Is Free Trade is good for the economy (of both trading nations) Essay

Is Free Trade is good for the economy (of both trading nations) - Essay Example If it is cotton, then Country A can concentrate of producing it and allow Country B to produce corn. This is not to say that the countries will not produce the other commodity, corn for Country A and cotton for Country B, but this applies to trading. The two countries can thus effectively trade with each other and reap maximum benefits. The beauty of comparative advantage is that everyone has a comparative advantage at producing something. Comparative advantage is useful in explaining why a country, on comparison with its trading partners, might produce and export something its citizens don’t seem very skilled at producing.2 Comparative advantage explains this scenario by advancing that citizens of the country importing must be better at producing another commodity thus enabling them to pay the exporting country for the work they have done.3 Modern international trade involves goods and services that could be produced anywhere in the world, and so buyers have the option of buying products that are either domestically produced or imported.4 In Adam Smith’s theory of absolute advantage, however, nations will export goods they are capable of producing at lower costs than the country which is importing them. It has been of concern that an economy with comparative advantage in making various commodities is likely to cause unemployment in other countries. China has grown tremendously in the recent past to become a force to reckon with in the manufacturing sector. The Chinese manufacturers have the benefit of affordable labor so most of the products they manufacture are cheaper than those manufactured in other parts of the world.5 Countries such as America have found themselves worried about doing business with China due to their competitive prices. However, there is no need for worry since every economy can identify a sector where they are best at. In so doing, an economy