How does free trade compare to protectionism?
A). Protectionism and free trade both help reduce competition.
B). Free trade and protectionism are very similar types of policies.
C). Free trade involves higher tariffs than protectionism does.
D). Protectionism involves more trade restrictions than free trade.
The correct answer is D). Protectionism involves more trade restrictions than free trade.
To understand why, let's first discuss what free trade and protectionism mean.
Free trade refers to the policy of allowing goods and services to flow freely between countries without any significant barriers, such as tariffs (taxes on imported goods) or quotas (limits on the quantity of imports). In a free trade system, countries can specialize in producing goods and services where they have a comparative advantage, leading to efficiency gains and economic growth.
On the other hand, protectionism is the policy of protecting domestic industries from foreign competition by imposing trade barriers such as tariffs, quotas, subsidies, and other restrictions. The aim of protectionism is to shield domestic industries from foreign competition and promote local employment and economic growth.
Now, let's analyze the answer options:
A). Protectionism and free trade both help reduce competition.
This statement is incorrect. Protectionism intends to reduce competition by shielding domestic industries from foreign competitors, while free trade promotes competition by allowing businesses from different countries to compete on a level playing field.
B). Free trade and protectionism are very similar types of policies.
This statement is incorrect. Free trade and protectionism represent opposite approaches to international trade. Free trade advocates for minimal trade barriers, while protectionism advocates for trade restrictions.
C). Free trade involves higher tariffs than protectionism does.
This statement is incorrect. Free trade aims to eliminate or minimize tariffs, while protectionism involves the imposition of tariffs to protect domestic industries.
D). Protectionism involves more trade restrictions than free trade.
This statement is correct. Protectionism involves various trade restrictions, such as tariffs, quotas, subsidies, and other barriers. In contrast, free trade aims to reduce or eliminate such barriers, allowing for more open and unrestricted international trade.
Therefore, the correct answer is D). Protectionism involves more trade restrictions than free trade.