33.1 Free Trade or Protection?

Today, most governments accept the proposition that a relatively free
flow of international trade is desirable for the health of their individual
economies. But heated debates still occur over trade policy. Should a
country permit the completely free flow of international trade, or should it
use policies to restrict the flow of trade and thereby protect its local
producers from foreign competition? If some protection is desired, should
it be achieved by tariffs or by non-tariff barriers? Tariffs are taxes
designed to raise the domestic price of imported goods. Non-tariff
barriers (NTBs) are policies other than tariffs designed to reduce the
flow of imports; examples are import quotas and customs procedures that
are deliberately more cumbersome than necessary.

The Case for Free Trade

The gains from trade were presented in Chapter 32. Comparative
advantages arise whenever countries have different opportunity costs.
Free trade encourages all countries to specialize in producing products in
which they have a comparative advantage. This pattern of specialization
maximizes world production and hence maximizes average world living
standards (as measured by the world’s per capita GDP).

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