Pros and Cons of Trade

Pros and Cons of Trade

Pros (Benefits) of Trade:

1. Increased variety of goods - when there is more than 1 type of good on the market. Example: at Starbucks, we could buy a cup of a Colombian or Brazilian roast.

1. Economies of Scale - when producing in bulk lowers your costs. Example: countries that are exporting to many other nations will produce on a larger scale and this will allow them to lower costs (like Walmart)
2. Increased competition - good for consumers (we get better prices) Example: competition between Samsung and Apple has led to better quality products and at more reasonable prices.
3. Enhanced flow of ideas - we can learn from each other Example: if Tesla has a new production method, firms in other countries can learn from this

Cons (Arguments Against) Trade:

1. Jobs argument - free trade can hurt some domestic jobs. Example: if we start to import more steel from other countries because it's cheaper, it will hurt jobs in our domestic steel industry.
2. National security argument - if there's a war we don't want to depend too much on another country for a specific product or resource
3. Infant industry argument - new industries sometimes want protection against foreign companies to help them get started. Example: if Tesla is developing a new technology for electric cars, they might want some protection from foreign countries that might copy their technology even though Tesla is the one that spent millions doing the research and development.

1. Unfair competition argument - trade is only fair if all countries play by the same rules. Some countries get subsidies from their government. Example: Developed countries can afford to give their farmers more subsidies than developing countries. This allows the developed countries to lower prices for their fruits which is unfair for the developing countries.
2. Protection as a bargaining chip argument - let's say we tell a country we'll remove our tariff on their milk if they remove their tariff on our wheat.