Economics – International trade and globalisation - Specialisation and free trade | e-Consult

Definition of Free Trade: Free trade refers to a system where goods and services can be bought and sold between countries without government restrictions such as tariffs, quotas, or other barriers. It's based on the principle of minimal government intervention in international commerce.

Potential Benefits:

• Increased Consumer Choice: Free trade allows consumers access to a wider variety of goods and services from around the world, often at lower prices. This increases consumer welfare.
• Economic Growth: Countries can specialize in producing goods and services where they have a comparative advantage. This leads to increased efficiency, higher productivity, and overall economic growth. Exports generate revenue and create jobs.

Potential Drawbacks:

• Job Losses in Protected Industries: Domestic industries that are unable to compete with cheaper imports may face job losses. This can lead to social and economic hardship for workers in those sectors.
• Increased Competition: Domestic firms face increased competition from foreign firms, which can put pressure on profits and potentially lead to business failures. This requires firms to innovate and become more efficient.