QUESTION: Define the two approaches a nation can take to achieve free trade. Does one approach have an advantage over the other?
First approach to achieve free trade:
- Reduce quotas - Quotas essentially create restrictions on the quantity of products that can be exported or imported. Quotas may also allow for a ceiling effect to be placed on traded goods or services
Second approach to achieve free trade:
- Taking a unilateral, bilateral or a multilateral action. A unilateral action happens when a country reduces trade barriers without promise of the same from other countries. A bilateral agreement is between two countries while a multilateral agreement involves an agreement among a group of countries
In my opinion, I believe that the second approach, more specifically a multilateral action has a few advantages over the other approaches. This is because it has the potential to result in freer trade than a unilateral approach because it can reduce trade restrictions abroad as well as at home. In addition, a multilateral approach has a political advantage in that in most markets, producers are fewer and better organized than consumers.