International trade enables countries to obtain the advantages of specialisation. First, a great variety of products may be obtained. If there were no international trade, many countries would have to go without some products.
Thus, Iceland would have no coal, Nepal no oil, Spain no gold and Britain no tea. Second, specialisation leads to an increase in total production. International trade permits an industry to take full advantages of the economies of scale large-scale production. If certain goods were produced only for the home market, it would not be possible to achieve the full advantage of large-scale production. So, free trade increases the world production and the world consumption of internationally traded goods as every trading country produces only the selected goods at lower costs.
Free trade is often an efficient way of breaking up domestic monopolies. International trade and commercial relations often lead to an interchange of knowledge, ideas and culture between nations.
Furthermore, free trade increases the earnings of all the factors as they are engaged in the production of those goods in which the country has comparative advantage. It would increase the productivity of each factor. On account of free trade the consumers of the different countries get the best quality foreign goods, often of a wider range of choice, at low prices.
Free trade stimulates home producers, who face to foreign competition, to put forth their best effort and thus increase managerial efficiency.
Again, as under free trade each country produces those goods in which it has the best advantages, the resources both human and material of each country are utilised in the best possible manner. As a country depends too much on foreign countries, an outbreak of war may upset its economy.
During the Gulf War America refused to sell its products to its enemies i. If foreign goods are imported freely, the domestic industries of the developing countries would not be able to develop rapidly due to the superior strength of foreign industries. Under free trade, the foreign traders particularly the dominant ones may try to become empire-builders in future. In the past free trade gave rise to colonialism and imperialism.
Finally, free trade sometimes creates rivalry and frictions among the trading nations. In other words, commercial rivalries resulting from trade often lead to war. This is an important point.
At present times, no country in the world follows the policy of free trade. Every country imposes some restrictions on the import and the export of goods in the broader interest of the country. Scitovsky has pointed out, free trade can be shown to be beneficial to the world as a whole but has never been proved to be the best policy for a single country. Public Good and Private Good:More...