FREE TRADE AND strongPROTECTIONISMstrong.pdfVIP

FREE TRADE AND PROTECTIONISM BENONI DIMULESCU Benoni DIMULESCU, Ph.D. Candidate University of Craiova Key words: free trade, protectionism, tariff, quantitative restriction, subsidy Abstract: One of the most interesting debates in economics is about free trade and protectionism. The arguments in favor of both directions are described by the analysis of free trade case and protectionism case. These are based on the economists’ thoughts that, on a side, the state should not intervene in international flow of goods and services and, on another side, it should be created a system of tariffs, quotas and export subsidies in order to protect the national economy of each state in report with the foreign competition. The case for free trade The incidence of tariffs A tariff causes a net loss for the economy, quantified in the next figure by the surface of two triangles (b and d). This loss is determined by the distortion of economic incentives both for producers and consumers. In contrast, the trend towards free trade excludes these distortions and leads to the increase of national welfare. Price P D (demand) S (supply) Production Trade distortion distortion d World price plus tariff PT a b c d