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International Trade Series
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International trade
History of international trade
Political views
Fair trade
Free trade
Protectionism
Economic integration
Preferential trading area
Free trade area
Customs union
Common market
Economic and monetary union
Other
Trade pact
Trade bloc
Trade creation
Trade diversion
Related terms:
Free market
laissez-faire
International trade


Free trade is a market model in which the trade of goods and services between or within countries flows unhindered by government-imposed restrictions. International trade is exchange of Capital, Goods, and Services across International borders or Territories. The history of international trade chronicles notable events that have affected the Trade between various countries Fair trade is an organized Social movement and market-based approach to empowering developing country producers and promoting sustainability For the protectionist Australian political party from the 1880s to 1909 see Protectionist Party Economic integration is a term used to describe how different aspects between economies are integrated A Preferential Trade Area is a Trading bloc which gives preferential access to certain products from the participating countries See also List of free trade agreements This is article is on free international trade A customs union is a Free trade area with a Common external tariff. An economic and monetary union is a Single market with a common currency A trade pact is a wide ranging Tax tariff and trade pact that often includes Investment guarantees A trade bloc is a large Free trade area formed by one or more Tax tariff and trade agreements Trade creation is an Economic term related to International economics in which Trade is created by the formation of a Customs union. Trade diversion is an Economic term related to International economics in which Trade is diverted from a more efficient exporter towards a less efficient A free market is a Market in which property rights are voluntarily exchanged at a price arranged completely by the mutual consent of sellers and buyers Laissez-faire ( pronunciation: French,; English,) is a French phrase literally meaning Let do (“allow to do” International trade is exchange of Capital, Goods, and Services across International borders or Territories. Sao Paulo Stock Exchangejpg|thumb| Virtual market arena where buyer and seller are not present and trade via intemediates and electronical information These restrictions may increase costs to goods and services, producers, businesses, and customers, and may include taxes and tariffs, as well as other non-tariff barriers, such as regulatory legislation and quotas. For other uses of this word see Tariff (disambiguation. A tariff is a tax imposed on goods when they are moved across a political boundary Non-tariff barriers to trade (NTB's are Trade barriers that restrict Imports but are not in the usual form of a Tariff. Legislation (or " Statutory law " is law which has been promulgated (or " Enacted quot by a Legislature or other Governing An import quota is a type of protectionist Trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period Trade liberalization entails reductions to these trade barriers in an effort for relatively unimpeded transactions

One of the strongest arguments for free trade was made by classical economist David Ricardo in his analysis of comparative advantage. David Ricardo (18 April 1772 &ndash 11 September 1823 was an English political economist, often credited with systematizing economics and was one of the most influential In international trade the principle of comparative advantage refers to the fact that although one country may have an absolute disadvantage with another value can be created for both Comparative advantage explains how trade will benefit both parties (countries, regions, or individuals) if they have different opportunity costs of production. Trade is the willing exchange of goods, services, or both Trade is also called Commerce. In Political geography and International politics, a country is a Political division of a geographical entity Opportunity cost or economic opportunity loss is the value of a product forgone to produce or obtain

Free trade can be contrasted with protectionism, which is the economic policy of restricting trade between nations. For the protectionist Australian political party from the 1880s to 1909 see Protectionist Party Trade may be restricted by high tariffs on imported or exported goods, restrictive quotas, a variety of restrictive government regulations designed to discourage imports, and anti-dumping laws designed to protect domestic industries from foreign take-over or competition. In economics " dumping " can refer to any kind of Predatory pricing.

Free trade is a term in economics and government that includes:

For more detailed arguments in favor of and against free trade, see: Free trade debate. In economic theory factors of production (or productive inputs) are the resources employed to produce goods and services In Economics, capital or capital Goods or real capital refers to items of extensive value Free trade is one of the most debated topics in economics of the 20th and 21st century.
A South Korean container ship approaching the Bay Bridge in San Francisco Bay.
A South Korean container ship approaching the Bay Bridge in San Francisco Bay. Container ships are Cargo ships that carry all of their load in truck-size containers in a technique called Containerization.

