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Free Trade Homework

Free trade allows goods and services to flow freely between countries without restrictions like tariffs or quotas. There are both pros and cons to free trade policies. Some key benefits include increased economic growth, lower prices for consumers, and more foreign investment. However, free trade can also eliminate local industries unable to compete, make it difficult for new industries to emerge, and potentially threaten intellectual property or decrease domestic employment. For these reasons, some countries prefer trade restrictions to protect local jobs and industries, maintain control over strategic resources and industries, and increase government revenue from tariffs on imports.

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66 views3 pages

Free Trade Homework

Free trade allows goods and services to flow freely between countries without restrictions like tariffs or quotas. There are both pros and cons to free trade policies. Some key benefits include increased economic growth, lower prices for consumers, and more foreign investment. However, free trade can also eliminate local industries unable to compete, make it difficult for new industries to emerge, and potentially threaten intellectual property or decrease domestic employment. For these reasons, some countries prefer trade restrictions to protect local jobs and industries, maintain control over strategic resources and industries, and increase government revenue from tariffs on imports.

Uploaded by

Zsa Zsa Nurfajriah Mallu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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FREE TRADE

Group 14
Member’s Name :
1. Yukatari Fiorenza Ramada Haryadi D0421070
2. Zahidurrafif Hikmal D0421071
3. Zharfan Surya Nauvally D0421072
4. Zsa Zsa Nurfajriah Mallu D0421073
5. Adinda Afiya Nafisya D0421074
6. Aulia Putri Hernanda D0421076

1. Explain the concept of 'free trade' (policy)


- The free trade policy in question is that trade between countries can be carried out and allows
the flow of commodities to enter and leave one country and region without any obstacles
2. What are the pros and cons of free trade?
Pros :
- Free trade stimulates economic growth
Free trade policy means that trade between countries can be carried out and allows the flow of
commodities to enter and exit one country and region without any obstacles.
- Free trade helps consumers
Trade restrictions such as tariffs and quotas are in place to protect local businesses and
industries. When trade restrictions are removed, consumers tend to see lower prices as more products
imported from countries with lower labor costs are available locally.
- Free trade increases investment
Foreign investors tend to pour money into local businesses helping them thrive and compete
because there is no restrictions.
- Free trade helps reduce government spending
Governments often subsidize local industries, such as agriculture, for their lost income due to
export quotas. Once the quota is lifted, government tax revenues can be used for other purposes.
- Free trade encourage technology transfer
Especially in the industrial sector with the emergence of new technologies can help in
producing more goods in a short term.
- Free trade expand cooperation between countries and expand opportunities for job

Cons
● Get rid of the domestic industry. 
Increased competition forces non-competitive industries to die and raises unemployment. The
effect is even more significant if most industries are uncompetitive.

● New industries are difficult to grow.


Before becoming mature, some industries need government protection. That won’t happen in
a free trade area. Sometimes new industrial products are less competitive with foreign
products.

● Exploitation of natural resources.


Free trade can lead to exploitative behavior. Member countries seek to increase exports to
other members to take advantage of the free flow of goods and services.

● Threats to intellectual property. Manufacturers can easily copy other member countries’


products. When law enforcement is weak, the threat to intellectual property is also higher.

● Decreasing employment
free trade opens access to labor from various countries to partner countries

● The emergence of unequal competition between developed and developing countries.

3. What are the reasons why some countries may prefer to implement trade
restrictions/barriers? What arguments can they use?
● Prevent unfair competition
Governments may prefer to impose trade restrictions because they are aware of dumping
practices. That's why the government applies anti-dumping tariffs. Dumping is a practice in
which their producers export at a lower price than their domestic market price. Because they
are cheaper than they should be, domestic companies have to face unfair competition from
imported goods. for example, the Indonesian government imposed a 15% anti-dumping duty
on iron to prevent massive iron imports and support the domestic iron industry.

● Saving domestic jobs


Governments may prefer to implement trade restrictions because they recognize that
increased imports reduce domestic employment opportunities. That's because domestic
producers are unable to compete and their position is threatened. Some may close, while
others are still operating but under pressure. That in the end reduces the absorption of labor in
Indonesia. For example, the Government has compiled a number of import control
instruments. limited prohibition, implementation of pre-shipment inspections, as well as port
arrangements in eastern Indonesia as entry points for prioritized commodities. Then, other
import controls are reinstating the rules for inspecting imported products from the post-border
to the border, increasing the Most Favored Nation tariff for strategic commodities, and
increasing the implementation of trade remedies. All these efforts were made in order to
suppress imported goods that hit Indonesia and to save domestic jobs.

● Saving the environment and consumers


The government may prefer to apply trade restrictions because they know that imported
products do not necessarily pass or fail to meet product safety requirements in Indonesia,
which can result in fatal dangers, both for the environment and also for the health of
consumers. In this case this protection helps save the environment and consumers from
imported products that are not required For example, in Indonesia, revamping product
certification bodies for the issuance of Indonesian National Standards (SNI). the application
of SNI is mandatory. This is done so that imported products meet the requirements and are
safe and not harmful to the environment and consumers.
● To Put Pressure on Foreign Government
The government may prefer to apply trade restrictions because they have some sort of conflict
with another country's government so the government imposes a trade barrier in the form of
embargo to ban any sort of trade of a certain product or any trade with another country or a
group of countries. Real life example of this is. U.S. Sanctions on China: Most recently, the
U.S. and China are in trade wars—each responding with their own tariffs. On April 16, 2018,
the U.S. imposed a seven-year ban on exports to ZTE, a Chinese telecom company. The
Washington Post explained that ZTE was reprimanded for “illegally exporting U.S. goods to
North Korea and Iran.” On June 7, the U.S. ended the ban

● To Increase Government Revenue


As for this particular reason, I think the most important reason as to why the government
imposes trade barriers in the form of tariffs( Tax on imports). With imposing tariffs on a
certain product especially a product that is very popular among the locals. Goverment will
gain a lot of revenue from these tariffs. The government may said that they impose this trade
barriers to save domestic business and all that stuff but i think that for every trade barriers in
the form of tariffs it is ultimately for increasing government revenue real life example of this
is “america first” which was trump economy policy they increase the tariffs of washing
machines it would be taxed at 20%, and the subsequently imported washers would be taxed at
50% in the following two years. For imported solar panel components, they would be taxed at
30%, with the rate declining over four years.

● Domestic production activities will increase state income


If foreign goods and services are restricted from entering the domestic market, it will
automatically increase domestic income because people will buy domestic products. With the
free market, some domestic industrial sectors will be unable to compete in the economic field
and may even experience losses.

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