Free trade is the practice and national policy that removes barriers to trade between countries. The idea is that each party or country in a free trade agreement will be better off by freely being able to access and profit from manufacturing and trading goods and services they are naturally suited to produce and deliver. Free trade is based on the principle that it offers comparative advantage and is thus beneficial to countries to not produce everything domestically but allow for international integration (World Bank, 2012). Free trade is the opposite to a policy of protectionism, which favors levying tariffs and trade restrictions on certain commodities and markets.
Comparative advantage weighs the costs and benefits of trading internationally and each country should calculate to what degree they will sacrifice and gain in terms of labor, GDP, pricing of importation and exportation, and changes in salaries in order to participate in the global market (Blinder, 2008; World Bank, 2012).
Free international trade has certainly been a driving force toward greater levels of international integration, but it comes at a price. Although globalisation makes cheaper products from abroad available to people in developed countries, labor, education and quality of life have suffered in developing countries (World Bank, 2012, p. 69). Another major challenge to developing nations is that they simply do not have the infrastructure, technology, and means to compete with foreign markets. Therefore, some level of protectionism is healthy for all countries (Blinder 2008). However, it is amazing to consider the amount of international products that have reached the farthest corners of the world such as Marmite, iPhones and iPods, Hondas, and sushi. If all players were economic equals, then an equitable free market would be possible.
- Blinder, A. S. (2008). The Concise Encyclopedia of Economics. Retrieved from http://www.econlib.org/
- World Trade Organization. (2012) Globalization and International Trade.