![]() Also, the success of trade liberalisation depends on how flexible an economy is. However, these benefits may not be distributed equally. Trade liberalisation can give substantial economic benefits. See: Arguments against free trade Conclusion Because of this argument, some argue that trade liberalisation often benefits developed countries more than developing countries. It is unfair to insist that developing economies cannot use some tariff protectionism. ![]() Most economies had a period of trade protectionism. The infant industry argument suggests that trade protection is justified to help developing economies diversify and develop new industries. ![]() Trade liberalisation may be damaging for developing economies who cannot compete against free trade. greater production of raw materials, trading toxic waste to countries with lower environmental laws. Trade liberalisation could lead to greater exploitation of the environment, e.g. Though net economic welfare improves, it can be difficult to compensate those workers who lose out to international competition. Trade liberalisation can often be painful in the short run, as some industries and some workers suffer from the decline in uncompetitive firms. Therefore, there may often be structural unemployment from certain industries closing. Trade liberalisation often leads to a shift in the balance of an economy. Inward investment leads to capital inflows but also helps the economy through diffusion of more technology, management techniques and knowledge. For example, former Soviet countries who liberalise trade will attract foreign multinationals who can produce and sell closer to these new emerging markets. If a country liberalises its trade, it will make the country more attractive for inward investment. This can enable big efficiency savings from economies of scale. Economies concentrate on producing particular goods. Trade liberalisation enables greater specialisation. For example, trade liberalisation has been a factor in encouraging the UK to concentrate less on manufacturing and more on the service sector. This should act as a spur to increase efficiency and cut costs, or it may act as an incentive for an economy to shift resources into new industries where they can maintain a competitive advantage. Trade liberalisation means firms will face greater competition from abroad. This would be particularly a benefit for countries who are importers of food. ![]() removing food tariffs in West would help reduce the global price of agricultural commodities. The removal of tariff barriers can lead to lower prices for consumers. This leads to significant increase in consumer surplus of areas 1+2+3+4. Trade liberalisation leads to removal of tariff barriers and the market price will fall from P2 to P1. This enables a net gain in economic welfare. Trade liberalisation allows countries to specialise in producing the goods and services where they have a comparative advantage (produce at lowest opportunity cost). Harmonising environmental and safety legislation makes it easier for international trade. For example, having specific regulations on making goods can give an unfair advantage to domestic producers. Non-tariff barriers are factors that make trade difficult and expensive. Trade liberalisation involves removing barriers to trade between different countries and encouraging free trade.
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