To what extent do you agree with the suggestion that free trade is the basis of increased international well being?. Explain your reasoning. Economic globalization: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology. [ Globalization, since World War II, is largely the result of planning by politicians to break down borders hampering trade to increase prosperity and interdependence thereby decreasing the chance of future war.
Their ork led to the Bretton Woods conference, an agreement by the world’s leading politicians to lay down the framework for international commerce and finance, and the founding of several international institutions intended to oversee the processes of globalization. These institutions include the International Bank for Reconstruction and Development (the World Bank), and the International Monetary Fund.
Globalization has been facilitated by advances in technology which have reduced the costs of trade, and trade negotiation rounds, originally under the auspices of the General Agreement on Tariffs and Trade (GATT), which led to a series of agreements to remove restrictions on free trade. Benefits of Free Trade. 1 . The theory of comparative advantage. This explains that by specialising in goods where countries have a lower opportunity cost, there can be an increase in economic welfare for all countries. 2.
Reducing Tariff barriers leads to trade creation Trade creation occurs when consumption switches from high cost producers to low cost producers ??? The removal of tariffs leads to lower prices for consumers and an ncrease in consumer surplus ??? Imports will increase The govt will lose tax revenue ??? Domestic firms producing this good will sell less and lose producer surplus ??? However overall there will be an increase in economic welfare ??? The magnitude of this increase depends upon the elasticity of supply and demand.
If demand elastic consumers will have a big increase in welfare 3. Increased Exports. As well as benefits for consumers importing goods, firms exporting goods where the I-JK has a comparative advantage will also see a big improvement in economic welfare. Lower tariffs on UK exports will enable a higher quantity of exports boosting UK Jobs and economic growth. 4.
Economies of Scale: If countries can specialise in certain goods they can benefit from economies of scale and lower average costs, this is especially true in industries with high fixed costs or that require high levels of investment. The benefits of economies of scale will ultimately lead to lower prices for consumers. 5. Increased Competition. With more trade domestic firms will face more competition from abroad therefore there will be more incentives to cut costs and increase efficiency. It may prevent domestic monopolies from charging too high prices. . Trade is an engine of growth. World trade has increased by an average of 7% since the 1945, causing this to be one of the big contributors to economic growth. 7. Make use of surplus raw materials trade there would be not much benefit in having so much oil. Japan on the other hand has very few raw material without trade it would be very poor. 8. Tariffs may encourage inefficiency If an economy protects its domestic industry by increasing tariffs industries may not have any incentives to cut costs.