Is Free Trade Passé?

Introduction

In analyzing free trade versus other systems that promote trade in dissimilar ways, one must take into account a 360 degree view of all supporting and derogatory factors of each style. There is no such thing as perfect competition or constant returns; these are both factors that can never truly be in place because of the nature of an economy. The fact is that “economists do not have reliable models” (Krugman, 1987, p139) to truly reflect economic behavior. But for the sake of building theory, assumptions like these must be made to prove points and provide new ideas on age old questions. For this analysis we will be comparing free trade against strategic trade policy and a system of external economics. All three have there place, depending on how one would like to shape an economy and what compliments an economy in the most proficient way.

Strategic Trade Policy

First, lets analyze the system of strategic trade policy which allows government factions to subsidize and intervene with businesses within their specific sector to promote benefit for said businesses and intern the economy. This type of of government intervention manipulates trade policy to benefit the country in question through its domestic producers. “When there is a significant domestic market for a good, protection of this market raises the profits of the domestic firm” (Krugman, 1987, p.136) and is the key reason that a strategic trade policy is put into place. The root idea of this type of policy is to increase wealth or create a benefit, which is the same reason for pursuing any kind of business, including trade. That is exactly the sentiment behind what this theory advocates; creating success through promotion of the internal economy. ...

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... true spirit of innovation. With this kind of trade, “each country continues to specialize in the production of the of its comparative advantage until its product price equalizes with that of the other [countries]” (Carbaugh, 2011, p.73) around the world. Even though strategic trade policy is not perfect, this theory best fits our current society and should be implemented the world over to create a climate of healthy competition and improved worldwide comparative advantage.

Works Cited

Carbaugh, R. J. (2011). International economics (13th ed.). Mason, OH: South-Western Cengage Learning

Wright State University (2011). Welcome to Wright State University | Wright State University. Retrieved March 18, 2012, from http://www.wright.edu/~tdung/Chapter6_Pugel.htm

Krugman, P. R. (1987). Is Free Trade Passe?. The Journal of Economic Perspectives, 1(2), 131-144.