4.3 Arguments for and Against Free trade

Question 1

What are some arguments against free trade?

Answer 1

• Domestic production falls
• Unemployment increases
• GDP falls (as import is a leakage)
• Government revenue falls (corporate, income and indirect tax falls, whilst unemployment benefits increase)
• Sunrise industries –> new emerging industries must be protected from competition from imported goods

Question 2

What are some arguments against protectionism? (FOR free trade)

Answer 2

• Protectionism (tariffs..) distort prices
  (has an effect on resource allocation)
• Reduces chance of retaliation and political tension
  (if protectionism is imposed, retaliation is likely)
• Protectionism limits imports and thus also choice for consumers