What Is Free Trade and How Does It Work?


Free trade allows the United States and other countries to do business with a wide range of exporters. According to the International Trade Administration, free trade created over a $710 billion export market in 2015.

This import and export law removes restrictions and opens opportunities for nations to buy and sell more goods.

If you’re wondering how free trade policies could change our world for the better, read on to learn more.

What Is Free Trade?

The concept of free trade is that it allows countries to import and export goods between nations without restrictions. While many government policies are in place to regulate trade, free trade is much less stringent.

The term protectionism defines the opposite of free trade. These laws make trading with other countries more difficult. As a result, protectionism eliminates market competition between various nations.

A protectionist policy may result in serious harm to people in certain countries. When free trade is practiced, moving goods across borders is easier. It helps to promote healthy economies and provides a source of income for poor nations.

In theory, free trade should charge no taxes to importing countries. But the idea of no tax is often met with some difficulty by government regulators.

How Does It Work?

Free trade works by making sending and receiving goods between countries much easier. As a result, many consumers will notice lower prices due to fewer taxes and regulations. 

The elimination of governmental restrictions allows products to flow more freely through the marketplace. Poor countries receive more income, which can help to stimulate the economy.

Nobel Laureate Joseph Stiglitz says that free trade promotes healthy economic development worldwide. While it certainly helps U.S. consumers, it also promotes growth and a better life for people overseas.

Besides encouraging a healthy economy, free trade also provides access to new goods. For example, a country may have had restrictions on exporting a certain type of fabric. Free trade would offer opportunities to send it to other countries.

The Cons of Free Trade

In theory, free trade is beneficial to almost everyone. But fewer regulations can also mean more harm to workers and the environment.

Without some form of regulation regarding production and exportation, the environment may suffer. Things like using dangerous chemicals, exporting invasive species, and other harmful practices can become a serious issue.

People in impoverished nations won’t have any oversight of their working conditions. This can also mean that mistreated workers may experience abuse.

Small businesses may also feel the negative effects of free trade. When prices and competition shrink, some businesses can no longer compete.

A New Trade Policy

There are many benefits to free trade, but some form of regulation is still needed. With the right trade agreement in place, this policy provides a chance to create immense economic growth.

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