The Case for Free Trade Free Trade and efficiency The efficiency argument for free trade is based on the result that in the case of a small country, free trade is the best policy a tariff causes a net loss to the economy A move from a tariff equilibrium to free trade eliminates the efficiency loss and increases national welfare Copyright C 2003 Pearson Education, Inc Slide 9-5Copyright © 2003 Pearson Education, Inc. Slide 9-5 ▪ Free Trade and Efficiency • The efficiency argument for free trade is based on the result that in the case of a small country, free trade is the best policy. – A tariff causes a net loss to the economy. – A move from a tariff equilibrium to free trade eliminates the efficiency loss and increases national welfare. The Case for Free Trade