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.

Wider meaning of "free trade"

Free trade is a concept in economics and government that can refer to:

Related Topics:
Economics - Government

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:*international trade of goods without tariffs or other trade barriers

Related Topics:
Goods - Tariff - Trade barriers

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:*international trade in services without tariffs or other trade barriers

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:*the free movement of labor between countries

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:*the free movement of capital between countries

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:*the absence of trade distorting policies (such as taxes, subsidies, regulations or laws) that give domestic firms, households or factors of production an advantage over foreign ones.

Related Topics:
Taxes - Subsidies - Regulation - Law - Domestic - Firm - Household - Factors of production - Foreign

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Depending on the specific context, use of the term free trade can signify one or more of the above conditions. In almost all cases, violations of the free trade conditions are due to government-imposed policies.

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The term free trade has become very politically loaded, and it is not uncommon for so-called "free trade agreements" to impose additional trade restrictions. Such restrictions on trade are often due to domestic political pressure by powerful corporate, environmental or labor interest groups.

Related Topics:
Corporate - Environmental - Labor - Interest groups

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Free trade agreements are a key element of customs unions and free trade areas. The details and differences of these agreements are covered in their respective articles.

Related Topics:
Customs union - Free trade area

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When free-exchange is not free trade

The World Trade Organization was created to open up markets, and promote international trade based on the laissez faire 'Free Trade' paradigm. The WTO creates and monitors agreements to reduce trade barriers, and arbitrates in disputes over foreign market access, and violations of these agreements. Its definition of 'Free Trade' is trade On a level playing-field, so that the unlimited exchange of goods between countries is not necessarily 'Free'. If one of the countries producing Aircraft, say, subsidizes corporate R&D or enacts local-procurement regulations the WTO considers this a violation of Free Trade, even when the barriers to trade are not imposed at the national borders in an import-export transaction step (like a Tariff).

Related Topics:
World Trade Organization - Laissez faire - WTO - Aircraft - Free Trade - Tariff

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Totally free trade

Some economists (especially Libertarians) criticize the WTO?s definition of 'Free Trade' as too narrow. They argue that a foreign Governmental producer-subsidy is another form of 'comparative advantage' and should not be used as a reason to impose domestic barriers on the purchase of overseas goods.

Related Topics:
Libertarian - WTO - Subsidy

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These economists argue that (since the surplus benefit to domestic consumers outweighs the surplus loss of domestic producers) the lower price of foreign subsidized goods is a net positive (as in the standard Ricardian argument) and the source of the 'comparative advantage' is irrelevant. Therefore, any import restriction (even on 'dumped goods') makes the domestic society as a whole worse off than it would be with unlimited imports.

Related Topics:
Import - Dumped goods

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This 'abolitionist' position has had little governmental support in the developed world, due to the following considerations:

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• Producer interests (and jobs) are more organized than consumer interests
• The 'artificial' handicap of a foreign subsidy seems much less 'just' to local production than advantages deriving from geography, natural resources, or native skill. Electorates often prefer "fairplay" to Utilitarian considerations.
• Despite accepting that a country would be better off without Tariffs than with them, some Game Theory models suggest a superior strategy to immediately dropping all Tariffs; if progressively dropping barriers bilaterally can be used to open foreign markets to domestic suppliers this is a superior long-term strategy. In this model, Tariffs are a negotiating tool with which to pry open foreign markets for domestic goods, benefiting both domestic consumers and domestic producers. (The justification for tariffs is not important; Tariffs only exist in order to be relinquished.)
• If trade barriers are already low, the threat of a "Trade war" of tit-for-tat tariff increases may reduce the temptation for either partner in bilateral trade to raise import barriers.