Free trade is a
trade policy
A commercial policy (also referred to as a trade policy or international trade policy) is a government's policy governing international trade. Commercial policy is an all encompassing term that is used to cover topics which involve international t ...
that does not restrict
imports
An import is the receiving country in an export from the sending country. Importation and exportation are the defining financial transactions of international trade.
In international trade, the importation and exportation of goods are limited ...
or
exports
An export in international trade is a good produced in one country that is sold into another country or a service provided in one country for a national or resident of another country. The seller of such goods or the service provider is an ...
. It can also be understood as the
free market
In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ot ...
idea applied to
international trade
International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services. (see: World economy)
In most countries, such trade represents a significant ...
. In government, free trade is predominantly advocated by political parties that hold
economically liberal
Economic liberalism is a political and economic ideology that supports a market economy based on individualism and private property in the means of production. Adam Smith is considered one of the primary initial writers on economic liberalis ...
positions, while
economic nationalist
Economic nationalism, also called economic patriotism and economic populism, is an ideology that favors state interventionism over other market mechanisms, with policies such as domestic control of the economy, labor, and capital formation, incl ...
and
left-wing
Left-wing politics describes the range of political ideologies that support and seek to achieve social equality and egalitarianism, often in opposition to social hierarchy. Left-wing politics typically involve a concern for those in soci ...
political parties generally support
protectionism
Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulatio ...
, the opposite of free trade.
Most nations are today members of the
World Trade Organization
The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation
in the United Nations System, governments use the organization to establish, revise, and ...
multilateral trade agreements. Free trade was best exemplified by the unilateral stance of Great Britain who reduced regulations and duties on imports and exports from the mid-nineteenth century to the 1920s. An alternative approach, of creating free trade areas between groups of countries by agreement, such as that of the
European Economic Area
The European Economic Area (EEA) was established via the ''Agreement on the European Economic Area'', an international agreement which enables the extension of the European Union's single market to member states of the European Free Trade As ...
and the
Mercosur
The Southern Common Market, commonly known by Spanish abbreviation Mercosur, and Portuguese Mercosul, is a South American trade bloc established by the Treaty of Asunción in 1991 and Protocol of Ouro Preto in 1994. Its full members are Arge ...
open market
The term open market is used generally to refer to an economic situation close to free trade. In a more specific, technical sense, the term refers to interbank trade in securities.
In economic theory
Economists judge the "openness" of markets ...
s, creates a protectionist barrier between that free trade area and the rest of the world. Most governments still impose some protectionist policies that are intended to support local employment, such as applying
tariff
A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and pol ...
s to imports or
subsidies
A subsidy or government incentive is a form of financial aid or support extended to an economic sector (business, or individual) generally with the aim of promoting economic and social policy. Although commonly extended from the government, the ter ...
to exports. Governments may also restrict free trade to limit exports of natural resources. Other barriers that may hinder trade include
import quotas
An import quota is a type of trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time.
Quotas, like other trade restrictions, are typically used to benefit the producers ...
, taxes and
non-tariff barrier
Non-tariff barriers to trade (NTBs; also called non-tariff measures, NTMs) are trade barriers that restrict imports or exports of goods or services through mechanisms other than the simple imposition of tariffs.
The Southern African Development C ...
s, such as regulatory
legislation
Legislation is the process or result of enrolling, enacting, or promulgating laws by a legislature, parliament, or analogous governing body. Before an item of legislation becomes law it may be known as a bill, and may be broadly referred to ...
.
Historically, openness to free trade substantially increased from 1815 to the outbreak of World War I. Trade openness increased again during the 1920s, but collapsed (in particular in Europe and North America) during the Great Depression. Trade openness increased substantially again from the 1950s onwards (albeit with a slowdown during the
1973 oil crisis). Economists and economic historians contend that current levels of trade openness are the highest they have ever been.
Economists are generally supportive of free trade. There is a broad consensus among economists that protectionism has a negative effect on economic growth and economic welfare while free trade and the reduction of
trade barrier
Trade barriers are government-induced restrictions on international trade. According to the theory of comparative advantage, trade barriers are detrimental to the world economy and decrease overall economic efficiency.
Most trade barriers work o ...
s has a positive effect on economic growth
[See P.Krugman, «The Narrow and Broad Arguments for Free Trade», American Economic Review, Papers and Proceedings, 83(3), 1993 ; and P. Krugman, Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations, New York, W.W. Norton & Company, 1994.] and economic stability. However, in the short run,
liberalization of trade
Economic liberalization (or economic liberalisation) is the lessening of government regulations and restrictions in an economy in exchange for greater participation by private entities. In politics, the doctrine is associated with classical liber ...
can cause significant and unequally distributed losses and the economic dislocation of workers in import-competing sectors.
Features
Free trade policies may promote the following features:
* Trade of
goods
In economics, goods are items that satisfy human wants
and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not t ...
without taxes (including tariffs) or other
trade barrier
Trade barriers are government-induced restrictions on international trade. According to the theory of comparative advantage, trade barriers are detrimental to the world economy and decrease overall economic efficiency.
Most trade barriers work o ...
s (e.g. quotas on imports or subsidies for producers).
* Trade in services without taxes or other trade barriers.
* The absence of "trade-distorting" policies (such as taxes, subsidies,
regulation
Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. Fo ...
s, or laws) that give some
firms, households, or
factors of production
In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, goods and services. The utilized amounts of the various inputs determine the quantity of output according to the rel ...
an advantage over others.
* Unregulated access to
markets.
* Unregulated access to market information.
* Inability of firms to distort markets through government-imposed
monopoly
A monopoly (from Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a speci ...
or
oligopoly power.
*
Trade agreement
A trade agreement (also known as trade pact) is a wide-ranging taxes, tariff and trade treaty that often includes investment guarantees. It exists when two or more countries agree on terms that help them trade with each other. The most common tr ...
s which encourage free trade.
Economics
Economic models
Two simple ways to understand the proposed benefits of free trade are through
David Ricardo
David Ricardo (18 April 1772 – 11 September 1823) was a British political economist. He was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill. Ricardo was also a politician, and a ...
's theory of
comparative advantage
In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. Comp ...
and by analyzing the impact of a tariff or import quota. An economic analysis using the law of supply and demand and the economic effects of a tax can be used to show the theoretical benefits and disadvantages of free trade.
Thom Hartmann
Thomas Carl Hartmann (born May 7, 1951) is an American radio personality, author, former psychotherapist, businessman, and progressive political commentator. Hartmann has been hosting a nationally syndicated radio show, ''The Thom Hartmann Pr ...
