Free trade is the policy of permitting the people of a country to buy and sell where they please without restrictions. A nation that follows the policy of free trade does not prevent its citizens from buying goods produced in other countries, or encourage them to buy at home.
The opposite of free trade is protection, the policy of protecting home industries from outside competition. This protection may be provided by placing tariffs, or special taxes, on foreign goods; by restricting the amounts of goods that people may bring into the country; or by many other practices.
The theory of free trade
is based on the same reasoning as the idea that there should be free trade among the sections of a country. Consumers in Indiana gain by buying oranges from California, where the fruit can be grown less expensively. They would also gain by buying woolen goods from the United Kingdom if the goods could be produced there at less cost than in the United States.
Free-trade thinking is based on the principle of comparative advantage (see International trade ). According to this principle, market forces lead producers in each area to specialize in the production of goods on which their costs are lower. Each area imports goods that are costlier for it to produce. Such a policy leads to the greatest total worldwide production, so that consumers receive the largest possible supply of goods at the lowest prices.
Objections to free trade.
Despite superior efficiency under free trade, most countries favor some protection. One reason is the unsettled state of world affairs. Many people believe that so long as there is risk of war, a nation should not be too dependent on foreign supplies. Another reason is to support the incomes of those workers and firms that may be harmed by cheaper imports. Today, many less developed countries use protection to encourage their “infant” industries, more or less as the United States did in the 1800’s.
Those people who favor free trade argue that protection can be harmful to a country’s welfare and can lead to national isolation, national jealousies, and threats of war, which in turn necessitate even greater protection. They believe that free trade leads to understanding and world peace.
