Argument: Free markets and free trade are ideal economic conditions

Issue Report: Free trade

General supporting

  • Vaclav Havel, Summer Meditations (New York: Alfred A. Knopf, 1992), p. 62: – “Though my heart may be left of centre, I have always known the the only economic system that works is a market economy. This is the only natural economy, the only kind that makes sense, the only one that leads to prosperity, because it is the only one that reflects the nature of life itself. The essence of life is infinitely and mysteriously multiform, and therefore it cannot be contained or planned for, in its fullness and variability by any central intelligence.”

Free trade increases the opportunities for business to engage in mutually beneficial trade

  • Martin Wolf, Why Globalization Works?. Yale University Press. 2004. ISBN 0-300-10777-3. pp 80. – “An analysis of trade starts from the assumption that movement of capital and labour is prevented. A country is a jurisdiction with a circumscribed pool of labour, capital and land. The argument for trade is that it increases opportunities for owners of these factors of production to engage in mutually beneficial transactions. It is an extension across frontiers of the division of labour. We need merely ask what our standard of living would be if we had to grow our own food, make our own clothes and shoes, build our own houses, maker our own furniture, write our own books and newspapers, build our own vehicles or be our own doctors and dentists. But opportunities for the division of labour do not cease within a single national jurisdiction.”

Free trade enables a country to specialize in a comparative advantage

This idea was propagated by David Ricardo. Comparative advantage is derived from the notion of the division of labour, where an economy functions by individuals and businesses specializing in areas where they can be most productive or have a comparative advantage. Ultimately, this increases production efficiencies, decreases the prices of goods, and leaves everyone better off. The same concept can be applied on a global scale. Some countries have certain comparative advantages in their “factors of production” (technological, low labor costs, manufacturing expertise, natural resources). By opening up to international trade, countries specialize even more in their comparative advantages, and output is moved in the direction of activities that offer domestic factors of production the highest returns. Efficiency globally is increased, prices decrease, and purchasing power and living standards increase.

Free trade promotes competition, innovation, and productivity growth

When a company is exposed to increased competition from abroad, they are forced to respond by innovating ways to increase productivity. Increasing productivity has long-term benefits both for the company itself and for consumers who likely see lowered prices per value or higher value per price. Free trade catalyzes this cycle by opening companies up to greater competition. It, therefore, helps increase productivity, higher purchasing power, and greater living standards.

International trade and investment increases the flow of production knowledge, technologies, and know-how

Developing countries would not have access to the world’s most advanced technologies without international trade.

See also