Suppose a country announces that it is moving toward free trade by reducing its tariffs on intermediate inputs used by its production sector, while at the same time maintaining its tariffs on final goods. Does this policy change really move the country toward "freer trade"? Explain why or why not.

To determine whether this policy change moves the country toward "freer trade," we need to understand the concept of free trade and analyze the specific changes being made.

Free trade refers to a situation where countries engage in the exchange of goods and services without imposing any restrictions or barriers such as tariffs, quotas, or subsidies. The objective of free trade is to promote economic efficiency, increase consumer welfare, and foster international cooperation.

In the scenario you presented, the country is reducing its tariffs on intermediate inputs used by its production sector while maintaining its tariffs on final goods. To understand the impact of this policy change on free trade, we should consider a few key factors:

1. Interconnectedness of the global supply chain: Many industries rely on global supply chains, where intermediate inputs are imported and used to produce final goods. By reducing tariffs on intermediate inputs, the country is reducing the cost of production for its domestic industries, making them more competitive internationally.

2. Trade distortion considerations: Tariffs on final goods act as a barrier to trade and can distort market outcomes. By maintaining tariffs on final goods, the country is still exerting some level of protectionism and limiting access to its domestic market. This could potentially slow down the efficiency gains associated with free trade.

3. Impact on consumers: Tariffs on final goods can result in higher prices for domestic consumers. By not reducing these tariffs, the country might not fully realize the benefits of free trade in terms of a wider variety of products at competitive prices for its consumers.

Based on these considerations, it can be argued that the policy change moves the country in the direction of freer trade, as it reduces tariffs on intermediate inputs and promotes global competitiveness for its domestic industries. However, the country's decision to maintain tariffs on final goods suggests a limit to the extent of liberalization, which may still create distortions and restrict consumer access to a broader range of goods.

To fully assess the impact of this policy change and its compatibility with the concept of free trade, it would be necessary to evaluate the overall trade environment, underlying economic factors, and the specific objectives of the country.