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Free trade

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The dismal science
Economic Systems

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Major Concepts

Free trade is an economic practice in which two or more countries agree to enforce few or no barriers to trade, such as quotas or tariffs, upon the exchange of goods and services between the countries. The concept is central to classical liberalism, especially international classical liberalism, whose proponents believe that free trade naturally leads to free cultural exchange and the free exchange of ideas for the populations involved. For many modern international relations-minded classical liberals, free trade also promotes peace because it intensifies interdependence in addition to cultural exchange. For this reason and others, free trade forms a significant portion of the backbone of the European Union and European cooperation institutions more broadly.

Opposition to free trade can come from many different political stances. Economic nationalists and mercantilists dislike free trade because they see it as threatening to national sovereignty. International relations realists and neo-mercantilists dislike it because they see it as an obstacle to national security. Reactionaries dislike it because they fear the possibility of cultural exchange and/or increased immigration. Some conservatives dislike it if it increases their country's net capital outflow. Some progressives dislike it because they see it as harmful to the domestic economy and/or the environment. Leftists dislike it because they see it as advantageous, both in terms of economics and power, to the elites and disadvantageous to everyone else; they prefer working/middle class internationalism to capitalist internationalism. And, of course, each of these groups may share the concerns presented by the other groups.

Recent free trade controversy[edit]

Free trade agreements have recently become the subject of increased public debate in the run up to the 2016 U.S. presidential election. The most obvious example of this in North America is NAFTA. Several subsequent deals have also come under fire, including the Trans-Pacific Partnership[1][2][3][4][5], the Transatlantic Trade and Investment Partnership[6][7], and the Trade in Services Agreement (TiSA)[8]. Much criticism stems from the fact that these negotiations are being conducted in secret. For example, the negotiation texts for TiSA (although not the final outcome) are not supposed to be released until five years after all parties have ratified it according to a WikiLeaks release.

Free trade is not always Pareto-optimal. This will occur if 'trade diversion' is a significant result of a trade agreement, which results in trade diverting from more efficient countries to less efficient countries due to the difference in trade barriers. This can occur if a trade agreement is between rich countries. Trade diversion is more likely to be a problem if a free trade agreement primarily comprises rich countries of similar income levels while including proportionally few low-income countries. Examples of potential trade diversion include the European Common Market prior to its expansion into Eastern Europe, while an example of a trade deal with greater diversity of income levels includes the Trans Pacific Partnership which would have included both developed countries (i.e., the USA and Japan) and a number of poor countries (i.e., Vietnam and the Phillipines). The World Trade Organization is the foremost proponent of pareto-optimality in trade, sponsoring the application of 'most favored nation status' to all countries, wherein any trade privileges given to one country must be given to all other countries; thus, countries would lower trade restrictions with all other countries simultaneously, avoiding any trade diversion.

Free trade should not be confused with fair trade, which could be argued as being a subset of free trade and which can be basically defined as international trade that is at the very least not detrimental to all stakeholders involved at every stage of the trading process - the definition of Pareto efficiency. Generally, some compensation or transfer has to be orchestrated to make whole the losers of a trade agreement, though fair trade does still have issues with placing the entirety of the burden on the poorer partners with regards to ethical sourcing.

The failure of the current US and other global governments in actually compensating the losers of free trade agreements (a comparatively trivial cost) is thought to have contributed to the rise of political figures like Donald Trump, Bernie Sanders, Boris Johnson, Nigel Farage, Jeremy Corbyn, Marine Le Pen, and Jean-Luc Mélenchon. Additionally, claims that free trade is primarily responsible for the loss of manufacturing jobs are often blustered with the excuse that automation took more jobs than free trade ever has. US deindustrialization and inequality have little or no causal link with automation, now nor in the past, as opposed to the well-proven role of offshoring and its resultant strengthening of capital against organized labor.[9]

See also[edit]

External links[edit]