Arguments made in support of the policy of Free Trade

Arguments made in support of the policy of Free Trade

Free Trade is the most natural form of trade between different countries. The WTO is a champion of the policy of free trade. The main arguments made in support of the policy of free trade can be summarized as follows:

1. Maximum Output of all countries of all goods

Different countries have different advantages in the production of different goods depending upon the availability of different factors of production. Under free trade a country specialises in the production of those commodities in which they have a comparative cost advantage. The country imports the other commodities from the other countries easily because there are no restrictions on imports or exports. The production of different goods is maximized when different countries specialize in the production of different goods depending upon their capacity to produce them. So all commodities are produced at the minimum cost from where all countries can get it.

2. Highest Remuneration to the factors

The remuneration which a factor gets depends upon its productivity. Under the policy of free trade the production of all countries is maximized. Naturally all factors get maximum remuneration

3. Maximum benefit to the consumer

A consumer is always interested in getting a commodity at the lowest price. Under free trade all countries produce all commodities at minimum costs of production. They are carried from one country to another country freely and easily so the people of any country can get these commodities at lowest prices.

4. Advantages of competition

Under free trade policy the producers of different commodities have to compete with not only producers working in that country, but producers producing those commodities in other countries also. Competition is taken up from the national level to the international level. Competition is a driving force behind reducing the cost of production, improving the quality of the commodity, introducing innovations and paying more attention to the needs of the customers.

5. Economies of Scale

When different countries specialize in the production of different goods each country produces the chosen commodities on large scale. Consequently all countries get economies of scale in respect of the production of all commodities. The single advantage of the economies of scale is that goods are produced at the minimum cost. That serves the purpose of getting maximum production within the available resources.

6. Helpful to the developing countries

The developing countries require several things such as machinery, oil, technical knowledge, designs of complex commodities, circuits of electronic goods etc. from developed countries.  Under free trade they can conveniently export their goods to the developed countries and import the required goods from them.

7. Cordial international political relations

Under free trade system the countries are dependent upon each other for the commodities required by them. Consequently, they have to maintain cordial political relations between them. If political relations between them are cordial they can devote all their attention to their economic problems and economic development.