Question

How would you make a convincing case that open trade in goods and services as well as free flow of foreign direct investment will enhance the well-being of (a) consumers, (b) producers, and (c) the government of countries? Give specific examples to prove your position.

Answer 1

Answer:

Free trade of goods and services benefits all countries in the world. This is because of the concept of comparative advantage that tells us that some countries are better at providing specific goods and services than others.

For example, Japan is made up of relatively small islands that are very mountainous, forested, and lacking in natural resources. Besides, the country has a large population concentrated in the few flat areas. This essentially means that Japan is severly lacking in agricultural land and raw materials, and has to import most of its food, oil, natural gas, among other things. This is why the country has specialized in electronics, automobiles, and pharmaceuticals.

Brazil is the opposite: a very large country with hundreds of thousands of square miles fit for agricultural production. The country is a great exporter of soy, rice, sugar, and oil. However, the brazilian industry is not competitive, and most of its exports are to neighboring Argentina.

Without free trade, Japan could hardly feed itself, or it would do so with great difficulty. At the same time, Brazil would have a large surplus of food and raw materials, but its citizens would lack access to high-tech Japanese goods such as Toyota cars, or Sony electronic devices. Both countries would be worse-off.