Free trade can be defined as “the movement of goods and services between nations without political or economic barriers”. Businesses participate in markets like the EU because of the benefits they offer, such as trading with other EU countries without trade barriers. By having a larger market, competition levels are higher, leading to lower prices for consumers. Additionally, businesses have more options as to where they can purchase, etc. International trade allows goods and services to be exchanged across a country's borders. , consumers from different parts of the world can purchase goods and services manufactured abroad, which means substantial resources, because crossing borders involves certain costs like taxes. A hard Brexit means that the UK trades only under World Trade Organization rules with the EU and Theresa May's decision in January 2017 shows that a hard Brexit is more likely as she wants free trade with the EU while leaving the single market (Dhingra et al. , 2017). This essay will explore the benefits and costs of free trade and the possible implications if we leave the EU. Say no to plagiarism. Get a tailor-made essay on 'Why violent video games should not be banned'? Get the original essay Free trade with the EU is good for business in the UK because, according to the Directorate-General for Trade of European Union, “the EU strives to reach agreements with countries around the world that eliminate trade barriers, making it easier for European companies to access markets and find new customers.” The enlargement of the EU market means increased competition for businesses, which can trade more freely. This leads businesses to be more innovative, which results in higher quality products for customers and can build customer loyalty, which generates more revenue for businesses. This reduces costs for consumers and businesses will not add any taxes on products since trade barriers have been removed. However, if the UK were to withdraw from the EU, levels of trade and investment would decline due to increased barriers. The EU remains the most important export market for British goods and services, but its share of total UK exports fell from 55% in 1999 to 45% in 2014, and the UK also holds at least a tenth of EU exports. As exports decline, companies lose profits because it becomes expensive for other countries to buy from them due to added tariffs. One way to improve this situation is to join the EEA, which constitutes a soft Brexit scenario. This would allow trade with the EU without tariffs or new barriers. However, the downside is that EEA members are not part of the customs union and exports from EEA members to the EU must meet certain rules of origin to enter the EU without customs duties, as a result, trade costs increase. To conclude, the government currently views EEA membership as something that is not ideal as there are no restrictions on immigration from the EU. Second, free trade with the EU and the UK affects foreign direct investment. Since joining the EU, the UK's total FDI has increased over time and reached around £1 trillion in 2014. FDI enablescompanies to invest in another country and are the key to economic development. As of January 2018, around 42.6% of FDI comes from EU countries (Tetlow and Stojanovic, 2018). Thanks to free trade agreements, investment restrictions are removed. When there are many regulations regarding starting a business abroad, it prevents investment. If the UK wants to invest in another country this could benefit both countries as knowledge can be transferred as they are able to learn some different skills than the UK. Additionally, the EU country that the UK invests in gains employment opportunities as more labor is needed to produce the goods and services, which increases productivity as more workers can produce more goods, which leads to more profits for the company. So, not only does the company enjoy increased profit through If their business succeeds overseas, they also gain skills and technological advantages. However, FDI could fall in the United Kingdom if Brexit occurs, assuming that the United Kingdom unilaterally tightens controls on FDI from the European Union and also assuming that both economies restrict capital movements across the borders of the other. . If the UK acts alone and tightens EU constraints on FDI, European organizations will have less incentive to invest in technology. The drop in European investment will then have a negative impact on British businesses. To combat this, UK businesses should start investing more in research and development, which is expensive. So consumption would fall and employees would have to work more, leading to an overall welfare loss for the UK and businesses would suffer losses as wage costs rise. Third, productivity is another benefit of free trade. When looking at long-term economic growth, productivity is very important because being more productive leads to greater output from workers. This is the key to improving living standards (Tetlow and Stojanovic, 2018). With free trade, countries can produce more goods without using more resources. By expanding to other EU countries, they are able to take advantage of a larger market and technological advances that allow them to produce goods more quickly, thus being more efficient and increasing their productivity. Being present in a larger market means that economies of scale can be a huge advantage when it comes to reducing production costs. As a result, this reduces costs for businesses because they don't need to hire more people to work for them. However, leaving the EU has an impact on productivity due to lower exports and FDI. As mentioned previously, the UK plays an important role in exports and when there is a reduction in UK exports, particularly in the manufacturing and business services sectors, productivity is affected negatively. Overseas businesses in the UK have significantly improved their productivity levels, with their average productivity being higher than in the UK. Thus, after leaving the EU, the United Kingdom would not benefit from the additional dynamic benefits of this FDI. This is supported by statistics which show that trading with the EU on WTO terms, instead of remaining a member, reduces GDP by 2.7..