An Argument For Free Trade

1493 Words Sep 20th, 2015 6 Pages
An Argument For Free Trade
Proposed by: Scott Wilson
Submitted to: Dr. Debasish Chakraborty
Central Michigan University
September 20, 2015

An Argument For Free Trade
Since David Smith introduced the theory of the free market force known as the invisible hand in The Wealth of Nations, the argument for free trade was levied against the argument for protectionism. Smith believed that by providing people the freedom to produce and trade as they please, with limited government interference, enlightened self-interest would provide prosperity for all (Smith, 1937.) In Scotland, quality grapes had to be grown in hothouses, while grapes in France did not, which provided France a comparative advantage. Heating Scottish grapes made
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Consumers win with lower prices on imported goods, which means consumers have more money to spend on other products in other industries (Inside, 1994.) Exporting industries also win for those with a comparative advantage benefits. The economy as a whole is better off for engaging in trade. The losers in trade are the import competing industries that do not have a comparative advantage. In our textbook, Reinert provides an example of two countries Vietnam and Japan and their production of rice an motorcycles (Reinhert, 2012.) Vietnam can specialize in rice because the opportunity cost is lower and its production possibility frontier is biased towards rice. Japan can specialize in producing motorcycles because the opportunity cost is lower and its production possibility frontier is biased towards motorcycles. The relative price of rice is lower in Vietnam and the relative price of motorcycles is lower in Japan. This inequality is the expression of comparative advantage (Reinhert, 2012.) Vietnam can meet the internal demand for rice internally and trade excess rice for motorcycles. Japan can meet the internal demand for motorcycles and trade excess for rice. This makes it possible for trade to occur and both countries enjoy gains from trade based on comparative advantage (Reinhert, 2012.)
Free trade leads to the optimum allocation of resources. Government subsidies shift the allocation of resources to promote economic growth. In the European seed oil case study, French

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