Due to international competition, the producers in a country attempt to produce better quality goods and at the minimum possible cost. For example, former Soviet countries who liberalise trade will attract foreign multinationals who can produce and sell closer to these new emerging markets.
Though net economic welfare improves, it can be difficult to compensate those workers who lose out to international competition. Trade liberalisation leads to removal of tariff barriers and the market price will fall from P1 to P2. It poses a threat to the survival of infant industries at home.
Due to international trade, goods are produced not only for home consumption but for export to other countries also. During wars or when good relations do not prevail between nations, many hardships may follow.
This will cause economic downfall of the country in the long run.
There are strong reasons to allow some tariff protectionism if developing economies are seeking to diversify out of low-income growth agricultural industries.
Foreign trade leads to specialisation and encourages production of different goods in different countries. Some industries grow, some decline. Advantages of International Trade: Advantages of Trade Liberalisation Comparative advantage.
International trade gives an opportunity to foreign agents to settle down in the country which ultimately endangers its internal peace. Trade liberalisation allows countries to specialise in producing the goods and services where they have a comparative advantage produce at lowest opportunity cost.
Trade liberalisation enables greater specialisation. Economies concentrate on producing particular goods. Also, the success of trade liberalisation depends on how flexible an economy is. For example, the Britishers came to India as traders and ultimately ruled over India for a very long time.
International trade has an adverse effect on the development of home industries. Natural calamities such as drought, floods, famine, earthquake etc. The other issue for trade liberalisation is that it often benefits developed countries more than developing economies. One function of the WTO is to support trade liberalisation.
Excessive exports may exhaust the natural resources of a country in a shorter span of time than it would have been otherwise. For the advantages of international trade, development in the means of transport and communication is also made possible.
For example, India has been exporting sugar to earn foreign trade exchange; hence the exalting prices of sugar in the country. Trade liberalisation can often be painful in the short run, as some industries and some workers suffer from the decline in uncompetitive firms.
If a country liberalises its trade, it will make the country more attractive for inward investment. The people of different countries come in contact with each other. Because of this argument, some argue that trade liberalisation often benefits developed countries more than developing countries.
Wastage of resources is avoided. For instance, most of the underdeveloped countries in Africa and Asia have been exploited by European countries. Due to foreign competition and unrestricted imports, the upcoming industries in the country may collapse.
This results in shortage of these goods at home and causes inflation. Nations of the world can dispose of goods which they have in surplus in the international markets.
Sometimes the essential commodities required in a country and in short supply are also exported to earn foreign exchange. For example, having specific regulations on making goods can give an unfair advantage to domestic producers.In the long term, trade protectionism weakens the industry.
Without competition, companies within the industry have no need to innovate. Eventually, the domestic product will decline in quality and be more expensive than what foreign competitors produce. Free trade agreements allow the global firms access to these business opportunities.
When the multi-nationals partner with local firms to develop the resources, they train them on the best practices. That gives local firms access to these new methods. Liberalisation, privatisation and globalization have many advantages in order to understand its advantages you need to first know about the position of India before the New Economic Policy.
Liberalization leads to free trade by removing obstacles such as tariffs and subsidies. Consequently, countries learn to specialize in what they can do best and yield maximum returns. Local industries focus on optimal use of. Though foreign trade has many advantages, its dangers or disadvantages should not be ignored.
(i) Impediment in the Development of Home Industries: International trade has an adverse effect on the development of home industries. Definition trade liberalisation - removing barriers to trade between different countries and encouraging free trade.
Advantages and disadvantages and how it can affect developing and developed economies.Download