Free Trade

free trade, in modern usage, trade or commerce carried on without such restrictions as import duties, export bounties, domestic production subsidies, trade quotas, or import licenses. The basic argument for free trade is based on the economic theory of comparative advantage: each region should concentrate on what it can produce most cheaply and efficiently and should exchange its products for those it is less able to produce economically.

Internal Free Trade

Free trade within national borders is in some countries a comparatively recent development. Jean Baptiste Colbert tried to abolish internal trade barriers in France in the 17th cent., but that was not accomplished until the French Revolution, a hundred years later. In the German states Prussia took the lead in organizing the Zollverein movement after 1818. The desire to assure freedom from internal trade barriers in the United States was a factor in calling the Constitutional Convention. In Britain, the classic home of the free-trade movement, the term free trade was first used during the agitation for removal of the privileges of the chartered companies in the 17th cent.

International Free Trade

In 18th-century Britain, free trade eventually came to mean the desire for a moderate tariff policy in international trade, especially with France. The rapid growth of British industry in the late 1700s (see Industrial Revolution) gave added force to the attack on international trade restrictions (see mercantilism). Adam Smith's Wealth of Nations (1776) provided a powerful intellectual basis for the free trade movement, and the later work of David Ricardo was important in developing the notion of comparative advantage as an argument in its favor. The most important practical blow in favor of the free-trade movement came with the formation (1839) of the Anti-Corn-Law League, and the repeal (1846) of the corn laws. The Anglo-French commercial treaty of 1860 represented perhaps the high-water mark of free trade.

After World War I, Britain reintroduced protection and a system of imperial preference in an attempt to establish a greater measure of economic autonomy. France, along with other European nations, historically followed a policy of protection. In the period of international economic dislocation in the mid-1930s, the United States reversed earlier policy and signed reciprocal trade treaties with many foreign governments, embracing a policy of selective tariff reduction for economic and political reasons. At present the United States is a relatively low tariff nation, although it still maintains a fairly restrictive system of import quotas. Japan also has restrictive import quotas, as well as high tariffs and other trade restrictions.

After World War II, strong sentiment developed throughout the world against protection and high tariffs and in favor of freer trade. The results were new organizations and agreements on international trade such as the General Agreement on Tariffs and Trade (1948), the Benelux Economic Union (1948), the European Economic Community (Common Market, 1957), the European Free Trade Association (1959), Mercosur (1991), and the World Trade Organization (1995). In 1993 the North American Free Trade Agreement (NAFTA) was approved by the governments of Canada, Mexico, and the United States. In the early 1990s the nations of the European Union (the successor organization to the Common Market) undertook to remove all barriers to the free movement of trade and employment across their mutual borders.

Critics of free trade zones argue that such measures are detrimental to domestic economies. In the case of NAFTA, for example, opponents contended that the jobs of some American workers would be "exported" to Mexico, where labor costs are lower. Many have continued to oppose the international impetus toward freer trade, arguing the accords not only fail to protect jobs in more developed nations but also harm workers and the environment in less developed nations, where the laws are more lax or less enforced. Despite such objections, support for free trade has continued. In Apr., 2001, for example, 34 nations of the Western Hemisphere committed themselves to the development of a Free Trade Area of the Americas, though movement toward such an organization subsequently stalled. In May, 2004, the Central American Free Trade Agreement was finalized by the United States and five Central American nations; the Dominican Republic is also a member of the group. The United States, Japan, China, and other countries have also negotiated bilateral free-trade agreements with individual nations or regional trade associations; such agreements generally open trade in some areas while preserving the protection of politically sensitive economic sectors.

See also reciprocal trade agreement.

Bibliography

See G. B. Doern and B. W. Tomlin, Faith and the Free Trade Story (1991); D. B. Yoffie, Beyond Free Trade: Firms, Governments, and Global Competition (1993); A. E. Eckes, Jr., Opening America's Market (1995); J. J. Schott, The World Trading System (1997).

The Columbia Encyclopedia, 6th ed. Copyright© 2014, The Columbia University Press.

Selected full-text books and articles on this topic

New Frontiers in Free Trade: Globalization's Future and Asia's Rising Role
Razeen Sally.
Cato Institute, 2008
Free Trade Today
Jagdish Bhagwati.
Princeton University Press, 2002
How Nations Grow Rich: The Case for Free Trade
Melvyn Krauss.
Oxford University Press, 1997
The Tradition of Free Trade
Lars Magnusson.
Routledge, 2004
The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade Are Sinking American Living Standards
Alan Tonelson.
Westview Press, 2000
Free Trade and Moral Philosophy: Rethinking the Sources of Adam Smith's Wealth of Nations
Richard F. Teichgraeber III.
Duke University Press, 1986
Global Constitutionalism and the Arguments over Free Trade
Bruner, M. Lane.
Communication Studies, Vol. 53, No. 1, Spring 2002
PEER-REVIEWED PERIODICAL
Peer-reviewed publications on Questia are publications containing articles which were subject to evaluation for accuracy and substance by professional peers of the article's author(s).
Globaphobia: Confronting Fears about Open Trade
Gary Burtless; Robert Z. Lawrence; Robert E. Litan; Robert J. Shapiro.
Brookings Institution, 1998
Librarian’s tip: "Traditional Qualifications to Free Trade" begins on p. 24
In Defense of Global Capitalism
Johan Norberg.
Cato Institute, 2003
Librarian’s tip: Part III "Free Trade Is Fair Trade"
Policy Choices: Free Trade among NAFTA Nations
Karen Roberts; Mark I. Wilson.
Michigan State University Press, 1996
Regionalism, Multilateralism, and Economic Integration: The Recent Experience
Gary P. Sampson; Stephen Woolcock.
United Nations University Press, 2003
Librarian’s tip: Chap. 4 "The EU-Mexico Free Trade Agreement: Assessing the EU Approach to Regulatory Issues," Chap. 6 "The North American Free Trade Agreement," and Chap. 7 "The Chile-Canada Free Trade Agreement"
The Future of Hemispheric Free Trade: Towards a Unified Hemisphere?
Anderson, Lisa.
Houston Journal of International Law, Vol. 20, No. 3, Spring 1998
Reconciling Free Trade, Fair Trade, and Interdependence: The Rhetoric of Presidential Economic Leadership
Delia B. Conti.
Praeger, 1998
Zapata's Revenge: Free Trade and the Farm Crisis in Mexico
Tom Barry.
South End Press, 1995
The Political Economy of the World Trading System: From GATT to WTO
Bernard M. Hoekman; Michel M. Kostecki.
Oxford University Press, 1995
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