WTO Link

Readers Question: What are the advantages and disadvantages of the WTO formally the GATT?

Advantages of promoting free trade

1. Lower prices for consumers. Removing tariffs enables us to buy cheaper imports
2. Free trade encourages greater competitiveness. Through free trade, firms face a higher incentive to cut costs. For example, a domestic monopoly may now face competition from foreign firms.
3. The law of comparative advantage states that free trade will enable an increase in economic welfare. This is because countries can specialise in producing goods where they have a lower opportunity cost.
4. Economies of scale. By encouraging free trade, firms can specialise and produce a higher quantity. This enables more economies of scale, this is important for industries with high fixed costs, such as car and aeroplane manufacture. In new trade theory, it is this specialisation and exploitation of economies of scale that is most important factor in improving economic welfare. 

 

This Post has been updated and moved to 

Advantages and Disadvantages of WTO