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FREE TRADE - Coggle Diagram
FREE TRADE
Advantages
- It increase economic growth
Even when with limited restrictions like tariffs are applied, all countries involved tend to realize greater economic growth. EX: The Office of the US trade representative estimates that being a signatory of NAFTA has increased the US's economic growth by 5% annually
When trade restrictions are eliminated, customers tend to see lower prices since products imported from countries with lower labor costs become available at the local level
- It increase foreign investment
When not faced with trade restrictions, foreign investors tend to pour money into local businesses to help them expand and compete. EX: Many developing and isolated countries benefit from an influx of money from the US inventors
- It reduce government spending
The government subsidize local industries, like agriculture, for their loss of income due to export quotas. When quotas are lifted, the government's tax revenues can be used for other purposes
- It encourages technology transfer
Not only human expertise, domestic businesses can also gain access to the latest technologies developed by their multinational partners
Disadvantages
- It causes job loss through outsourcing
- Tariffs tend to prevent job outsourcing by keep product at competitive levels
- Free of tariffs, products imported from foreign countries with lower wages cost less => make it hard for local companies to compete => forcing them to reduce their workforce
EX: Indeed, one of the main objections to NAFTA was that it outsourced American jobs to Mexico
- It encourages theft of intellectual property
- Many foreign governments, especially those in developing countries, often fail to take intellectual rights seriously
- Without the protection of patent laws, companies have their innovations and technologies stolen, forcing them to compete with lower-priced domestically-made fake products
- It allows for poor working conditions
- Free trade is partially dependent on a lack of government restrictions, women and children are often forced to work in factories doing heavy labor under grueling working conditions
- It can harm the environment
- Since many free trade policies opportunities involve the exporting of natural resources like lumber or iron ore, clear cutting of forests and un-reclaimed strip mining often decimate local environments
- Due to the high level of competition spurred by unrestricted free trade, the businesses involved ultimately suffer from reduced revenues. Smaller businesses in smaller countries are the most vulnerable to this effect
Theory of free trade
- Free Trade is the unrestricted importing and exporting of goods or services between countries.
- The opposite of it is protectionism - a highly-restrictive trade policy intended to eliminate competition from other countries.
- Today, many industrialized nations take part in hybrid free trade agreements (FTAs), negotiated multinational pacts to allow for, but regulated tariffs, quotes and other trade restrictions.