Free trade

Free trade

The benefits of free trade

  • Countries are able to specialise in the production of goods and services that they are best at which means costs tend to be less. For instance, it is cheaper to grow tropical fruits in the warmer climates and import them than to try to grow them in the UK.

  • Consumers can purchase goods that would not be produced within their own country. In addition, firms can import products with their exact specifications due to the greater choice, which increases productivity and profitability.

  • Operating in international markets means that demand is likely to be higher and therefore firms can expand their output whilst benefitting from economies of scale. These cost savings by firms can then be passed onto the consumers as well.

  • Due to the increased competition, domestic firms are forced to improve the quality of their output and so more efficiently allocate resources. For instance, monopoly power tends to decline

  • The transfer of technology and ideas across borders becomes faster. This means that innovation in one country has benefits for many others as well.