The POSITIVES AND NEGATIVES Of Free Trade Economics Essay

Free trade is something where goods, capital, and labor flow freely between nations, without barriers that could prevent the trade process.

It is opening up of economies (market segments) by decreasing trade barriers which in turn allows goods and services from everywhere around the world to contend with domestic products and services.

Under free trade there is absolutely no creation of unnatural prices or a wrong demand and supply of products as it offers true picture of the actual demand and supply.

And in line with the law of comparative gain the policy permits trading partners shared gains from trade of goods and services. This implies a country can focus on producing goods or services where they have got comparative advantages that is to create at a lesser opportunity costs which specialization can bring about increases from the trade to the united states such as

Lower charges for consumers

Greater choice of Goods

increased export market segments for growing firms

Economies of size through being able to specialise using goods

Increased competition

1:2 Top features of free trade.

Free trade shows the below features

Free movements of Labor and Capital between and within countries

Free usage of marketplaces and market information

Trade of goods or services without taxes (including tariffs) or other trade barriers such as quotas on imports or subsidies for providers.

Absence of "trade-distorting" insurance policies such as taxes, subsidies, polices or laws that provide some firms, homeowners or factors of creation an edge over others.

Inability of organizations to distort markets through government imposed monopoly or oligopoly power.

1:3 Establishments which promote Free Trade

There are three institutions that support countries and their trade

World Loan provider - aids producing countries in their monetary development by Providing financial support for expanding countries and Helps smaller companies by buying infrastructure

International Monetary Account - promotes monetary stability through financial mean by stabilising currency exchanges through the release of special pulling rights (SDRs) and although it does not directly favour smaller organizations, but helps reduce monetary instability which would injure small businesses first

WTO - encourages free trade and regulates on trade disputes by providing progressive free trade through negotiation binding and transparent agreements which leads to reasonable competition, settling disputes as well as providing momentary protection of infant industries to specifically help small organizations.

1:4 Free Trade Areas

Group of countries that have decided to eliminate tariffs, quotas on most goods and services bought and sold to them form a union called Free trade area. This enables the agreeing countries to concentrate on their competitive edge to freely trade on the products /services they lack the experience at, thus increase efficiency and profitability of every country.

Below is the set of some free trade agreements

North North american Free Trade arrangement (NAFTA)

Common Market for Eastern and Southern Africa (COMESA)

ASEAN Free Trade Area (AFTA)

Southern African Development Community (SADC)

Central Western european Free Trade Contract (CEFTA)

Greater Arab Free Trade Area (GAFTA)

1:5 Foreign Market Admittance Modes.

The Decision of how a company in one country can enter a market of a different country can have a significant impact on the results. This is because the entry modes into a international market differ in degree of risk accessible, the control and determination of resources they entail and the return on investment they assure

There are two major types of accessibility modes, collateral and non-equity methods.

Non -equity modes

Exporting-which is a process of providing goods or services stated in one country to other country.

Licensing-which can be an international licensing agreement that allows foreign firms, either exclusively or non-exclusively to produce a proprietor's product for a set term in a particular market.

Franchising-which is a system in which semi-independent companies (franchisees) pay fees and royalties to a mother or father company (franchiser) in substitution for the to become identified using its trademark, to market its products, and often to make use of its business format and system.

Equity modes

Strategic Alliances-which is a a variety of cooperative contracts between different companies, such as distributed research, formal joint endeavors, or minority equity participation

Wholly owned or operated subsidiaries (WOS)-which includes Greenfield purchases (establishments of a new wholly owned or operated subsidiary) and acquisitions.

Direct Investment (FDI)- which identifies net inflows of investment to get a lasting management interest (10 % or even more of voting stock) within an enterprise operating in an economy besides that of the investor


Globalization is similar to what free trade stands for which is the integration of world economies through the reduction of barriers to the activity of trade, capital, technology and people

This has been fueled by two main factors, the first one being the technological advances which decreased the costs of transport, computation and improved communication which would help an evergrowing company to locate different phases of production in several countries and the other factor being the liberalization of trade and capital markets.

Most government authorities have reduced constraints on international motions of products and services, for mainly the reasons below

Their citizens want a larger variety of goods and services at lower prices

Competition drives home producers to become better.

They hope to induce other countries to lessen their barriers in turn.

