Which one of the following is not an argument in favour of free trade ?
Conservation of foreign exchange of the country
The case for free trade rests on the classical theory of comparative advantage: when each country specialises in what it produces relatively most efficiently and trades freely, total world output and welfare rise. The usual arguments in its favour include optimum use of the world's productive resources, international division of labour and specialisation, wider consumer choice, lower prices and more competition.
Economic utilisation of world productive resources and division of labour on an international scale both follow directly from specialisation under comparative advantage, so they are standard arguments for free trade. Breaking domestic monopolies is also cited in its favour, because exposure to imports forces protected home producers to compete on price and quality.
Conservation of the country's foreign exchange, however, is an argument for protection, not for free trade. Restricting imports through tariffs, quotas or licensing is what saves scarce foreign exchange; free trade removes such restrictions and normally increases foreign exchange spending on imports. It is therefore the one item that does not support free trade.
Conservation of foreign exchange of the country option is correct.
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