The Positives and Negatives of Free Trade and Protectionism.

The Positives and Negatives of Free Trade and Protectionism.

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Economic theory Positives Negatives
Liberalism and Free trade Encourages completive Countries without
Neo-liberalism markets which means comparative advantages
Export led growth products are cheaper are forced to compete with
e.g. China and are a higher quality. countries that do and they
Enables a country to lose out (especially poor
specialise in the nations).
production of goods Flooding markets (dumping)
they have a comparative rich nations can flood poor
advantage in. nations markets with
Improves international surplus.
trading relationships. Cartels.
Encourages Monopolies/ oligopolies.
industrialisation. New companies struggle.
Invisible hand (Adam LEDC governments may not
Smith) no need for be able to afford to
government subsidise businesses like
intervention. MEDC governments can
making MEDC products
more competitive and
LEDCs lose out.
Mercantalism Protectionis Protects new domestic Creates conflict (tariffs).
Import substitution m markets and companies Cartels (against tariffs).
industrialisation from more competitive Trade sanctions and
e.g. Cuba foreign markets and embargos.
companies. Less growth in the
Self-sufficiency. economy.
Less dependent on Less innovative.
foreign markets and Less efficient.
international trade.
Reduces inequalities and
unemployment.

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