And that's where institutions such as the WTO emerged to experiment with important roles in order to help the countries engaged to promote free trade in place of protectionism.

This has made to prove some economic expansion in e developed countries plus some expanding countries because not all developing countries are evenly involved with globalization because most expanding countries have been slightly slow to assimilate with the globe economy.

2:1 Free trade in Developed countries

The biggest level of trade occurs between your developed countries because they're capital- rich and for that reason industrial market leaders. Generally, as a country matures economically, its involvement in international trade grows quicker than its GDP.

Developed countries as well because of globalization have managed to reap the benefits of free trade by increasing inward investment, many companies manage to relocate to developing countries where they can find cheaper labor / raw materials for example many organizations relocated their call centres to India because of cheap labor which is available there and therefore increase in their market share and pushes out local retailers, leading to less choice for consumers and less social diversity.

2:2 Free trade in Growing countries

Most developing countries were forced to become listed on in free trade agreements due to globalization and the countries which embraced trade liberalization have observed several effects which aggregate development faster and improved upon life-style to its people.

Since many developing countries have empty protectionism in favor of freer trade to be able to benefit in a way that enables them to develop competitive advantages in manufacturing of certain products. That is scheduled to increased competition between different companies and countries which sets pressure on organizations to increase efficiency and offer better products.

Free trade in addition has created employments in growing countries because rich companies invested in the countries scheduled to availability of cheap labor for example many organizations from developed countries have relocated their call centres to India because of that.

As well as option of raw materials, for example Tanzania is the only country in which you will get Tanzanite gemstones by freeing the trade this gemstone is available for customers in other countries as well.


One of the benefits associated with free trade is stated in regulations of comparative gain which says a country should specialize in goods / services that it does best and trades it with other countries because of its needs. This represents a genuine demand and supply of the marketplace. That is true because when countries focus on certain goods that are good at producing, they can take advantage of market of range and produce their goods at a lesser production costs.

Free trade also causes upsurge in both exports and imports which can make more products to be available in the countries included and this will bring about healthier competition among growing businesses and in turn will prevent monopolies within them.

Free trade also enhances economic growth and reduces cost of living since it can away with government interventions such as tariffs and fees which allows the products and services to be available to consumers at lower costs as well as bringing about good romantic relationship between countries engaged which brings about healthier local governance and peaceful international ties.


4:1 Opportunities offered by free trade Agreements

Since Free trade is an instrument for promoting good competition and encourage overseas government to adjust open transparent guideline making types of procedures as well as non discriminatory regulations, it strengthen the business climate by eliminating commitments on issues of concerns along with decrease and reduction of tariffs which in turn bring about opportunities for companies to conduct business.

These opportunities available by freeing the trade are mentioned

Absence of federal control

Open new market and lower trade barriers

Protection of intellectual property rights

Access to administration procurement contracts

Free movement of people such as employees and capital

Enhancing guidelines on international investments

Fair trade competition

Access to cheaper, more advanced and new types of intermediate inputs (recycleables, labour)

4:2 How opportunities created can be exploited by an evergrowing business.

Growing businesses rely greatly on negotiated Free trade Contracts to ensure lower tariffs and translucent rules as the opportunities to reach new market are there.

4:2:1 Absence of government control

By absence of government control this means that the country economy is market overall economy where by the costs of goods and services are established in a free price system, which is good for business as the government will not be able to set the price but in reality there is absolutely no any country which is working in purely market economy, most countries practice combined economy where there is some degree of government ownership and control.

4:2:2 Open new market and lower trade barriers

Free trade agreements help open market segments and grow opportunities for growing business as it can help them enter into and compete more easily in the global market. Many smaller businesses face variety of trade barriers that limit their ability to be competitive, by bringing down tariffs and no-tariffs barriers the trade of goods and services would increase and these small businesses would be able to expand and remain competitive because the tariffs and non tariffs are major competitive obstructions for small company since many of them don't have the capital or resources to go complex barriers and compete.

4:2:3 Protections of intellectual property rights

Intellectual property refers to creativity and impressive expertise of a fresh product, service or idea which is protected by means of patents, copyrights and trademarks. These ideas are the lifeblood of several businesses and the key that distinguish their products from competition.

By protecting it gives right to control and derive the huge benefits from writing (copyrights), inventions (patents) functions (trade secrets) and identifiers (trademarks) to the registered owner.

