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What are the advantages and disadvantages of free trade?

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Quick Answer

The main of advantage of free trade is lower prices for consumers, while a disadvantage is that domestic firms often find it difficult to compete with large international firms.

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Full Answer

The issue of free trade is very divisive, because those on each side of the debate offer compelling reasons for supporting their view. In terms of advantages, increased production is very likely because of a sudden influx of foreign firms into the domestic market. Greater competition results in finding ways to reduce costs and then passing these savings on to the consumer. Apart from this, the living standards of a country may increase due to quicker economic growth and higher wages.

On the other hand, although free trade breaks down market barriers, it may also cause a recession in one country to have a large effect on a key trading partner. Furthermore, free trade often results in job losses at home (particularly in western countries), because those jobs are shipped overseas where wage costs are cheaper. Finally, free trade often stifles local industries that have yet to get off the ground, because foreign firms have established economies of scale. Fledgling domestic industries need government protection from foreign corporations that are capable of competing on a much larger scale.

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