, ''Unequal Protection'', Second Edition, Chapter 20. p. 255
Most economists would recommend that even
developing nations
A developing country is a sovereign state with a lesser developed industrial base and a lower Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is also no clear agreeme ...
should set their tariff rates quite low, but the economist
Ha-Joon Chang
Ha-Joon Chang (; ; born 7 October 1963) is a South Korean institutional economist, specialising in development economics. Chang is the author of several widely discussed policy books, most notably ''Kicking Away the Ladder: Development Strateg ...
, a proponent of industrial policy, believes higher levels may be justified in developing nations because the productivity gap between them and developed nations today is much higher than what developed nations faced when they were at a similar level of technological development. Underdeveloped nations today, Chang believes, are weak players in a much more competitive system.
[Pugel (2007), ''International Economics'', pp. 311–312.] Counterarguments to Chang's point of view are that the developing countries are able to adopt technologies from abroad whereas developed nations had to create new technologies themselves and that developing countries can sell to export markets far richer than any that existed in the 19th century.
If the chief justification for a tariff is to
stimulate infant industries, it must be high enough to allow domestic manufactured goods to compete with imported goods in order to be successful. This theory, known as
import substitution industrialization
Import substitution industrialization (ISI) is a trade and economic policy that advocates replacing foreign imports with domestic production.''A Comprehensive Dictionary of Economics'' p.88, ed. Nelson Brian 2009. It is based on the premise that ...
, is largely considered ineffective for currently developing nations.
Tariffs
![EffectOfTariff](https://upload.wikimedia.org/wikipedia/commons/4/4d/EffectOfTariff.svg)
The chart at the right analyzes the effect of the imposition of an import tariff on some imaginary good. Prior to the tariff, the price of the good in the world market and hence in the domestic market is P
world. The tariff increases the domestic price to P
tariff. The higher price causes domestic production to increase from Q
S1 to Q
S2 and causes domestic consumption to decline from Q
C1 to Q
C2.
[Alan C. Stockman, ''Introduction to Economics'', Second Edition, Chapter 9.]N. Gregory Mankiw
Nicholas Gregory Mankiw (; born February 3, 1958) is an American macroeconomist who is currently the Robert M. Beren Professor of Economics at Harvard University. Mankiw is best known in academia for his work on New Keynesian economics.
Mankiw h ...
, ''Macroeconomics'', Fifth Edition, Chapter 7.
This has three effects on societal welfare. Consumers are made worse off because the consumer surplus (green region) becomes smaller. Producers are better off because the producer surplus (yellow region) is made larger. The government also has additional tax revenue (blue region). However, the loss to consumers is greater than the gains by producers and the government. The magnitude of this societal loss is shown by the two pink triangles. Removing the tariff and having free trade would be a net gain for society.
An almost identical analysis of this tariff from the perspective of a net producing country yields parallel results. From that country's perspective, the tariff leaves producers worse off and consumers better off, but the net loss to producers is larger than the benefit to consumers (there is no tax revenue in this case because the country being analyzed is not collecting the tariff). Under similar analysis, export tariffs, import quotas and export quotas all yield nearly identical results.
Sometimes consumers are better off and producers worse off and sometimes consumers are worse off and producers are better off, but the imposition of trade restrictions causes a net loss to society because the losses from trade restrictions are larger than the gains from trade restrictions. Free trade creates winners and losers, but theory and empirical evidence show that the gains from free trade are larger than the losses.
A 2021 study found that across 151 countries over the period 1963–2014, "tariff increases are associated with persistent, economically and statistically significant declines in domestic output and productivity, as well as higher unemployment and inequality, real exchange rate appreciation, and insignificant changes to the trade balance."
Technology and innovation
Economic models indicate that free trade leads to greater technology adoption and innovation.
Trade diversion
According to
mainstream economics theory, the selective application of free trade agreements to some countries and tariffs on others can lead to
economic inefficiency
In microeconomics, economic efficiency, depending on the context, is usually one of the following two related concepts:
* Allocative or Pareto efficiency: any changes made to assist one person would harm another.
* Productive efficiency: no addit ...
through the process of
trade diversion
Trade diversion is an economic term related to international economics in which trade is diverted from a more efficient exporter towards a less efficient one by the formation of a free trade agreement or a customs union. Total cost of good becom ...
. It is efficient for a good to be produced by the country which is the lowest cost producer, but this does not always take place if a high cost producer has a free trade agreement while the low cost producer faces a high tariff. Applying free trade to the high cost producer and not the low cost producer as well can lead to trade diversion and a net economic loss. This reason is why many economists place such high importance on negotiations for global tariff reductions, such as the
Doha Round
The Doha Development Round or Doha Development Agenda (DDA) is the trade-negotiation round of the World Trade Organization (WTO) which commenced in November 2001 under then director-general Mike Moore. Its objective was to lower trade barriers ...
.
[ Steven E. Landsburg. ''Price Theory and Applications'', Sixth Edition, Chapter 8.]
Opinions
Economist opinions
The literature analysing the economics of free trade is rich. Economists have done extensive work on the theoretical and empirical effects of free trade. Although it creates winners and losers, the broad consensus among economists is that free trade provides a net gain for society. In a 2006 survey of American economists (83 responders), "87.5% agree that the U.S. should eliminate remaining tariffs and other barriers to trade" and "90.1% disagree with the suggestion that the U.S. should restrict employers from outsourcing work to foreign countries".
Quoting Harvard economics professor
N. Gregory Mankiw
Nicholas Gregory Mankiw (; born February 3, 1958) is an American macroeconomist who is currently the Robert M. Beren Professor of Economics at Harvard University. Mankiw is best known in academia for his work on New Keynesian economics.
Mankiw h ...
, "
w propositions command as much consensus among professional economists as that open world trade increases economic growth and raises living standards". In a survey of leading economists, none disagreed with the notion that "freer trade improves productive efficiency and offers consumers better choices, and in the long run these gains are much larger than any effects on employment".
Most economists would agree that although
increasing returns to scale might mean that a certain industry could settle in a particular geographical area without any strong economic reason derived from
comparative advantage
In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. Comp ...
, this is not a reason to argue against free trade because the absolute level of output enjoyed by both winner and loser will increase, with the winner gaining more than the loser, but both gaining more than before in an absolute level.
Public opinions
An overwhelming number of people internationally – both in developed and developing countries – support trade with other countries, but are more split when it comes to whether or not they believe trade creates jobs, increases wages, and decreases prices. The median belief in advanced economies is that trade increase increases wages, with 31 percent of people believing they do, compared to 27 percent who they decrease wages. In emerging economies, 47 percent of people believe trade increases wages, compared to 20 percent who says it lowers wages. There is a positive relationship of 0.66 between the average GDP growth rate for the years 2014 to 2017 and the percentage of people in a given country that says trade increases wages. Most people, in both advanced and emerging economies, believe that trade increases prices. 35 percent of people in advanced economies and 56 percent in emerging economies believe trade increases prices, and 29 percent and 18 percent, respectively, believe that trade lowers prices. Those with a higher level of education are more likely than those with less education to believe that trade lowers prices.
