An examination of some theories in the field of international trade made it possible to determine the reasons for the trade of countries with each other. However, an equally important issue is the choice by states of a certain type of international trade policy .
Based on theoretical aspects, we can distinguish a policy of protectionism and free trade. These are the two main types of international trade that contribute to obtaining positive results for the state economy. Let us dwell on each of them.
Definition of the term “free trade”
Free trading is a policy within the framework of which the state should refrain from interfering in the sphere of foreign trade. Thanks to this behavior, the country is developing international trade under the influence of supply and demand. There is another name for free trading. This is a free trade policy that should to the greatest extent meet the interests of any state, which leads to the achievement of maximum volumes of products for each of the trading parties.
Definition of Protectionism
However, another type of international trade policy is known - protectionism. In this case, the national market is protected from foreign competition using customs tariffs, as well as non-tariff regulatory mechanisms.
Among the supporters of both free trade and protectionism, there is a constant discussion about the advisability of implementing one or another of these policies. Each of the parties to the dispute puts forward certain arguments in support of its position.
Free trading: pros and cons
This type of policy proves that any interference by the state in the formed interstate exchange of goods is economically harmful.
The arguments of free trading are the use of a general theoretical thesis, based on a comparison of indicators of production costs, thanks to which the world economy achieves a rational allocation of resources and a high standard of living. The production technology and resource structure in each individual country have their own characteristics, which determine the differences in the national production costs of various products and resources, which causes specialization in the division of labor in the international arena. Less expensive and better resources and products are also allocated there.
With all these positive aspects of free trade, the following features do not include the advantages of free trading. Since the population may prefer imported analogues of higher quality to domestic goods, Russian producers will reduce their production with the subsequent dismissal of workers. This fact will lead to a decrease in tax revenues to the state budget. There is also a possibility that the state will increase its dependence on foreign-made goods, prices for which will rise and most of the population will no longer be able to buy them. The best result of the implementation of free trading is to stimulate manufacturers to improve their products while reducing costs. This fact will lead to lower prices for finished products.
Other reasons for applying the principle of free trade
There are other facts that indicate the benefits of using free trading. These are such arguments:
- increased competition in the domestic market of states by attracting external suppliers, which significantly limits the monopoly of local producers;
- stimulation of economic activity of national producers who are forced to fight with foreign competitors for buyers;
- expanding the choice for buyers who have the opportunity to compare the price and quality of foreign and domestic products.
Arguments for protectionism
It is necessary to highlight the following main points:
- in the interests of national security, there is a need for self-sufficiency of the economy in the main strategic sectors, due to which food and resource dependence on other states is not allowed by ensuring the protection of domestic production from foreign suppliers;
- the need to preserve jobs with their subsequent increase;
- the need to support domestic demand for products of national producers, and not their foreign counterparts;
- ensuring economic stability through diversification due to the high risk of various economic fluctuations in the world economy with a narrow specialization of the domestic economy;
- the need to protect new sectors of the Russian economy that are not capable of competing with similar foreign manufacturers without state support;
- Creation of favorable conditions for the improvement of certain industries at the expense of profit, which can be obtained due to the increase in prices with the introduction of customs duties.
History of the implementation of free trading in foreign countries
What is free trading can be considered on the example of managing in the 19th century in England. At that time, freedom of trade was manifested in the total exemption from various customs duties of goods imported to and exported from England. Moreover, in this period, thanks to duty-free sales of its products, as well as the importation of cheap imported raw materials and food, England was able to quite successfully obtain high results in its domestic market.
England in the 60s. On the principle of mutual favors of the 19th century, bilateral treaties were concluded with Belgium, France, Italy, Sweden and Austria. Particular attention should be paid to the Anglo-French Treaty (1860). At first glance, this agreement would be more beneficial for France, since it was England that abolished all duties on silk and French food allowances, while France only reduced the tariff on English coal, cars and wool. However, English goods, despite partial duties, were much cheaper and therefore flooded the French market. Thus, the policy of free trading helped maintain England's dominant position in the global market.
Examples of using free trade policy in Russia
The policy of free trading was used in various periods of the economic development of Russia. Without going deep enough, let us turn to the economic theory of the 20th century. So, in the 80s, the Russian market was characterized by a deficit of absolutely all consumer goods. At the same time, prices were quite low, and the queues were significant. 1992 was marked by the abolition of the state’s monopoly on foreign trade, which was a prerequisite for the rapid flow of foreign goods into the domestic market. Trade began to develop rapidly, there was a layer of entrepreneurs, known as "shuttles". They mainly imported cheap goods from China and Turkey, which were sold immediately on the streets near markets and shops.
The current state of the Russian economy
Today this stage has passed, and the buyer has a choice - to purchase goods of domestic or foreign production. A vivid example in this matter is the food market . For example, Russian products have a number of advantages such as naturalness, freshness and the absence of various harmful additives. However, it has a price slightly higher than its foreign counterpart. Yes, and it looks a little worse than overseas products.