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Free Trade

Free trade is where trade between two or more countries can be done without the interference of protection, which may lead to the advantage or disadvantage to one of the parties involved in the trade (Parry & Kemp 2002, p. 93). Protection refers to and action by the government which is designed to give the domestic producer and artificial advantage over a foreign producer. Types of protection can be classified in three different categories. These are:
• Those which impose quantitative restrictions on imports including quotas, import licenses and embargoes.
• Those which lead to a cost advantage to producers such as subsidies.
• Those which lead to the increase of price in foreign products such as tariffs (Parry & Kemp 2002, p. 93).
The main goal of protection is to encourage production in the domestic markets that are protected. The main beneficiaries from protection include those owners and workers in the protected industries and in some cases the government benefits from tariff revenue (Parry & Kemp 2002, p. 93).
Protection has got its downsides such as the possible costs on the economy. Industries that obtain protection will expand and use resources that other industries could have used. This will lead to a decline in production in non-protected industries and possibly higher prices for imported inputs which will lead to a reduction in competitiveness. Protection which obviously causes a decrease in imports, also leads to a decrease in exports. Consumers will be forced to pay more for both domestic and imported goods. Basically consumers pay more and get less (Parry & Kemp 2002, p. 93).
There are many different types of protection, with most having similar aims. Quotas are limits that are placed on a product that can be imported. Quotas are usually imposed by the government but nations can voluntarily restrict the amount of exports to a particular location through agreements with other governments (Sloman & Norris 2005). Embargoes are a complete ban on...