History
Early era
![David ricardo](https://upload.wikimedia.org/wikipedia/commons/b/be/David_Ricardo.jpg)
The notion of a free trade system encompassing multiple sovereign states originated in a rudimentary form in 16th century
Imperial Spain.
American
jurist Arthur Nussbaum noted that Spanish theologian
Francisco de Vitoria
Francisco de Vitoria ( – 12 August 1546; also known as Francisco de Victoria) was a Spanish Roman Catholic philosopher, theologian, and jurist of Renaissance Spain. He is the founder of the tradition in philosophy known as the School of Sala ...
was "the first to set forth the notions (though not the terms) of freedom of commerce and freedom of the seas".
Vitoria made the case under principles of ''
jus gentium''.
However, it was two early British economists
Adam Smith and
David Ricardo
David Ricardo (18 April 1772 – 11 September 1823) was a British political economist. He was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill. Ricardo was also a politician, and a ...
who later developed the idea of free trade into its modern and recognizable form.
Economists who advocated free trade believed trade was the reason why certain civilizations prospered economically. For example, Smith pointed to increased trading as being the reason for the flourishing of not just
Mediterranean
The Mediterranean Sea is a sea connected to the Atlantic Ocean, surrounded by the Mediterranean Basin and almost completely enclosed by land: on the north by Western Europe, Western and Southern Europe and Anatolia, on the south by North Africa ...
cultures such as
Egypt
Egypt ( ar, مصر , ), officially the Arab Republic of Egypt, is a transcontinental country spanning the northeast corner of Africa and southwest corner of Asia via a land bridge formed by the Sinai Peninsula. It is bordered by the Medit ...
,
Greece
Greece,, or , romanized: ', officially the Hellenic Republic, is a country in Southeast Europe. It is situated on the southern tip of the Balkans, and is located at the crossroads of Europe, Asia, and Africa. Greece shares land borders ...
and
Rome
, established_title = Founded
, established_date = 753 BC
, founder = King Romulus (legendary)
, image_map = Map of comune of Rome (metropolitan city of Capital Rome, region Lazio, Italy).svg
, map_caption ...
, but also of
Bengal
Bengal ( ; bn, বাংলা/বঙ্গ, translit=Bānglā/Bôngô, ) is a geopolitical, cultural and historical region in South Asia, specifically in the eastern part of the Indian subcontinent at the apex of the Bay of Bengal, predom ...
(
East India
East India is a region of India consisting of the Indian states of Bihar, Jharkhand, Odisha
and West Bengal and also the union territory of the Andaman and Nicobar Islands. The region roughly corresponds to the historical region of Magadh ...
) and
China.
Netherlands
)
, anthem = ( en, "William of Nassau")
, image_map =
, map_caption =
, subdivision_type = Sovereign state
, subdivision_name = Kingdom of the Netherlands
, established_title = Before independence
, established_date = Spanish Netherl ...
prospered greatly after
throwing off Spanish Imperial rule and pursuing a policy of free trade.
This made the free trade/mercantilist dispute the most important question in economics for centuries. Free trade policies have battled with
mercantilist
Mercantilism is an economic policy that is designed to maximize the exports and minimize the imports for an economy. It promotes imperialism, colonialism, tariffs and subsidies on traded goods to achieve that goal. The policy aims to reduce ...
,
protectionist
Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. ...
,
isolationist
Isolationism is a political philosophy advocating a national foreign policy that opposes involvement in the political affairs, and especially the wars, of other countries. Thus, isolationism fundamentally advocates neutrality and opposes entan ...
,
socialist
Socialism is a left-wing economic philosophy and movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to private ownership. As a term, it describes the ...
,
populist
Populism refers to a range of political stances that emphasize the idea of "the people" and often juxtapose this group against " the elite". It is frequently associated with anti-establishment and anti-political sentiment. The term develop ...
and other policies over the centuries.
The
Ottoman Empire
The Ottoman Empire, * ; is an archaic version. The definite article forms and were synonymous * and el, Оθωμανική Αυτοκρατορία, Othōmanikē Avtokratoria, label=none * info page on book at Martin Luther University) ...
had
liberal
Liberal or liberalism may refer to:
Politics
* a supporter of liberalism
** Liberalism by country
* an adherent of a Liberal Party
* Liberalism (international relations)
* Sexually liberal feminism
* Social liberalism
Arts, entertainment and m ...
free trade policies by the 18th century, with origins in
capitulations of the Ottoman Empire
Capitulations of the Ottoman Empire were contracts between the Ottoman Empire and other powers in Europe, particularly France. Turkish capitulations, or Ahidnâmes were generally bilateral acts whereby definite arrangements were entered int ...
, dating back to the first commercial treaties signed with France in 1536 and taken further with
capitulations in 1673, in 1740 which lowered
duties
A duty (from "due" meaning "that which is owing"; fro, deu, did, past participle of ''devoir''; la, debere, debitum, whence "debt") is a commitment or expectation to perform some action in general or if certain circumstances arise. A duty may ...
to only 3% for imports and exports and in 1790. Ottoman free trade policies were praised by British economists advocating free trade such as
J. R. McCulloch in his ''Dictionary of Commerce'' (1834), but criticized by British politicians opposing free trade such as
Prime Minister
A prime minister, premier or chief of cabinet is the head of the cabinet and the leader of the ministers in the executive branch of government, often in a parliamentary or semi-presidential system. Under those systems, a prime minister i ...
Benjamin Disraeli, who cited the Ottoman Empire as "an instance of the injury done by unrestrained competition" in the 1846
Corn Laws
The Corn Laws were tariffs and other trade restrictions on imported food and corn enforced in the United Kingdom between 1815 and 1846. The word ''corn'' in British English denotes all cereal grains, including wheat, oats and barley. They wer ...
debate, arguing that it destroyed what had been "some of the finest manufactures of the world" in 1812.
![Droits de douane (France, UK, US)](https://upload.wikimedia.org/wikipedia/commons/e/e8/Droits_de_douane_%28France%2C_UK%2C_US%29.png)
Trade in
colonial America was regulated by the British mercantile system through the
Acts of Trade and Navigation. Until the 1760s, few colonists openly advocated for free trade, in part because regulations were not strictly enforced (New England was famous for smuggling), but also because colonial merchants did not want to compete with foreign goods and shipping. According to historian Oliver Dickerson, a desire for free trade was not one of the causes of the
American Revolution
The American Revolution was an ideological and political revolution that occurred in British America between 1765 and 1791. The Americans in the Thirteen Colonies formed independent states that defeated the British in the American Revoluti ...
. "The idea that the basic mercantile practices of the eighteenth century were wrong", wrote Dickerson, "was not a part of the thinking of the Revolutionary leaders".
