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Free Trade and International Trade Wars

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Economists usually favor free trade because without it, aggregate output suffers and international trade wars can take place and competition among nations is reduced. Please explain.

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Solution Summary

The solution discusses the link between free trade and aggregate output. Its shows that free trade creates positive competition. The world economy thrives in an unhindered economic environment.

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Free trade creates competition. Through competition, nations will strive to produce high quality products/services. When goods flow freely, everyone competes and export winners are those countries that employ innovation. Eventually, consumers reap the benefits of high quality products brought about by free trade.

My point is that the world economy thrives in an unhindered economic environment. Trade should not be obstructed by any forms of monopolies. This is what is meant by Smith (1776) when he wrote that ?a trade which is forced by means of bounties and monopolies, may be, and commonly is disadvantageous to the country in whose favour it is meant to be ...

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