FREE TRADE AND PROTECTION

FREE TRADE AND PROTECTION

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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