unavailable domestically can be

procured through free movement even at a low price.

(v) Greater international cooperation:

Fifthly, free trade safeguards against discrimination. Under free trade, there is no scope for

cornering raw materials or commodities by any country. Free trade can, thus, promote

international peace and stability through economic and political cooperation.

(vi) Free from interference:

Finally, free trade is free from bureaucratic interferences. Bureaucracy and corruption are very

much associated with unrestricted trade.

In brief, restricted trade prevents a nation from reaping the benefits of specialisation, forces it to

adopt less efficient production techniques and forces consumers to pay.

Market access to developing countries

 Average applied tariffs in agriculture are higher in developing countries (although most

of the very high rates, over 100%, are found in developed countries). With an increasing

share of agricultural exports directed toward other developing countries, high levels of tariff

protection in the South may impede prospects for export-led growth. This may be

particularly true for the export opportunities of low-income countries, which have increased

export market share in agriculture .

 "Open regionalism" holds the potential to stimulate global trade and improve the

efficiency of regional producers. But regional arrangements can also become a vehicle for

protection, trade diversion, and unintended inefficiency. Agreements in particular between

richer and poorer developing countries risk generating trade losses for the poorer ones when

their imports are diverted toward the richer members whose firms are not internationally

competitive. However, where regional arrangements lead to the reduction of non-tariff

barriers, trade creation is likely, and the dynamic benefits of effective regional integration in

terms of improved governance and regional stability are likely to outweigh diversion

concerns. The World Bank suggests that key conditions to benefit from expanded trade and

investment include lowering common external trade barriers, stimulating competition,

reducing transaction costs, and reinforcing nondiscriminatory investment and services

policies.
 CONCLUSION

As i conclude that “the he economic policy of not discriminating against imports from and

exports to foreign jurisdictions. Buyers and sellers from separate economies may voluntarily

trade without the domestic government applying tariffs, quotas, subsidies or prohibitions on their

goods and services. Free trade is the opposite of trade protectionism or economic isolationism.”

Essentially, free trade gives global citizens the economic freedom to maximize or advance their

economic interests as consumers, distributors and producers without government intervention.

Hence, the globalization of commerce creates entrepreneurship, economic growth and innovation

within a global society, while all protectionism, tariffs and isolation do is cause economic

stagnation, unemployment and price inflation in domestic and global economies.

BIBLOGRAPHY

Primary source:

Myneni S.R.- Principles of Economics

Secondary Source:

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