Discuss The Arguments Put Forward By Economists To Justify Reducing Trade Barriers

521 words - 3 pages

Naturally countries hold different resource endowments and efficiencies of production. Some nations will have labour forces more skilled in certain sectors then other countries and thus will hold better efficiencies in production in those sectors. Others may have large resource endowments; and hence the need for nations to trade in order to increase their peoples standard of living. The theory of free becomes based on the principal of comparative advantage. Nations will specialize in the production of goods and services in which they can produce with a lower opportunity cost compared to other nations. The nation should export it's surpluses of the goods and services which it has comparative advantage in, and it should import the goods and services in which it has a comparative ...view middle of the document...

The main focus of the protection is to shift the demand from overseas producers to domestic producers by making the domestic product more 'attractive'. A tariff for example is a tax placed on an import, resulting in an increase of price passed on to the consumer. This price increase then makes the domestic product more attractive to the consumer, although the consumer now pays more for the same quantity of product.Therefore economists believe that there is strong reason to reduce trade barriers. Protection always favours particular industries, in many ways representing a misuse of government funds and authority. While some industries are protected and nurtured others are left independent, and are expected to be self-sufficient. Protected industries become dependent on the protection and consequently many protected industries cannot become independent, relying on protection from the government. This protection represents the uneven distribution of resources by the government, and as a result protected industries do not strive to become competitive. The government becomes forced to support such industries. Competition itself will lower costs, boost efficiencies, and create growth; this is the argument raised by the economists. With lower trade barriers total consumption will increase, and as a result real incomes will rise due to the greater spending on goods and services. Hence production increases as does employment. SOL will rise as unemployment falls and real incomes increases, and this is better for the entire economy. So it is clear that protection needs to be reduced in order to reduce input costs for all industries in the economy. Reducing trade barriers will create an efficient and competitive economy, resulting in an increase in imports and exports, and thus satisfying more wants of the consumer.

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