What are the disadvantages of Free Trade ?

Despite many advantages, free trade policy has never been completely adopted by all the countries of the world. Particularly after the World War II, the policy was abandoned even by those who had previously adopted it. The following arguments are given against free trade policy.

1. Unrealistic Policy:

Free trade policy is based on the assumption of laissez-faire or government non-in­tervention. Its success also requires the pre-condition of perfect competition. However, such conditions are unrealistic and do not exist in the actual world.

2. Non-Cooperation of Countries:

Free trade policy works smoothly if all the countries cooperate with each other and follow this policy. If some countries decide to gain more by imposing import restrictions, the system of free trade cannot work.

3. Economic Dependence:

Free trade increases the economic dependence on other countries for certain essential products such as food, raw materials, etc. Such dependence proves harmful particularly during wartime.

4. Political Slavery:

Free trade leads to economic dependence and economic dependence leads to political slavery. For political freedom, economic independence is necessary. This requires abandonment of free trade.

5. Unbalanced Development:

Free trade and the resultant international specialisation lead to unbalanced development of national economy. Under this system, only those sectors are developed in which the country has a comparative advantage. Other sectors remain undeveloped. This results in lop-sided development.

6. Dumping:

Free trade may lead to cutthroat competition and dumping. Under dumping, goods arc sold at very cheap rates and even below their cost of production in order to capture the foreign markets.

7. Harmful Products:

Under free trade, injurious and harmful products may be produced and traded. Trade restrictions are necessary to check the import of such products.

8. International Monopolies:

Free trade may lead to international monopolies. It encourages the estab­lishment of multinational corporations. These corporations tend to acquire monopoly position and thus harm the interest of the local people.

9. Reduction in Welfare of Certain Groups:

While free trade tends to maximize world production of goods and services, it may simultaneously hurt the welfare of certain group in every country. Under free trade, the output of those commodities in which the country has comparative advantage tend to increase to meet the export demand, and the output of goods in which the country has comparative disadvantage contracts due to pressure from import competition. Thus, the real income of the groups engaged in the export industries will rise and real income of those engaged in the import competing industries will fall.

10. Harmful to Less Developed Countries:

Free trade is harmful for the less developed countries for the following reasons:

(i) Competition under free trade is unfair and unhealthy. The less developed countries find it difficult to compete with the economically advanced countries.

(ii) Under free trade, gains of trade are unequally distributed depending upon the level of development of different countries. The terms of trade are favourable for the developed countries, and un­favourable for the poor countries.

(iii) Less developed countries generally experience unfavourable balance of payments. The problem of un-favourable balance of payments cannot be solved under free trade policy.

(iv) Free trade policy adopted by the British government in India led to the destruction of Indian cottage and small scale industries.

(v) The less developed countries cannot protect their infant industries under the policy of free trade.

(vi) Free trade may endanger economic and political independence of the backward nations.