Teaching activity

'Is Free Trade' good or bad?

Penny Brooks

18th January 2017

Is Free Trade a good thing or a bad thing? On the one hand, in her Brexit speech this week Theresa May promised to push for the "freest possible trade" with European countries and to sign new deals with others around the world, which implies that unfettered trade - with no import tariffs or quotas being applied to raise the cost of buying imported goods - is the most desirable thing for the UK. On the other hand, Donald Trump has raised the possibility of quitting various trade agreements, notably Nafta, the North American Free Trade Agreement with Mexico and Canada, on the basis that Free Trade has resulted in fewer jobs for the American work force.

Many business students will be starting to get to grips with this issue, as they begin to study Globalisation and Global Markets. There is a useful article on the BBC website which provides some helpful background reading, including a simple introduction to Ricardo's theory of Comparative Advantage. it explains the reasoning behind the 'textbook conclusion' that it is best to avoid protectionism, and then to look at how Economies of Scale can help countries to benefit from more trade.

To balance the issue, it then goes on to look at what happens to those who lose out when goods are imported rather than produced domestically, namely those whose jobs disappear as a result. In the US, there is already a welfare programme that is specially targeted for people who lose their jobs as a result of imports, called Trade Adjustment Assistance. Nevertheless, there is plenty of evidence that those US voters did not feel sufficiently compensated for the scheme, and they voted for Trump as a direct result.

Likewise, many of those who favoured Britain's exit from the EU did so in spite of the trade advantages that membership brings. Therefore this is an important topic for students to get their heads around - this article may help.

Penny Brooks

Formerly Head of Business and Economics and now Economics teacher, Business and Economics blogger and presenter for Tutor2u, and private tutor

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