All nations can get the benefits of free trade by being specialized in producing
goods they have a comparative advantage and then trade them with goods produced
by other nations. This is evidenced by comparative advantage theory.
Trade depends on many factors, country's history, institution, size and
geographical position and many more. Also the countries put trade barriers for the
exchange of their goods and services with other nations in order to protect their own
company from foreign competition, or to protect consumers from undesirable
products, or sometimes it may be inadvertent. And even though the tariff barriers have
been reduced significantly but the other ...view middle of the document...
economic development in these countries expands the potential markets
products. Most studies suggest that the developing countries with the highest initial
tariff rates stand to gain most from reducing their tariff
The reason that developing nations generally have higher existing levels of
protection is the barriers such as high import tariffs that makes imported goods
more expensive than domestically products. That means that while the potential
benefits of cutting tariffs are more in the long-term, the short-term adjustment
costs may also be greater if the full scoop for reducing protection is exploited
("Organization for economic," 2008).
Countries have more opportunity to make industry more efficient and
competitive if they cut high tariffs on imports. But this process creates some
losers and some winners. The experience of developing nations indicate they
have greater challenges than those for developed nations because of their
different policy environment and adjusting to change.
Developing countries rely heavily on exports to developed countries. However,
customs and administrative procedures are more concern in trade among
developing nations than in trade between developing and developed nations.
Fees and charges on imports are also important barriers in trade among
developing nations (Love & Lattimore, 2009).
Role of Governments Intervention in Trade Market
Governments play an important role in free trade, it has to enforce and maintain
competition and should put policies that ease new investors access the markets.
Government intervention should be present where there is natural monopolists exist
and competition is not possible. Government has an obligation to ensure that trade
produces fair results (Divounguy, 2010). With government intervention, whatever
activity subsidized it will be getting more of it because of lowering the cost.
One of the main issue in economics is the extent to which the government should
intervene in economy. Free market economists argue that government intervention
should be strictly limited as government intervention tends to cause an inefficient
allocation of resources. They argue that the government liable to make wrong
decisions due to influence by political pressure groups and that they spend on
inefficient projects leading to inefficient outcome. Government interventions also
takes personal freedom away and intervene in individual decisions. Argument against
government intervention see that market is the best at deciding how and when to
In the other hand, other economists argue there is a strong justification for
government intervention. They see that government intervention gives greater
equality by redistributing income and wealth to improve equality of opportunity and
equality of outcome. Another reason is that governments can subsidise or provide
goods with positive externalities...