Download BUS 357Free Trade and Government RegulationsThe University o and more Lecture notes Accounting in PDF only on Docsity! BUS 357 Free Trade and Government Regulations The University of Arizona Global Campus BUS 357: International Business Introduction Free trade is an agreement between two of more countries to trade without restrictions, tariffs, and quotas. The trade that takes place between two or more countries is called importing and exporting goods and services. Importing is the process of buying goods and services that are produced buy a foreign country and so then exportation would be the production of good and services that is then sold to a foreign company. In a free trade agreement those goods and services can be bought and sold between foreign countries “with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange (Barone, 2020)”. Even though it is called “Free Trade” it is not always necessary free as there are countries that must still pay tariffs on imports and subsidies on exports. Negotiations between countries that are a part of the free trade agreement must be agreed upon for free trade to be applied. The dismissal of tariffs between countries is one of the main goals of a free trade agreement (Daniels, 2018). The purpose of this paper is to examine the idea of free trade, present pros and cons of free trade, and to break down the government’s role in free trade. Idea of Free Trade British economists Adam Smith and David Ricardo created the idea of free trade arguing that trade was available universally. “Both economists were concerned with reducing the degree of protection from very high levels, and both were writing in that period of surging dynamism, in the industrial revolution (Gray, 1985)”. Smith and Ricardo believed that there are two theories why countries need to free trade. Those two theories are absolute and comparative advantage. According to Adam Smith the theory of absolute advantage is when countries produce different goods and services that should not be bought from their own country but purchase from other foreign countries as it would be cheaper buying from another country. Whereas David Ricardo countered that comparative advantage is when efficiency gains worldwide can still be a result from trading if one country specializes in their own goods and services despite some countries investment in absolute advantage (Hymson, Blankenship, & Daboub, 2009). No country has all the natural resources and goods and services to sustain on their own therefore Free trade is needed. Pros and Cons of Free Trade Countries that engage in free trade agreements see many benefits but there are also consequences that can be long term. Some of the benefits of free trade are economic growth, lower taxes, and barriers that will in turn increase business opportunities. Free trade will also attract foreign investments and reduce government expenditures. The downfalls of free trade would be that some employment opportunities will be outsources so there would be loss of domestic jobs, the reduction of IP protections and revenue, and could cause irreversible damage to the environment. Role Governments Play Governments of each country do not necessarily take action to promote free trade (Barone, 2019). The government will play a Laissez-faire role meaning the minimalist amount of intervention on a country’s economic activity (Daniel, 2018). A countries government will protect their own domestic businesses grow that will create more jobs and grow the economy with more revenue. Industries that are not receiving help from the free trade agreement can send their concerns to their government and lobby to adopt restrictions reducing the competition. The government can also divert monies that would normally have been spent on subsidies into areas that will encourage economy growth of their own country.
