Advantages of free trade

Free trade occurs when there are agreements between two or more countries to
reduce barriers to the import and export markets. These treaties usually involve a
mutual reduction in duties, taxes, and tariffs so that the economies of every country
can benefit from the various trading opportunities. One of the most well-known
examples of this approach is the USMC Agreement, which replaces NAFTA to
govern free trade across North America.
Free trade agreements allow a country to have access to more markets throughout
the world. It can encourage local industries to improve their competition while
relying less on subsidies from the government. It is a process that can lead to the
opening of new markets, and improvement in GDP figures, and new investment
opportunities.
When free trade involves a developed country and one that has yet to fully
industrialize, then there can be an exploitation of natural resources that occurs.
Some households might see the traditional livelihood fade away for modern jobs. It
can even cause problems in the domestic employment sector for all involved
parties.
The advantages and disadvantages of free trade show us that any nation deciding to
enter into an agreement must take proactive steps to guard their resources and
people against exploitation without resorting to protectionism.
List of the Advantages of Free Trade
1. Free trade creates economic growth opportunities.
The free trade agreements in North America helped the U.S. economy grow by an
average of 0.5% per year more than it would have otherwise. When countries can
freely move products across borders, then each nation gets to take advantage of the
manufacturing, commercial, and industrial strengths of every other economy in the
agreement. That means there are lower cost burdens to worry about with each
transaction, prices stay lower, and there can be healthy competition in the market.
2. There are more opportunities for foreign direct investment.
When nations remove the barriers that are in place for free trade, then more
companies are willing to invest in other countries. There are new investments,
partnerships, and opportunities that develop because of this approach in markets of

any size. That means you can focus on creating deeper, more fulfilling
relationships with other governments who share the same perspective of the world
today. Countries with shared borders can promote a better standard of living
because it is harder to go to war with someone who is your economic partner.
Between 1994-2019, the policies of free trade allowed for an average of $25.6
billion in foreign direct investment to support the American economy each year.
The second quarter of 2018 saw a record of $55.83 billion in that three-month
period alone.
3. It lowers the taxes that consumers and businesses pay.
The inclusion of tax and investment protection in free trade agreements make it
possible to guard the interests of local business owners more efficiently. When
these safeguards disappear, then the result tends to favor the consumer because
more competition from global agencies can happen at the level of consumption.
This advantage reduces stagnation within markets, though at the risk of eliminating
smaller businesses from the equation. Lower assessments and fewer restrictions to
entry can also reduce pricing for customers.
4. Fewer government expenditures occur because of free trade.
Several domestic industries receive financial benefits from the government,
including farming and other areas of agriculture. This money goes from the
taxpayer to the producer as a way to counter the impact that tariffs have on the
import and export markets.
By injecting new best practices and creating new competencies into the domestic
delivery systems, less government money is necessary to keep prices affordable at
the local level. This advantage means that the tax revenues can go toward
infrastructure needs, social programs, defense, or other community requirements
without keeping unprofitable business ventures afloat.
5. It creates better goods.
When free trade occurs, then each market receives more access to higher-quality

goods at lower prices. Cheaper imports help to ease the pressure of inflation in the
United States because of the American relationships with China and Mexico.
Prices are held down by over 2% for every 1% share in the market of imports that


come from countries with a lower income level. That means the average U.S.
household has more money to spend on other products. The requirement of
innovation here means that businesses are constantly finding ways to solve
problems for consumers.
6. Free trade involves more than just consumer goods.
At least 50% of the imports to the United States each year are not consumer goods.
They are inputs for producers who are based in the U.S. so that domestic
production costs can go down. This advantage also promotes economic growth
because it diversifies the supply chain for an organization of any size. Even microbusinesses, freelancers, and gig specialists can benefit from this advantage because
the Internet provides immediate access to cheaper goods, new research, and service
expansion opportunities.
7. It helps the people who have the least amount of money to spend.
Some people believe that more wealth can only come when a country can export
more of its goods or services to other nations. The economic reality of free trade is
that it is the total level of imports and exports that accurately reflects prosperity.
When the people at the lower tier of the national income levels have more money
to spend, then the entire economy benefits. That’s why the removal of tariffs is
such an integral part of this process.
Cheap sneakers that come from China might have an import as high as 60% some
years in the United States. If you were to purchase a part of Italian leather dress
shoes, the tariff might be less than 9%. Regular drinking glasses have a tariff of
almost 30%, but crystal glasses have one at 3%. When more Americans can buy
cheap imports, then it encourages non-Americans to invest more in the country.
8. Free trade creates more opportunities to solicit workers with expertise.
Automakers sent jobs to Mexico because of NAFTA, and then decided to import

the vehicles back to the United States because of the favorable tariff policies.
Although this issue took some jobs from American laborers, it also gave companies
the chance to find workers from almost anywhere in the world with the right levels
of expertise. By looking to foreign markets for this help, the costs stay down for
the manufacturing process to maintain pricing at competitive levels.


This advantage also means that multiple economies around the world can benefit
from this approach. It is one of the reasons why India has one of the fastestgrowing Middle Class sectors in the world today.
9. Experts get to have access to the most resources with free trade.
Free trade agreements attempt to put the most opportunities into the hands of the
people who can create successful outcomes. There are no border restrictions to this
advantage. That’s why anyone can become whatever they want to be in life if they
have access to an economy built on this principle. The amount of competition that
becomes available is the primary driver of what local populations think is possible.
Anyone can become what they want to be in life if they work hard enough to reach
their goals thanks to the fewer economic restrictions that exist with this
opportunity.