Free trade came to what would become the United States as a result of the
American Revolution
The American Revolution was an ideological and political revolution that occurred in British America between 1765 and 1791. The Americans in the Thirteen Colonies formed independent states that defeated the British in the American Revoluti ...
. After the British Parliament issued the
Prohibitory Act in 1775, blockading colonial ports, the
Continental Congress responded by effectively declaring economic independence, opening American ports to foreign trade on 6 April 1776 – three months before declaring sovereign independence. According to historian John W. Tyler, "
ee trade had been forced on the Americans, like it or not".
In March 1801, the Pope
Pius VII
Pope Pius VII ( it, Pio VII; born Barnaba Niccolò Maria Luigi Chiaramonti; 14 August 1742 – 20 August 1823), was head of the Catholic Church and ruler of the Papal States from 14 March 1800 to his death in August 1823. Chiaramonti was also a m ...
ordered some liberalization of trade to face the economic crisis in the
Papal States
The Papal States ( ; it, Stato Pontificio, ), officially the State of the Church ( it, Stato della Chiesa, ; la, Status Ecclesiasticus;), were a series of territories in the Italian Peninsula under the direct sovereign rule of the pope fro ...
with the ''
motu proprio
In law, ''motu proprio'' (Latin for "on his own impulse") describes an official act taken without a formal request from another party. Some jurisdictions use the term ''sua sponte'' for the same concept.
In Catholic canon law, it refers to a ...
'' ''
Le più colte
Le più colte (literally, "the most cultured") was an apostolic letter produced by Pope Pius VII in the first year of his pontificate (1801) in the form of a ''motu proprio'', written in Italian, which set out drastic reforms in agricultural poli ...
''. Despite this, the export of national corn was forbidden to ensure the food for the
Papal States
The Papal States ( ; it, Stato Pontificio, ), officially the State of the Church ( it, Stato della Chiesa, ; la, Status Ecclesiasticus;), were a series of territories in the Italian Peninsula under the direct sovereign rule of the pope fro ...
.
![British ships in Canton](https://upload.wikimedia.org/wikipedia/commons/d/d7/British_ships_in_Canton.jpg)
In Britain, free trade became a central principle
practiced by the repeal of the Corn Laws in 1846. Large-scale agitation was sponsored by the
Anti-Corn Law League
The Anti-Corn Law League was a successful political movement in Great Britain aimed at the abolition of the unpopular Corn Laws, which protected landowners’ interests by levying taxes on imported wheat, thus raising the price of bread at a tim ...
. Under the
Treaty of Nanking
The Treaty of Nanjing was the peace treaty which ended the First Opium War (1839–1842) between Great Britain and the Qing dynasty of China on 29 August 1842. It was the first of what the Chinese later termed the Unequal Treaties.
In the ...
, China opened five
treaty ports
Treaty ports (; ja, 条約港) were the port cities in China and Japan that were opened to foreign trade mainly by the unequal treaties forced upon them by Western powers, as well as cities in Korea opened up similarly by the Japanese Empire. ...
to world trade in 1843. The first free trade agreement, the
Cobden-Chevalier Treaty, was put in place in 1860 between Britain and France which led to successive agreements between other countries in Europe.
Many
classical liberals
Classical liberalism is a political tradition and a branch of liberalism that advocates free market and laissez-faire economics; civil liberties under the rule of law with especial emphasis on individual autonomy, limited government, econo ...
, especially in 19th and early 20th century Britain (e.g.
John Stuart Mill) and in the United States for much of the 20th century (e.g.
Henry Ford
Henry Ford (July 30, 1863 – April 7, 1947) was an American industrialist, business magnate, founder of the Ford Motor Company, and chief developer of the assembly line technique of mass production. By creating the first automobile that ...
and Secretary of State
Cordell Hull), believed that free trade promoted peace.
Woodrow Wilson
Thomas Woodrow Wilson (December 28, 1856February 3, 1924) was an American politician and academic who served as the 28th president of the United States from 1913 to 1921. A member of the Democratic Party, Wilson served as the president of ...
included free-trade rhetoric in his "
Fourteen Points
U.S. President Woodrow Wilson
The Fourteen Points was a statement of principles for peace that was to be used for peace negotiations in order to end World War I. The principles were outlined in a January 8, 1918 speech on war aims and peace terms ...
" speech of 1918:
According to economic historian Douglas Irwin, a common myth about United States trade policy is that low tariffs harmed American manufacturers in the early 19th century and then that high tariffs made the United States into a great industrial power in the late 19th century.
A review by the ''Economist'' of Irwin's 2017 book ''Clashing over Commerce: A History of US Trade Policy'' notes:
Political dynamics would lead people to see a link between tariffs and the economic cycle that was not there. A boom would generate enough revenue for tariffs to fall, and when the bust came pressure would build to raise them again. By the time that happened, the economy would be recovering, giving the impression that tariff cuts caused the crash and the reverse generated the recovery. Mr Irwin also methodically debunks the idea that protectionism made America a great industrial power, a notion believed by some to offer lessons for developing countries today. As its share of global manufacturing powered from 23% in 1870 to 36% in 1913, the admittedly high tariffs of the time came with a cost, estimated at around 0.5% of GDP in the mid-1870s. In some industries, they might have sped up development by a few years. But American growth during its protectionist period was more to do with its abundant resources and openness to people and ideas.
According to
Paul Bairoch
Paul Bairoch (24 July 1930 in Antwerp – 12 February 1999 in Geneva) was a (in 1985 naturalised) Swiss economic historian of Belgian descent who specialized in urban history and historical demography. He published or co-authored more than two d ...
, since the end of the 18th century, the United States has been "the homeland and bastion of modern protectionism". In fact, the United States never adhered to free trade until 1945. For the most part, the
Jeffersonians strongly opposed protectionism. In the 19th century, statesmen such as Senator
Henry Clay continued
Alexander Hamilton's themes within the
Whig Party under the name
American System. The opposition
Democratic Party Democratic Party most often refers to:
*Democratic Party (United States)
Democratic Party and similar terms may also refer to:
Active parties Africa
*Botswana Democratic Party
*Democratic Party of Equatorial Guinea
*Gabonese Democratic Party
*Demo ...
contested several elections throughout the 1830s, 1840s and 1850s in part over the issue of the tariff and protection of industry. The Democratic Party favored moderate tariffs used for government revenue only while the Whigs favored higher protective tariffs to protect favored industries. The economist
Henry Charles Carey
Henry Charles Carey (December 15, 1793 – October 13, 1879) was the leading 19th-century economist of the American School, and chief economic adviser to U.S. President Abraham Lincoln.
Carey is best known for the book ''The Harmony of Interest ...
became a leading proponent of the American System of economics. This mercantilist American System was opposed by the Democratic Party of
Andrew Jackson
Andrew Jackson (March 15, 1767 – June 8, 1845) was an American lawyer, planter, general, and statesman who served as the seventh president of the United States from 1829 to 1837. Before being elected to the presidency, he gained fame as ...