A recorded owner can decide who may utilize it for another purpose (eg manufacture of something). This will help growing businesses gain competitive edge.

This means safeguarding intellectual property is crucial to country's market, careers, and consumers. A violation of intellectual property regulations directly influences a company's brand, market share, bottom line, ability to export, and creates lots of safeness concerns for consumers.

4:2:4 Access to administration procurement contracts

Free trade provides growing businesses access to government procurement agreements, this is when the federal government does the procurement of goods and services on behalf of a public authority, like a government agency. And it is predicated on the rules of openness, transparency and non-discrimination, which apply to Get-togethers' procurement included in the Agreement, to the benefit of Parties and their suppliers, goods and services. Growing businesses may benefit upon this and even though businesses could not afford to use additional operations outside their countries they can count on set up suppliers within their countries.

4:2:5 Free movements of folks such as personnel and capital

Free movement of individuals and capital is assured by the Internal Market which is intended to be conducive to increased competition, increased expertise, bigger economies of range, allows goods and factors of development to go to the area where they can be most appreciated, thus enhancing the efficiency of the allocation of resources

This means personnel have the to move to a new Member country, to consider work and become employed under the same conditions as nationals of that country

One reason often given for the necessity for liberal legislation on the international movement of labour, especially into developed economies, would be that the locals don't wish to accomplish the jobs which others are just too pleased to do. Good examples low paid work (e. g. housekeepers). Many residents of the countries are generally unwilling to take such work. Therefore by freeing activity of individuals growing businesses would be guaranteed to get workforce needed.

International free activity of capital is also another means where growing businesses can benefit from, they can purchase and sell stocks in companies in countries where they are not working and can acquire companies far away, or sell their company to a person or group from a different country. It is designed to permit motion of assets such as property buys and purchasing of stocks between countries.

4:2:6 Enhancing guidelines on overseas investments

Free trade also enhanced rules on foreign investments since prior to the FTAs buyers (such as growing businesses) were confronted with regulations and limitations on FDI. Free trade contracts liberalize FDI regulations in FTA spouse countries. The procedures on FDI in FTAs are meant to give buyers of the contracting gatherings more concessions in doing businesses in the contracting countries of the FTAs. Included in these are easier market access and the right of establishment, the rendering of nationwide treatment and the rules of performance requirements such as local content and work. However, FTAs still contain several guard measures that likewise incorporate restrictions on international direct investments based on laws at the national level.

4:2:7 Good trade competitions

Free trade as well stimulates fair competition between businesses of the countries involved, FTAs lead to a system of rules focused on open, good and undistorted competition. These rules on non-discrimination and national treatment are designed to secure good conditions of trade as well as those on dumping subsidies. These are complex issues and government authorities are imposing guidelines of what's fair or unfair by charging additional import duties to compensate for damage triggered by unfair trade. This assures growing businesses that the unfair play between businesses in the countries included especially from larger businesses will not be possible.

4:2:8 Access to cheaper, more sophisticate and new types of intermediate inputs

And Finally Free trade ensures growing business with usage of cheaper raw materials. Thus free trade can be an advantage to developing businesses as it can guarantee access to a large way to obtain raw materials at minimum prices that will enable manufacturers to lessen costs and be more competitive in markets surrounding the world. This will bring high competition that will pressure growing businesses to be efficient and innovative which can be keys to success and prolonged life.

As well as businesses can relocate certain process of their functions to a certain location within the FTAs countries in look for cheaper labour. For example many firms relocated their call centres to India because of cheap labour which is obtainable there.


We have observed that growing companies are the most crucial elements to the monetary growth of the country, and that the opportunities to increase into foreign marketplaces are there of which an evergrowing business may take benefit of and study from other businesses especially bigger ones.

There are opportunities such as benefit of economy of scale, increased imports and Exports as well as to make the most on government procurement systems which would help a growing business to broaden further since development of an enterprise is very important to sustaining its viability, dynamism and value boosting capacity.


Since the opportunities is there and advantageous for the growing business to enter in a international market, I would recommend that a growing business such as making business should explore these opportunities and learn from bigger manufacturers especially technologically.

This will increase efficiency, profitability and manufacturing better goods to its customers and flourish in the industry competition as well as gaining a competitive gain which will help the growing business becoming a larger business world wide.

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