In the seventeenth and eighteenth centuries, the dominant consideration was that a prosperous nation should export more than it could import, and that the trade surplus should be used to develop the nation`s treasure, especially gold and silver. This would allow the country to have a larger, more powerful army and navy and more colonies. In addition to trade diversion and trade creation, which are essentially static effects, participants in free trade areas and customs unions are also striving for dynamic advantages, . B such as an expansion of production, as firms take advantage of the growing size of the market to increase their production, and increased efficiency as firms adapt to increasing competition. Access to a larger market is particularly important for small countries whose economies are too small to justify large-scale production. If the diversion of trade is greater than the creation of trade, the formation of the customs union or the free trade agreement would reduce the well-being of the world. If trade creation is more important, global well-being will be improved. Two simple ways to understand the proposed benefits of free trade are David Ricardo`s theory of comparative advantage and analysis of the effects of a tariff or import quota. An economic analysis using the law of supply and demand and the economic impact of a tax can be used to show the theoretical advantages and disadvantages of free trade.

[16] [17] First, David Ricardo based his theory on the assumption that production costs increase with increased production; In other words, each additional unit produced costs more than the previous unit, and this is true for many products such as wheat. This assumption implies that countries have a comparative advantage over certain assets because of their natural endowment. However, many products today are manufactured under conditions of reduced costs; For example, the cost of manufacturing any additional semiconductor or aircraft decreases as production increases. The extremely important implication of this is that countries can create comparative advantages. Many classical liberals, particularly in 19th and early 20th century Britain (e.g., John Stuart Mill.B) and in the United States for much of the 20th century (e.g. B, Henry Ford and Secretary of State Cordell Hull), believed that free trade promoted peace. Woodrow Wilson included the rhetoric of free trade in his 1918 speech “Fourteen Points”: Quote from Harvard economics professor N. Gregory Mankiw, “[t]he theses dominate the consensus among professional economists as much as open world trade increases economic growth and living standards.” [25] In a survey of leading economists, no one disagreed with the idea that “trade liberalization improves production efficiency and gives consumers a better choice, and in the long run, these gains are much greater than any impact on employment.” [26] Instead, the real debate between economists and policymakers revolves around whether the UNITED States should respond to foreign neo-merctantist practices, and if so, how. Stephen Cohen and his colleagues say: “The WTO has been an extraordinary achievement. For the first time – and almost unique to international institutions – the system included binding dispute settlement so that victims of rule violations could receive compensation. The big countries could no longer throw their full weight behind and assume that any injury to others was without consequences.

Confidence in the new institution was so great that when China joined it late in 2001, many in the West hoped it would lead to economic and political convergence with wealthy democracies. This happens for some products as a result of multilateral trade negotiations. For example, a country often lowers tariffs on products that are not sensitive to imports – often because they are not manufactured in that country – more than it reduces tariffs on import-sensitive products. In a free trade agreement where the end result is zero tariffs, this would have no effect if the agreement were fully implemented. However, during the transition period, it could be relevant for certain products. Apart from this exception, however, the removal of tariffs or other barriers to trade increases trade in the product, and this is the intention of the trade agreement. George considers the general free trade argument to be inadequate. He argues that the abolition of protective tariffs alone is never enough to improve the situation of the working class unless it is accompanied by a shift to land value tax. [88] Fourth, Western economic theory assumes that trade will be reasonably balanced over time. If this is not the case, this indicates that the deficit country will import products for which it would normally have a comparative advantage; If these products are located in areas where production costs are decreasing, the industry may lose its competitiveness in global markets over time.

From the time of Adam Smith in 1776 until the introduction of GATT in 1947, economic theory of trade developed quite slowly. However, since the introduction of GATT in 1947, a number of important changes have been made to the traditional Western economic theory of international trade. These changes largely update the basic theory of trade to reflect the new realities of industry and commerce. According to prevailing economic theory, the selective application of free trade agreements to some countries and tariffs to other countries through a process of trade diversion can lead to economic inefficiency. This is effective when a good is produced by the country that is the most profitable producer, but it does not always happen when a high-cost producer has entered into a free trade agreement while the low-cost producer faces high tariffs. The application of free trade to the high-cost producer and not also to the low-cost producer can lead to trade diversion and net economic loss. This is why many economists place as much emphasis on negotiating global tariff cuts as the Doha Round. [16] Access to other markets plays an important role in this business model, in which comparative advantages can be created. Without free trade, it becomes extremely costly for a government to subsidize a new entrant, as the subsidy must be large enough to both overcome barriers to foreign trade and stimulate domestic producers. Wto-U.S.

free trade agreements also play an important role in establishing rules that govern the steps a country can take in many areas to create a comparative advantage. For example, the Grants Code limits the type of grants that governments can provide. Almost all Western economists today believe in the desirability of free trade, and this is the philosophy advocated by international institutions such as the World Bank, the International Monetary Fund and the World Trade Organization (WTO). And that was the view after World War II, when Western leaders created the General Agreement on Tariffs and Trade (GATT) in 1947. As a result, companies in certain industries, such as electronics and chemicals, became multinational companies and began to buy and produce more and more parts and materials in a number of countries. Whenever these parts and materials cross a border, an international commercial transaction has taken place; then, when the final product is exported, another international commercial transaction has taken place. However, poor countries that have pursued free trade policies have experienced strong economic growth, with China and India seen as good examples. Free trade allows companies in rich countries to invest directly in poor countries, share knowledge, provide capital and access markets.

Various proponents of economic nationalism and the school of mercantilism have long portrayed free trade as a form of colonialism or imperialism. In the 19th century, such groups criticized British demands for free trade as a cover for the British Empire, particularly in the works of the American Henry Clay, architect of the American system[70] and the German-American economist Friedrich List (1789-1846). [71] [16] The Census Bureau`s Foreign Trade Statistics website, www.census.gov/eos/www/naics/, is a good source of data on the data systems used. Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the idea of the free market applied to international trade. In government, free trade is overwhelmingly advocated by political parties that have liberal economic positions, while economically left-wing and nationalist political parties generally support protectionism.[1][2][3][4] the opposite of free trade. Another important concept in international trade theory is the concept of the “terms of trade”. This is the amount of exports needed to get a certain amount of imports, with fewer exports needed, the better it is for the country. .