,
Martin Van Buren
Martin Van Buren ( ; nl, Maarten van Buren; ; December 5, 1782 – July 24, 1862) was an American lawyer and statesman who served as the eighth president of the United States from 1837 to 1841. A primary founder of the Democratic Party, he ...
,
John Tyler
John Tyler (March 29, 1790 – January 18, 1862) was the tenth president of the United States, serving from 1841 to 1845, after briefly holding office as the tenth vice president in 1841. He was elected vice president on the 1840 Whig tick ...
,
James K. Polk
James Knox Polk (November 2, 1795 – June 15, 1849) was the 11th president of the United States, serving from 1845 to 1849. He previously was the 13th speaker of the House of Representatives (1835–1839) and ninth governor of Tennessee (183 ...
,
Franklin Pierce and
James Buchanan.
The fledgling
Republican Party led by
Abraham Lincoln
Abraham Lincoln ( ; February 12, 1809 – April 15, 1865) was an American lawyer, politician, and statesman who served as the 16th president of the United States from 1861 until his assassination in 1865. Lincoln led the nation thro ...
, who called himself a "Henry Clay tariff Whig", strongly opposed free trade and implemented a 44% tariff during the
Civil War
A civil war or intrastate war is a war between organized groups within the same state (or country).
The aim of one side may be to take control of the country or a region, to achieve independence for a region, or to change government policies ...
, in part to pay for railroad subsidies and for the war effort and in part to protect favored industries.
William McKinley
William McKinley (January 29, 1843September 14, 1901) was the 25th president of the United States, serving from 1897 until his assassination in 1901. As a politician he led a realignment that made his Republican Party largely dominant in ...
(later to become President of the United States) stated the stance of the Republican Party (which won every election for president from 1868 until 1912, except the two non-consecutive terms of
Grover Cleveland
Stephen Grover Cleveland (March 18, 1837June 24, 1908) was an American lawyer and politician who served as the 22nd and 24th president of the United States from 1885 to 1889 and from 1893 to 1897. Cleveland is the only president in American ...
) as thus:
During the interwar period,
economic protectionism
Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. ...
took hold in the United States, most famously in the form of the
Smoot–Hawley Tariff Act
The Tariff Act of 1930 (codified at ), commonly known as the Smoot–Hawley Tariff or Hawley–Smoot Tariff, was a law that implemented protectionist trade policies in the United States. Sponsored by Senator Reed Smoot and Representative Willi ...
which is credited by economists with the prolonging and worldwide propagation of the
Great Depression.
From 1934, trade liberalization began to take place through the
Reciprocal Trade Agreements Act.
Post-World War II
Since the end of
World War II
World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposing ...
, in part due to industrial size and the onset of the
Cold War, the United States has often been a proponent of reduced tariff-barriers and free trade. The United States helped establish the
General Agreement on Tariffs and Trade and later the
World Trade Organization
The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation
in the United Nations System, governments use the organization to establish, revise, and ...
, although it had rejected an earlier version in the 1950s, the
International Trade Organization
The International Trade Organization (ITO) was the proposed name for an international institution for the regulation of trade.
Led by the United States in collaboration with allies, the effort to form the organization from 1945 to 1948, with the ...
. Since the 1970s, United States governments have negotiated managed-trade agreements, such as the
North American Free Trade Agreement in the 1990s, the
Dominican Republic-Central America Free Trade Agreement
Dominican may refer to:
* Someone or something from or related to the Dominican Republic ( , stress on the "mi"), on the island of Hispaniola in the Greater Antilles, in the Caribbean
** People of the Dominican Republic
** Demographics of the Domi ...
in 2006 and a number of bilateral agreements (such as with Jordan).
In Europe,
six countries formed the
European Coal and Steel Community in 1951 which became the
European Economic Community (EEC) in 1958. Two core objectives of the EEC were the development of a common market, subsequently renamed the
single market, and establishing a
customs union
A customs union is generally defined as a type of trade bloc which is composed of a free trade area with a common external tariff.GATTArticle 24 s. 8 (a)
Customs unions are established through trade pacts where the participant countries set up ...
between its member states. After expanding its membership, the EEC became the
European Union
The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...
in 1993. The European Union, now the world's largest single market, has
concluded free trade agreements with many countries around the world.
Modern era
![1 singapore city skyline dusk panorama 2011](https://upload.wikimedia.org/wikipedia/commons/3/3e/1_singapore_city_skyline_dusk_panorama_2011.jpg)
Most countries in the world are members of the
World Trade Organization
The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation
in the United Nations System, governments use the organization to establish, revise, and ...
which limits in certain ways but does not eliminate tariffs and other trade barriers. Most countries are also members of regional free trade areas that lower trade barriers among participating countries. The European Union and the United States are negotiating a
Transatlantic Trade and Investment Partnership
The Transatlantic Trade and Investment Partnership (TTIP) was a proposed trade agreement between the European Union and the United States, with the aim of promoting trade and multilateral economic growth. According to Karel de Gucht, European ...
. in 2018, the
Comprehensive and Progressive Agreement for Trans-Pacific Partnership came into force, which includes eleven countries that have borders on the
Pacific Ocean
The Pacific Ocean is the largest and deepest of Earth's five oceanic divisions. It extends from the Arctic Ocean in the north to the Southern Ocean (or, depending on definition, to Antarctica) in the south, and is bounded by the contin ...
.
Degree of free trade policies
Free trade may apply to trade in
goods and services
Goods are items that are usually (but not always) tangible, such as pens, physical books, salt, apples, and hats. Services are activities provided by other people, who include architects, suppliers, contractors, technologists, teachers, doc ...
. Non-economic considerations may inhibit free trade as a country may espouse free trade in principle but ban certain drugs, such as
ethanol
Ethanol (abbr. EtOH; also called ethyl alcohol, grain alcohol, drinking alcohol, or simply alcohol) is an organic compound. It is an alcohol with the chemical formula . Its formula can be also written as or (an ethyl group linked to a ...
, or certain practices, such as
prostitution, and limiting international free trade.
Some degree of protectionism is nevertheless the norm throughout the world. Most developed nations maintain controversial agricultural tariffs. From 1820 to 1980, the average tariffs on manufactures in twelve industrial countries ranged from 11 to 32%. In the developing world, average tariffs on manufactured goods are approximately 34%. The American economist
C. Fred Bergsten
C. Fred Bergsten (born April 23, 1941) is an American economist, author, think tank entrepreneur, and policy adviser. He has served as assistant for international economic affairs to Henry Kissinger within the National Security Council and as a ...
devised the bicycle theory to describe
trade policy
A commercial policy (also referred to as a trade policy or international trade policy) is a government's policy governing international trade. Commercial policy is an all encompassing term that is used to cover topics which involve international t ...
