Free trade

Free trade is the untaxed flow of goods and services between countries, and is a name given to economic policies and parties supporting increases in such trade.

Alternatives to free trade

Tobin Tax

Fair trade

Balanced Trade

International barter

Some nations have prohibited trade under monetary terms of trade. For example, Hjalmar Schacht arranged barter for Nazi Germany to bypass the free market which he thought was rigged by Anglo-American capitalists1. The former Soviet Union occasionally arranged bilateral barter within its sphere of influence. See Comprehensive Program for Socialist Economic Integration or Comecon. Arab League nations have also occasionally replaced monetary trade with barter.

Related Topics:
1 - Comprehensive Program for Socialist Economic Integration - Comecon

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Increase the credit risk to international loans

George Soros and others argue that some of the most destructive free trade, such as developing world agricultural monoculture, is driven by export-oriented production targets set by the IMF and the governments it supports. He suggests that the volume of this trade would be lower if the lending banks were liable for credit default instead of receiving IMF bail-outs. If banks were responsible for default, the levels of lending would be lower and lead to more sustainable export programs due to the discipline of the free market, he believes.

Related Topics:
Monoculture - IMF - Sustainable

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International price floors

Some argue that free trade is responsible for the decline in international commodity prices. One reason for these low prices is the over-production of subsidized commodities in the developed world. Rather than removing the production subsidy for farmers in the rich world some suggest extending them to farmers in the developing world. For instance, producers in Poland lobbied to be included in the Common Agriculture Policy. The reason that rich-country farmers need subsidies to thrive is the comparative advantage of cheap land and labour enjoyed by their poor-country competitors. If the world commodity price floor is set high enough to sustain first-world farming it will be high enough to stimulate over-production in developing nations.

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Separating world prices from domestic prices

Foreign trade of Communist Czechoslovakia was conducted at "free trade" import prices, with the Ministry of Foreign Trade selling the goods on, into the internal market, at pre-determined prices for each good. In this way, Czechoslovakian consumers were insulated from shifts in world prices whilst having some access to foreign products.

Related Topics:
Foreign trade of Communist Czechoslovakia - Import - Czechoslovak

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It is difficult for governments to sustain different internal prices over the long term. If the internal price is set below world prices, smugglers try to profit from the differential by illegally exporting the product to nations where they can sell it at a higher price. To the extent smugglers succeed, the domestic government is indirectly subsidizing foreign consumers. This problem has been vividly illustrated in nations where fuel prices are subsidized below world prices; domestic shortages frequently occur as a significant portion of the good is illegally smuggled out of the country. Rationing and black markets are stimulated by artificially low prices; in Iraq the famously long petrol pump queues for petrol at 50 dinars/litre can be bypassed by buying on the black market at 250 dinars/litre. Unofficial markets are a common problem wherever the 'official' price is below (or above) the free trade price{{ref|economist-3502385}}.

Related Topics:
Smugglers - Rationing - Black market - Iraq - Petrol - Dinar - Free trade

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Despite the difficulties of maintaining fixed commodity prices many Governments that attempt it claim that doing so "immunizes" their economies against destabilizing price shocks. It is sometimes argued that the social and economic benefits alone, outweigh the disadvantages (of import-price stability).

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Regional trading blocks

James Goldsmith advocated free trade within regional trading blocs, but not between blocs (such as EC countries). If countries within the "customs union" had similar living standards and norms of social and environmental policy they would not race to the bottom. He also proposed protectionism in the goods market, whilst allowing free trade in technology and capital.

Related Topics:
James Goldsmith - EC - Customs union - Race to the bottom - Protectionism - Technology - Capital

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