There are many advantages of free trade. It can solve some of the worlds most serious problems. Here we will outline why free trade should be celebrated. We also challenge some of the misconceptions about free trade.
What are the benefits of free trade?
- Free trade keeps prices lower for consumers.
- Tariffs and other protectionist measures add costs which companies pass on to consumers.
- Free trade also allows for greater economies of scales, lowering prices further.
- Free trade reduces poverty.
- Free trade helps poor countries to catch up with rich ones. Being open to trade makes this process go faster. WTO “Free trade helps reduce poverty, says new WTO secretariat study” (https://www.wto.org/english/news_e/pres00_e/pr181_e.htm)
- Faster economic growth in poor countries helps to reduce poverty.
- Free trade promotes peace.
- Since a series of agreements after WWII, cooperation in global trade has increased.
- Greater global cooperation on trade encourages countries to work together and makes war less likely.
Misconceptions about free trade
Free trade can only be supported by the right
Not true. As we have outlined above, free trade has many benefits that can, and should, be supported by all political sides.
Developing countries need tariff barriers to protect fledgling industries
It is true that tariff barriers can protect industries in developing countries. However, without competition, these industries will produce substandard and expensive goods that will never be able to compete on the global market. Far better to freely integrate a developing economy with the market, where it can find a niche (see Comparative Advantage in our glossary) and develop a product or service that will flourish.
In addition, tariffs make imports more expensive. So tariff barriers make products more expensive for a developing economy. This means that less money is available for savings and investment. This holds countries back and stops them from developing. It is in this way that free trade combats poverty.
Removal of tariffs = free trade
Close, but not quite. Tariffs are important and reducing them is a good step forward. But in an increasingly low-tariff world, it is non-tariff barriers that inhibit trade more than tariffs. These non tariff barriers could be quotas, subsidies, customs delays, technical barriers, etc.