Discuss the justifications for and limitations to free trade

​​​​​​Free trade refers to that which allows a country to trade competitively with another country as there are no tariffs or restrictions regarding what can be exported or imported. The main benefit of free trade is an economic one as it allows countries to specialise and concentrate on their comparative advantages, which can be defined as things they do better than other countries. As a result of countries producing according to their comparative advantage, goods and services can be made with as little cost and possible and therefore all countries are able to obtain goods and services more cheaply than if they had to produce them themselves, as well as obtaining them all year round. If countries can trade freely and easily, there is greater competiton in the market, which promotes efficiency as producers look to reduce the costs of production and innovate to increase demand. Often, free trade and greater competition can lead to speacialisation as countries focus on the good in which they are better at producing. Similarly, this allows customers with a wider choice and often with higher quality products. Finally, the increased and more open trade that free trade promotes will encourage economic, political and cultural links between countries. 

On the other hand, there are several factors which can limit free trade and make it hard to achieve in reality. Firstly, the theory of free trade assumes there is perfect mobility of labour, when in reality factors of production such as labour, land and capital may fixed or not completely mobile. Similarly, many countries trade in different currencies and so exchange controls can limit the amount of foreign currency that comes into a country. Protectionism is also a big obstacle to free trade as many countries look to protect their economies through creating restrictions to trade. Barriers to the entry of goods into a country can be imposed such as tarrifs, taxes imposed on imports, and quotas, limits the quantity of certain products that can be imported. Finicial subsidies are another form of protectionism which limit free trade as governments inject money into developing exporting industries and can therefore giving them an advantage over other industries which may have the competitive advantage, reducing efficiencies. An example of protectionism can be seen as tariffs were imposed on imports of Chinese tyres into US of 35%.