. According to this model, trade policy is dynamically unstable in that it constantly tends towards either liberalisation or protectionism. To prevent falling off the bike (the disadvantages of protectionism), trade policy and
multilateral trade negotiations
The term multilateral trade negotiations (MTN) initially applied to negotiations between General Agreement on Tariffs and Trade (GATT) member nations conducted under the auspices of the GATT and aimed at reducing tariff and nontariff trade barrier ...
must constantly pedal towards greater liberalisation. To achieve greater liberalisation, decision makers must appeal to the greater welfare for consumers and the wider national economy over narrower parochial interests. However, Bergsten also posits that it is also necessary to compensate the losers in trade and help them find new work as this will both reduce the backlash against globalisation and the motives for trades unions and politicians to call for protection of trade.
![20041120-1 bushchinamtg-1-515h](https://upload.wikimedia.org/wikipedia/commons/f/fd/20041120-1_bushchinamtg-1-515h.jpg)
In ''Kicking Away the Ladder'', development economist
Ha-Joon Chang
Ha-Joon Chang (; ; born 7 October 1963) is a South Korean institutional economist, specialising in development economics. Chang is the author of several widely discussed policy books, most notably ''Kicking Away the Ladder: Development Strateg ...
reviews the history of free trade policies and economic growth and notes that many of the now-industrialized countries had significant barriers to trade throughout their history. The United States and Britain, sometimes considered the homes of free trade policy, employed protectionism to varying degrees at all times. Britain abolished the
Corn Laws
The Corn Laws were tariffs and other trade restrictions on imported food and corn enforced in the United Kingdom between 1815 and 1846. The word ''corn'' in British English denotes all cereal grains, including wheat, oats and barley. They wer ...
which restricted import of grain in 1846 in response to domestic pressures and reduced protectionism for manufactures only in the mid 19th century when its technological advantage was at its height, but tariffs on manufactured products had returned to 23% by 1950. The United States maintained weighted average tariffs on manufactured products of approximately 40–50% up until the 1950s, augmented by the natural protectionism of high transportation costs in the 19th century. The most consistent practitioners of free trade have been Switzerland, the Netherlands and to a lesser degree Belgium. Chang describes the
export-oriented industrialization
Export-oriented industrialization (EOI) sometimes called export substitution industrialization (ESI), export led industrialization (ELI) or export-led growth is a trade and economic policy aiming to speed up the industrialization process of a ...
policies of the
Four Asian Tigers
The Four Asian Tigers (also known as the Four Asian Dragons or Four Little Dragons in Chinese and Korean) are the developed East Asian economies of Hong Kong, Singapore, South Korea, and Taiwan. Between the early 1960s and 1990s, they underwent ...
as "far more sophisticated and fine-tuned than their historical equivalents".
= Free trade in goods
=
The
Global Enabling Trade Report
The ''Global Enabling Trade Report'' was first published in 2008 by the World Economic Forum.
The 2008 report covers 118 major and emerging economies. At the core of the report is the Enabling Trade Index which ranks the countries using data from ...
measures the factors, policies and services that facilitate the trade in goods across borders and to destinations. The index summarizes four sub-indexes, namely market access; border administration; transport and communications infrastructure; and business environment. As of 2016, the top 30 countries and areas were the following:
Politics
Academics, governments and interest groups debate the relative
costs
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something or deliver a service, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which ...
, benefits and beneficiaries of free trade.
Arguments for
protectionism
Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulatio ...
fall into the economic category (trade hurts the economy or groups in the economy) or into the moral category (the effects of trade might help the economy, but have ill effects in other areas). A general argument against free trade is that it represents
colonialism
Colonialism is a practice or policy of control by one people or power over other people or areas, often by establishing colony, colonies and generally with the aim of economic dominance. In the process of colonisation, colonisers may impose the ...
or
imperialism in disguise. The moral category is wide, including concerns about:
*
destroying infant industries
* undermining long-run economic development
* promoting
income inequality
There are wide varieties of economic inequality, most notably income inequality measured using the distribution of income (the amount of money people are paid) and wealth inequality measured using the distribution of wealth (the amount of we ...
* tolerating
environmental degradation
* supporting
child labor
Child labour refers to the exploitation of children through any form of work that deprives children of their childhood, interferes with their ability to attend regular school, and is mentally, physically, socially and morally harmful. Such e ...
and
sweatshops
A sweatshop or sweat factory is a crowded workplace with very poor, socially unacceptable or illegal working conditions. Some illegal working conditions include poor ventilation, little to no breaks, inadequate work space, insufficient lighting, o ...
*
race to the bottom
Race to the bottom is a socio-economic phrase to describe either government deregulation of the business environment or reduction in corporate tax rates, in order to attract or retain usually foreign economic activity in their jurisdictions. Whil ...
*
wage slavery
Wage slavery or slave wages refers to a person's dependence on wages (or a salary) for their livelihood, especially when wages are low, treatment and conditions are poor, and there are few chances of upward mobility.
The term is often us ...
* accentuating poverty in poor countries
* harming
national defense
National security, or national defence, is the security and defence of a sovereign state, including its citizens, economy, and institutions, which is regarded as a duty of government. Originally conceived as protection against military attac ...
* forcing
cultural change Culture change is a term used in public policy making that emphasizes the influence of cultural capital on individual and community behavior. It has been sometimes called repositioning of culture, which means the reconstruction of the cultural conce ...
![Press conference EU-Mercosul on June 26, 2019 (VII)](https://upload.wikimedia.org/wikipedia/commons/1/10/Press_conference_EU-Mercosul_on_June_26%2C_2019_%28VII%29.jpg)
However, poor countries that have adopted free-trade policies have experienced high economic growth, with China and India as prime examples. Free trade allows companies from rich countries to directly invest in poor countries, sharing their knowledge, providing capital and giving access to markets.
Economic arguments against free trade criticize the assumptions or conclusions of economic theories. Sociopolitical arguments against free trade cite social and political effects that economic arguments do not capture, such as political stability, national security, human rights and environmental protection. Some products are important to national security and governments may deem it dangerous to allow domestic producers of these products to go out of business, especially if otherwise they might come to depend on producers who operate in a country that may one day become an enemy. Countries that allow low wages have a competitive advantage in attracting industry, which may lead to a general lowering of wages for workers in all countries. Some countries may facilitate low-cost production of goods in their countries by allowing pollution of the environment: their pricing ignores
environmental full-cost accounting Environmental full-cost accounting (EFCA) is a method of cost accounting that traces direct costs and allocates indirect costs by collecting and presenting information about the possible environmental, social and economical costs and benefits or ad ...
and
hidden cost
In microeconomic theory, the opportunity cost of a particular activity is the value or benefit given up by engaging in that activity, relative to engaging in an alternative activity. More effective it means if you chose one activity (for example ...
s are paid by their local, national and international neighbours.
