Critically examine the statement that free trade promotes mutual profit, national product, and standard of living all over the globe.Free trade promotes a mutually profitable regional division of...

Critically examine the statement that free trade promotes mutual profit, national product, and standard of living all over the globe.

Free trade promotes a mutually profitable regional division of labour, greatly enhances the potential real national product of all nations and makes possible higher standards of living all over the globe.

 

Asked on by jaik1981

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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This is a classic statement of economic thinking on the effects of free trade.  Free trade is supposed to do these things because it allows each country to produce those things in which it has a comparative advantage--things for which it has lower opportunity costs than other countries.  If all countries do this, and exchange what they make, they can end up making more total goods than if they all try to produce everything.

Thinking critically about this statement, though, it is clearly possible to argue that this is an unrealistic hope, especially in the short term.  In the short term, you can argue that free trade impoverishes many people.  Americans, for example, might lose manufacturing jobs to poorer countries.  The Americans who held those jobs might not be able to get other, more high-skill jobs.  People in developing countries might get outcompeted by efficient production from the rich world.  This tends to happen to farmers in poor countries who lack the mechanization and high tech seeds and chemicals available to farmers in the rich world.

In these ways, free trade can actually end up doing a great deal of harm to some segments of the population, especially in the short term.

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