Main Page | See live article | Alphabetical index

Free trade

Free trade is an economic concept referring to the selling of products between countries without tariffs or other trade barriers. International trade is often constricted by different national taxes, other fees imposed on exported and imported goods, as well as non-tariff regulations on imported goods; free trade is against all these restrictions.

Some multi-national entities, such as the European Union, have implemented free trade in some forms between their member nations (customs union). However, there is continuing debate whether free trade would help third world nations with different economic problems and whether free trade is good for the developed world.

Table of contents
1 Arguments for and against free trade
2 Intellectual property and free trade
3 See also
4 References
5 Links

Arguments for and against free trade

Many economists argue that free trade increases the standard of living through the theory of comparative advantage and economies of scale. Others argue that free trade allows developed nations to exploit developing nations and to destroy local industry in addition to circumventing social and labor standards. Conversely it has also been argued that free trade hurts developed nations because it causes jobs from those nations to move to other countries as well as producing a race to the bottom which causes a general lowering of health and safety standards.

Some descriptions of comparative advantage rest on a necessary condition of "capital immobility." If financial (or labor) resources can move between countries, then the comparative advantage theory erodes, and absolute advantage dominates. Given the liberalization of capital flows under free trade agreements of the 1990s, the condition of capital immobility no longer holds. As a consequence, it can be argued that the economic theory of comparative advantage no longer supports free trade theory. However, as economist Paul Krugman has noted, the 19th century economic theorist David Ricardo who formulated the well-known simple model of the comparative advangage doctrine lived himself in a period of high capital mobility. Some take this to mean that the assumption of capital immobility in early models of the theory was merely an expositional convenience that is not essential to the principle. More complicated modern models of comparative advantage do include capital mobility (i.e. international borrowing, lending, and labor movement) and often posit movement of capital as analogous to the movement of goods.

In addition, the current implementation of free trade has been criticized by advocates of free trade itself. One complaint is that developed nations tend to insist that developing nations open their markets to industrial products from the developed world, yet refuse to open their markets to agricultural goods from the developing world. Furthermore it has been noted that the current concept of free trade supports the free movement of products and employers, which favors the developed nations, but not the free movement of employees (i.e., labor), which would favor the people of developing nations. (See also: Immigration.)

Some have argued that many of the alleged problems in the current free trade system, such as the race to the bottom and restriction of the movement of labor, would be eliminated by having a single world government with one law and no borders. This idea however is highly offensive to many people on both sides of the argument and is thus rarely posited as a true solution.

Intellectual property and free trade

Historically, the free trade movement was skeptical and even hostile to the notion of intellectual property, regarded as monopolistic and harmful to a free, competitive economy. Indeed, during the late 19th century, free trade advocates succeeded in reducing the length of the patents available in many European countries. The Netherlands even abolished its patent system (temporarily, as it turned out).

The 19th century anti-patent cause failed largely because the recession of 1874 discredited the free trade movement of the time (and also because patent advocates used a public relations campaign which was remarkably sophisticated for its time).

It is thus quite remarkable (some would even say ironic) that corporations lobbying for expanded intellectual property privileges have succeeded in including TRIPS, a very strong treaty on intellectual property rights, as a membership requirement for the World Trade Organization, the international organization dedicated to furthering the cause of free trade.

See also


  1. Fritz Machlup & Edith Penrose, "The Patent Controversy in the 19th Century", Journal of Economic History, 10 (1) pp 1-29, 1950.


Pro-free trade/free-market

Opponents of free trade