Domestic industries often oppose free trade on the grounds that it would lower prices for imported goods would reduce their profits and market share.
For example, if the United States reduced tariffs on imported sugar, sugar producers would receive lower prices and profits, and sugar consumers would spend less for the same amount of sugar because of those same lower prices. The economic theory of
David Ricardo
David Ricardo (18 April 1772 – 11 September 1823) was a British political economist. He was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill. Ricardo was also a politician, and a ...
holds that consumers would necessarily gain more than producers would lose.
Since each of the domestic sugar producers would lose a lot while each of a great number of consumers would gain only a little, domestic producers are more likely to mobilize against the reduction in tariffs.
More generally, producers often favor domestic subsidies and tariffs on imports in their home countries while objecting to subsidies and tariffs in their export markets.
Socialists
Socialism is a left-wing economic philosophy and movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to private ownership. As a term, it describes the eco ...
frequently oppose free trade on the ground that it allows maximum
exploitation
Exploitation may refer to:
*Exploitation of natural resources
*Exploitation of labour
** Forced labour
*Exploitation colonialism
*Slavery
** Sexual slavery and other forms
*Oppression
*Psychological manipulation
In arts and entertainment
*Exploi ...
of
workers
The workforce or labour force is a concept referring to the pool of human beings either in employment or in unemployment. It is generally used to describe those working for a single company or industry, but can also apply to a geographic reg ...
by
capital. For example,
Karl Marx
Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, journalist, critic of political economy, and socialist revolutionary. His best-known titles are the 1848 ...
wrote in ''
The Communist Manifesto
''The Communist Manifesto'', originally the ''Manifesto of the Communist Party'' (german: Manifest der Kommunistischen Partei), is a political pamphlet written by German philosophers Karl Marx and Friedrich Engels. Commissioned by the Commu ...
'' (1848): "The bourgeoisie
..has set up that single, unconscionable freedom – free trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation". Marx supported free trade, however, solely because he felt that it would hasten the social revolution.
Many
anti-globalization groups oppose free trade based on their assertion that free-trade agreements generally do not increase the
economic freedom
Economic freedom, or economic liberty, is the ability of people of a society to take economic actions. This is a term used in economic and policy debates as well as in the philosophy of economics. One approach to economic freedom comes from the l ...
of the
poor or of the
working class
The working class (or labouring class) comprises those engaged in manual-labour occupations or industrial work, who are remunerated via waged or salaried contracts. Working-class occupations (see also " Designation of workers by collar colo ...
and frequently make them poorer.
Some opponents of free trade favor free-trade theory, but oppose free-trade agreements as applied. Some opponents of
NAFTA see the agreement as materially harming the common people, but some of the arguments are actually against the particulars of government-managed trade, rather than against free trade ''per se''. For example, it is argued that it would be wrong to let
subsidized
A subsidy or government incentive is a form of financial aid or support extended to an economic sector (business, or individual) generally with the aim of promoting economic and social policy. Although commonly extended from the government, the ter ...
corn from the United States into Mexico freely under
NAFTA at prices well below production cost (
dumping) because of its ruinous effects to Mexican farmers. Indeed, such subsidies violate free-trade theory, so this argument is not actually against the principle of free trade, but rather against its selective implementation.
Research shows that support for trade restrictions is highest among respondents with the lowest levels of education.
Hainmueller and Hiscox find
that the impact of education on how voters think about trade and globalization has more to do with exposure to economic ideas and information about the aggregate and varied effects of these economic phenomena, than it does with individual calculations about how trade affects personal income or job security. This is not to say that the latter types of calculations are not important in shaping individuals' views of trade – just that they are not being manifest in the simple association between education and support for trade openness
A 2017 study found that individuals whose occupations are routine-task-intensive and who do jobs that are
offshorable are more likely to favor protectionism.
Research suggests that attitudes towards free trade do not necessarily reflect individuals' self-interests.
Colonialism
![Colonization 1945](https://upload.wikimedia.org/wikipedia/commons/a/a9/Colonization_1945.png)
Various proponents of
economic nationalism
Economic nationalism, also called economic patriotism and economic populism, is an ideology that favors state interventionism over other market mechanisms, with policies such as domestic control of the economy, labor, and capital formation, incl ...
and of the school of
mercantilism have long portrayed free trade as a form of colonialism or imperialism. In the 19th century, such groups criticized British calls for free trade as cover for
British Empire
The British Empire was composed of the dominions, colonies, protectorates, mandates, and other territories ruled or administered by the United Kingdom and its predecessor states. It began with the overseas possessions and trading posts e ...
, notably in the works of American
Henry Clay, architect of the
American System and of the
German-American
German Americans (german: Deutschamerikaner, ) are Americans who have full or partial German ancestry. With an estimated size of approximately 43 million in 2019, German Americans are the largest of the self-reported ancestry groups by the Unite ...
economist
Friedrich List
Georg Friedrich List (6 August 1789 – 30 November 1846) was a German-American economist who developed the "National System" of political economy. He was a forefather of the German historical school of economics, and argued for the German Custom ...
(1789–1846):
Had the English left everything to itself – "Laissez faire
''Laissez-faire'' ( ; from french: laissez faire , ) is an economic system in which transactions between private groups of people are free from any form of economic interventionism (such as subsidies) deriving from special interest groups. ...
, laissez aller", as the popular economical school recommends – the erman Erman Rašiti may refer to:
Given name
* Erman Bulucu (born 1989), Turkish footballer
* Erman Eltemur (born 1993), Turkish karateka
* Erman Güraçar (born 1974), Turkish footballer
* Erman Kılıç (born 1983), Turkish footballer
* Erman Kunter (b ...
merchants of the Steelyard would be still carrying on their trade in London, the Belgians would be still manufacturing cloth for the English, England would have still continued to be the sheep-farm of the Hansards, just as Portugal became the vineyard of England, and has remained so till our days, owing to the stratagem of a cunning diplomatist.
Free-trade debates and associated matters involving the colonial administration of
Ireland
Ireland ( ; ga, Éire ; Ulster Scots dialect, Ulster-Scots: ) is an island in the Atlantic Ocean, North Atlantic Ocean, in Northwestern Europe, north-western Europe. It is separated from Great Britain to its east by the North Channel (Grea ...
have periodically (such as in 1846 and 1906) caused ructions in the
British Conservative (
Tory
A Tory () is a person who holds a political philosophy known as Toryism, based on a British version of traditionalism and conservatism, which upholds the supremacy of social order as it has evolved in the English culture throughout history. The ...
