Question

What are the potential costs of adopting a free trade regime? Do you think governments should do anything to reduce these costs? What?

Answer 1

By adopting free trade regime the goods that will be imported at cheaper rates from foreign countries would be much more in demand than their substitues made in home country . So home country producers of such goods will face stiff competition and will be forced to either cut down on costs or go out of business . This will create job loss in that particular sector . Free trade regime also becomes harmful when an infant industry tries to grow in some country . Also tax revenue is reduced from tariffs and other trade barriers . Job outsourcing , dumping are other disadvantages of free trade regime .

The government can provide subsidies to domestic industries , set up public firms to increase employment , check for the quality of goods that are being imported etc .