Free trade means that countries can import and export goods without any tax barriers or other non-tariff barriers to trade. It refers to trade policy among the apprehensive countries in which there are no boundaries or trade barriers like import tariffs or quotas or customs duties for trading goods. It is a form of business strategy that allows traders to proceed and execute without intervention from the government.
Arguments in favor of free trade for the economic development of Developing Countries –
- Higher Employment Rates
As developed countries are able to move their operations into developing countries, new job opportunities open up for local workers. Increased levels of employment lead to a higher standard of living and more consumers purchasing. This ultimately sparks the ‘country’s economy and may help to develop locally owned business.
- Less Child Labor
Child labor occurs in developing countries for many reasons but one of the main reasons is a lack of technology. Children are used as a cheap substitute for manufacturing equipment. Free trade allows companies to invest in equipment and pay higher wages to adult workers through foreign investment. With higher family incomes, children are able to attend school rather than work.
- Access to New Markets
Not only does free trade allow foreign-owned companies to establish themselves in developing countries, but it also allows native companies to sell to foreign markets. This expands its customer base and leads to new products and services and the viability of investing in innovation. This is particularly true for small businesses in developing countries. These companies no longer have to worry about absorbing the costs of tariffs and other barriers to market entry and can sell their products freely.
- Increased competition
With more trade, home firms will face more struggles from abroad. Therefore, there will be more incentives to cut costs and enlarge competence. It might prevent home monopolies from charging too high prices. Entrepreneurs who sell their products to other countries are bringing their money back to the local market. As they become successful business owners, they can use that money to subsidize the arts and culture within their own community. Without trade barriers, free trade decreases the market power of monopolies as they are competing at a global level. It may also prevent domestic monopolies from charging too high prices.
- Higher Levels of Investment Capital
Most free trade agreements also reduce restrictions on foreign investment. With new capital entering a developing country, it begins an upward productivity cycle that stimulates the entire economy. An inflow of foreign capital can also stimulate the banking system, leading to more investment and consumer lending.
- Increased Life Expectancy
An increase in employment levels, incomes, and the general standard of living alleviates hunger and lack of medical care in developing countries. Preventative medical care including checkups and vaccinations are available to more of the population. It also increases the number of children who are educated and attend school regularly. The ultimate result is an increase in the average life span and a reduction in infant deaths.
- Free from Interference:
Finally, this trade is free from bureaucratic interferences. Bureaucracy and fraud are very much related to free trade.
In brief, limited trade prevents a nation from reaping the benefits of specialization, forces it to accept less competent manufacture techniques and forces consumers to pay higher prices for the production of protected industries.