The benefits and costs of free trade

Without tariffs, quotas and other restrictions on international trade, products will be produced at the best possible locations around the world. Then, they will be shipped to wherever they are in demand. As a result, consumers are able to enjoy a greater variety of goods and services at the lowest possible prices, improving their living standards. Overall economic growth and development are enhanced because resources are put to their best use in the best locations around the world.

Free trade also stimulates companies to become efficient as they face a wide open field of global competition. Moreover, it allows multinationals to operate on a larger scale leading to cost savings.

These assertions have proof. There are hundreds of economic analyses with data from various regions around the word showing that trade stimulates economic development. In fact, there are numerous examples, including China, Germany, and other countries, where exports are the leading engine of economic growth.

Of course, there is also significant opposition to free trade, most visible in the massive demonstrations against the World Trade Organization. Although free trade is good for the “average” person, it may not be good for everyone. Removing tariffs could be quite unsettling for a small farmer who went bankrupt because of international competition. It will also hurt workers who lost their job as the factory moved to countries where wages are lower. It is understandable why people in that situation are skeptical of the benefits of free trade.


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