This has three major effects on social welfare. Consumers are less well off due to the decline in consumer surplus (green region). Producers are doing better because the surplus of production (yellow region) is increasing. The government also has additional tax revenues (blue region). However, the loss to consumers is greater than that of producers and government. The extent of this social loss is reflected in the two pink triangles. The abolition of tariffs and free trade would be a net benefit to society. [20] [21] Most nations are now members of the multilateral trade agreements of the World Trade Organization. Free trade was best illustrated by Britain`s unilateral attitude, which reduced rules and tariffs on imports and exports from the mid-19th century to the 1920s. [5] An alternative approach of creating free trade zones between groups of countries of mutual agreement, such as those in the European Economic Area and the open markets of Mercosur, creates a protectionist barrier between this free trade area and the rest of the world. Most governments continue to follow certain protectionist measures to promote local employment, such as tariffs on imports or export subsidies.
Governments can also restrict free trade in order to limit exports of natural resources. Other barriers to trade are import quotas, taxes and non-tariff barriers, such as legislation.B. Economists largely agree that protectionism has negative effects on economic growth and economic prosperity, while free trade and the removal of trade barriers have positive effects on economic growth.[11][11][12][12][13] and economic stability. [15] However, trade liberalization can lead to significant and unevenly distributed losses and economic disorganization of workers in competing import sectors. [10] This theoretical gap has been corrected by the comparative advantage theory. Generally attributed to David Ricardo, who extended it in 1817 in his book On the Principles of Political Economy and Taxation,[81] he argues for free trade not on the basis of the absolute advantage in the production of a good, but on the relative opportunity cost of production. A country should specialize in everything it can produce at the lowest price and act to buy other products it needs for consumption. This allows countries to benefit from trade, even if they have no absolute advantage in any sector of production.
While their trade benefits may not match the benefits of a more productive country in all products, they will benefit even more economically from trade than they would in a self-sufficient state. [82] [83] The value of free trade was first observed and documented in 1776 by Adam Smith in The Wealth of Nations: [77] Sometimes consumers are better, producers feel less well, and producers are better, but the imposition of trade restrictions results in a net loss to society, as losses from trade restrictions are greater than the benefits of trade restrictions.
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