) Party (
Corn Law
The Corn Laws were tariffs and other trade restrictions on imported food and corn enforced in the United Kingdom between 1815 and 1846. The word ''corn'' in British English denotes all cereal grains, including wheat, oats and barley. They wer ...
issues in the 1820s to the 1840s,
Irish Home Rule
The Irish Home Rule movement was a movement that campaigned for self-government (or "home rule") for Ireland within the United Kingdom of Great Britain and Ireland. It was the dominant political movement of Irish nationalism from 1870 to the e ...
issues throughout the 19th and early-20th centuries).
Ecuadorian President
Rafael Correa
Rafael Vicente Correa Delgado (; born 6 April 1963), known as Rafael Correa, is an Ecuadorian politician and economist who served as President of Ecuador from 2007 to 2017. The leader of the PAIS Alliance political movement from its foundation ...
(in office from 2007 to 2017) denounced the "sophistry of free trade" in an introduction he wrote for a 2006 book, ''The Hidden Face of Free Trade Accords'', which was written in part by Correa's Energy Minister Alberto Acosta. Citing as his source the 2002 book ''Kicking Away the Ladder'' written by
Ha-Joon Chang
Ha-Joon Chang (; ; born 7 October 1963) is a South Korean institutional economist, specialising in development economics. Chang is the author of several widely discussed policy books, most notably ''Kicking Away the Ladder: Development Strateg ...
, Correa identified the difference between an "American system" opposed to a "British System" of free trade. The Americans explicitly viewed the latter, he says, as "part of the British imperialist system". According to Correa, Chang showed that Treasury Secretary
Alexander Hamilton (in office 1789–1795), rather than List, first presented a systematic argument defending industrial protectionism.
Major free trade areas
Africa
Europe
Americas
Alternatives
The following alternatives to free trade have been proposed:
protectionism
Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulatio ...
,
imperialism,
balanced trade,
fair trade, and
industrial policy.
In literature
The value of free trade was first observed and documented in 1776 by
Adam Smith in ''
The Wealth of Nations
''An Inquiry into the Nature and Causes of the Wealth of Nations'', generally referred to by its shortened title ''The Wealth of Nations'', is the '' magnum opus'' of the Scottish economist and moral philosopher Adam Smith. First published in ...
'', writing:
This statement uses the concept of
absolute advantage to present an argument in opposition to
mercantilism, the dominant view surrounding trade at the time which held that a country should aim to export more than it imports and thus amass wealth. Instead, Smith argues, countries could gain from each producing exclusively the goods in which they are most suited to, trading between each other as required for the purposes of consumption. In this vein, it is not the value of exports relative to that of imports that is important, but the value of the goods produced by a nation. However, the concept of absolute advantage does not address a situation where a country has no advantage in the production of a particular good or type of good.
This theoretical shortcoming was addressed by the theory of comparative advantage. Generally attributed to
David Ricardo
David Ricardo (18 April 1772 – 11 September 1823) was a British political economist. He was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill. Ricardo was also a politician, and a ...
, who expanded on it in his 1817 book ''
On the Principles of Political Economy and Taxation
'' the Principles of Political Economy and Taxation'' (19 April 1817) is a book by David Ricardo on economics. The book concludes that land rent grows as population increases. It also presents the theory of comparative advantage, the theory tha ...
'', it makes a case for free trade based not on absolute advantage in production of a good, but on the relative
opportunity costs of production. A country should specialize in whatever good it can produce at the lowest cost, trading this good to buy other goods it requires for consumption. This allows for countries to benefit from trade even when they do not have an absolute advantage in any area of production. While their gains from trade might not be equal to those of a country more productive in all goods, they will still be better off economically from trade than they would be under a state of
autarky
Autarky is the characteristic of self-sufficiency, usually applied to societies, communities, states, and their economic systems.
Autarky as an ideal or method has been embraced by a wide range of political ideologies and movements, especiall ...
.
Exceptionally,
Henry George
Henry George (September 2, 1839 – October 29, 1897) was an American political economist and journalist. His writing was immensely popular in 19th-century America and sparked several reform movements of the Progressive Era. He inspired the eco ...
's 1886 book ''
Protection or Free Trade'' was read out loud in full into the
Congressional Record by five
Democratic congressmen. American economist
Tyler Cowen
Tyler Cowen (; born January 21, 1962) is an American economist, columnist and blogger. He is a professor at George Mason University, where he holds the Holbert L. Harris chair in the economics department. He hosts the economics blog ''Marginal R ...
wrote that ''Protection or Free Trade'' "remains perhaps the best-argued tract on free trade to this day".'' Although George is very critical towards protectionism, he discusses the subject in particular with respect to the interests of labor:
We all hear with interest and pleasure of improvements in transportation by water or land; we are all disposed to regard the opening of canals, the building of railways, the deepening of harbors, the improvement of steamships as beneficial. But if such things are beneficial, how can tariffs be beneficial? The effect of such things is to lessen the cost of transporting commodities; the effect of tariffs is to increase it. If the protective theory be true, every improvement that cheapens the carriage of goods between country and country is an injury to mankind unless tariffs be commensurately increased.
George considers the general free trade argument inadequate. He argues that the removal of protective tariffs alone is never sufficient to improve the situation of the working class, unless accompanied by a shift towards
land value tax
A land value tax (LVT) is a levy on the value of land (economics), land without regard to buildings, personal property and other land improvement, improvements. It is also known as a location value tax, a point valuation tax, a site valuation ta ...
.
See also
; Concepts/topics
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
; Trade organizations
*
*
*
Citations
General and cited references
* Bannerman, Gordon
''Free Trade''EGO – European History Online Mainz
Institute of European History 2015, retrieved: March 8, 2021
pdf.
*
Bhagwati, Jagdish. ''Free Trade Today''. Princeton: Princeton University Press (2002). .
*
*
Chang, Ha-Joon. ''Kicking Away The Ladder: Development Strategy in Historical Perspective''. London: Anthem Press 2003. .
*
Dickerson, Oliver M. ''The Navigation Acts and the American Revolution''. New York: Barnes (1963). .
*
Pugel, Thomas A. ''International Economics'', 13th edition. New York: McGraw-Hill Irwin (2007). .
*
Ricardo, David. ''On the Principles of Political Economy and Taxation'', Library of Economics and Liberty (1999).
*
Smith, Adam. ''
An Inquiry into the Nature and Causes of the Wealth of Nations'', Digireads Publishing (2009), .
* Tyler, John W. ''Smugglers & Patriots: Boston Merchants and the Advent of the American Revolution''. Boston: Northeastern University Press (1986). .
Further reading
* Galiani, Sebastian, Norman Schofield, and Gustavo Torrens (2014)
"Factor Endowments, Democracy and Trade Policy Divergence" ''Journal of Public Economic Theory''. 16(1): 119–156. .
*
*
* World Trade Organization (2018)
External links
The Online Library of Liberty*
66 contemporary British illustrations about free trade, 1830s–1910s
{{DEFAULTSORT:Free Trade
Commercial policy