Topic > When free trade is good for growth

From growing concern over Donald Trump's imposition of tariff increases against Chinese goods and British ministers negotiating trade deals with the EU, it reflects a resurgence of old arguments about the benefits of free trade. This debate has been ongoing for centuries because the benefit of free trade is often diffuse and indistinct, while the benefits of protecting specific countries from foreign competition are often immediate and visible. Although this illusion fuels the common perception that free trade is harmful to a country's economic growth, many researches and studies have shown that fewer barriers to international trade translate into greater wealth and economic well-being which will stimulate the country's economic growth. According to John Stuart Mill we can classify the gains from trade into three main ones; the direct economic benefits of trade, the indirect effects of trade, and the intellectual and moral advancement, or otherwise may be referred to the Doux Commerce. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay "Direct economic benefits" are the standard gains that arise from a country's specialization from mutually beneficial trade. They are able to use their limited productive resources (land, labor, and capital) more efficiently by exporting some of their domestically produced goods in exchange for imports that earn them a higher real national income than they would in the absence of trade commercial. Improvements in allocative and productive efficiency translate into a static gain for the country with greater capital accumulation that can invest in infrastructure, human development and improved quality of life that translates into economic growth. A classic example of static gains from trade comes from China's opening up to the world economy. Although foreign trade existed before economic reform, it was generally limited to obtaining goods that could not be manufactured or accessed in China. However, after 1979, China decided to fully open its economy with the aim of increasing foreign trade and investment. Gains from trade can be estimated by examining the prices of goods in China before and after the opening of trade. For example, the price of wheat and cotton on the world market was much higher than in China before the opening of trade. Once trade is introduced, China is able to export these crops at a higher price, increasing its profit margins. As a result, this development gave a significant boost to the economy producing a real GDP growth rate of 9% from 1979 to 1997 compared to 4.4% from 1953 to 1978 according to research by economist Angus Maddison. Free trade allows a country to specialize in a range of goods and services with comparative advantage – a concept from Alan Deardorff “The General Validity of the Law of Comparative Advantage”. This concept basically means that trade encourages a country to specialize in goods and services that it can produce more effectively, efficiently, and at the lowest opportunity cost than others. A country's comparative advantages are ultimately determined by its internal factor endowment based on its initial conditions in terms of resources, population, and geographic location. For example, New Zealand has a comparative advantage in the production of butter and cheese due to its climate and large availability of land for raising dairy cows compared to countries like Singapore which have limited land and climate.