Trade liberalisation

Trade liberalisation

Trade liberalisation

Two opposing forces have shaped the changing pattern of world trade over the last 200 years; the promotion of free trade and the protection against free trade. Trade protection is the process of erecting barriers to trade, such as taxes on imports, called tariffs, and trade liberalisation is the process of making trade free from such barriers.

The UK is an extremely open economy with a long history of promoting trade openness. By 2012, trade accounted for around 61.8% of the UK’s national income, although by 2016 it had fallen back to 56.5%.



Video courtesy of World Trade Organization; Rue de Lausanne 154; 1211 Geneva 21; Switzerland: Link: WTO Video

The advantages of free trade

It can be argued that free trade creates the following advantages:

Specialisation and comparative advantage

Free trade encourages countries to specialise and benefit from the application of the principle of comparative advantage.

Increased world output

If countries specialise and trade, world output is likely to increase as scarce resources will be used more efficiently. Mass production will generate considerable economy of scale, which reduce average costs.

Increased competition and lower prices

Free trade increases competition, which generates further benefits, including lower prices, greater use of new technology and technology transfer between countries. Free trade will also encourage the breakdown of domestic monopolies, and provide greater choice for consumers and firms.

Higher quality

Open economies are likely to see an increase in the quality of products available as overseas firms compete on non-price factors, such as design and reliability.

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