Contents

History of free trade

The history of international free trade is a history of international trade focusing on the development of open markets. The history of international trade chronicles notable events that have affected the Trade between various countries It is known that various prosperous world civilizations throughout history have engaged in trade. Based on this, theoretical rationalizations as to why a policy of free trade would be beneficial to nations developed over time. These theories were developed in its academic modern sense from the commercial culture of England, and more broadly Europe, over the past five centuries. Before the appearance of Free Trade, and continuing in opposition to it to this day, the policy of mercantilism had developed in Europe in the 1500s. Mercantilism is the idea that a colony should export more goods than it imports and that a colony should sell at higher prices and buy at lower prices Early economists opposed to mercantilism were David Ricardo and Adam Smith. David Ricardo (18 April 1772 &ndash 11 September 1823 was an English political economist, often credited with systematizing economics and was one of the most influential Adam Smith ( baptised 16 June 1723 – 17 July 1790) was a Scottish moral philosopher and a pioneer of Political economy.

Economists that advocated free trade believed trade was the reason why certain civilisations prospered economically. Adam Smith, for example, pointed to increased trading as being the reason for the flourishing of not just Mediterranean cultures such as Egypt, Greece, and Rome, but also of Bengal (East India) and China. The great prosperity of the Netherlands after throwing off Spanish Imperial rule, and declaring Free Trade and Freedom of thought, made the Free Trade/Mercantilist dispute the most important question in economics for centuries. Free trade policies have battled with mercantilist, protectionist, isolationist, communist, and other policies over the centuries. Mercantilism is the idea that a colony should export more goods than it imports and that a colony should sell at higher prices and buy at lower prices For the protectionist Australian political party from the 1880s to 1909 see Protectionist Party Isolationism is a Foreign policy which combines a non-interventionist military policy and a political policy of Economic nationalism ( Protectionism Communism is a Socioeconomic structure that promotes the establishment of an egalitarian, classless, stateless Society based

Wars have been fought over trade, such as the Peloponnesian War between Athens and Sparta, the Opium Wars between China and Great Britain, and other colonial wars. The Opium Wars ( also known as the Anglo-Chinese Wars, lasted from 1839 to 1842 and 1856 to 1860 the climax of a trade dispute between China under the Qing The Portuguese Colonial War (Guerra Colonial also known as the Overseas War in Portugal (Guerra do Ultramar or in the former colonies as the All developed countries have used protectionism at some time, due to special interest pressure or, prior to the 19th century, a belief in mercantilism, but usually reduced it as they gained more wealth[1]. The term developed country, or advanced country, is used to categorize countries with developed Economies in which the tertiary and quaternary sectors For the protectionist Australian political party from the 1880s to 1909 see Protectionist Party Mercantilism is the idea that a colony should export more goods than it imports and that a colony should sell at higher prices and buy at lower prices

American opposition to free trade

Beginning with 1st U. S. Secretary of the Treasury Alexander Hamilton's "Report on Manufactures", in which he advocated tariffs to help protect infant industries, including bounties (subsidies) derived in part from those tariffs, the United States was the leading nation opposed to "free trade" theory. Throughout the 19th century, leading statesmen of the U. S. including Senator Henry Clay continued Hamilton's themes within the Whig Party under the name "American System. " The opposition Democratic Party contested several elections throughout the 1830's, 1840s, and 1850's in part over the issue of the tariff and protection of industry. The Democratic Party favored moderate tariffs and the Whig's favored higher protective tariffs which won the elections of 1840 and 1848 respectively. The leading economist in the United States at this time Henry Charles Carey became the leading proponent of the "American System" of economics. Henry Charles Carey ( December 15, 1793 - October 13, 1879) a leading 19th century Economist of the American School This system developed in opposition to the 'free trade' system which Carey referred to as the "British System," popularized and proposed by Adam Smith and advocated by the British Empire. Smith's book, "Harmony of Interests," outlined his economic philosophy, and combined together with German-American economist Friedrich List,(who also opposed the free trade system) to popularize the tariff and government taxation around Europe. Friedrich List ( August 6, 1789 – November 30, 1846) was a leading 19th Century German and American Economist who developed The fledgling Republican Party led by Abraham Lincoln who called himself a "Henry Clay tariff Whig" strongly opposed free trade when formed and implemented at 44 percent tariff during the Civil War in part to pay for the building of the Union-Pacific Railroad, the war effort, and to protect American industry. [2] President William McKinley stated the United States' stance under the Republican Party (which won every election for President until 1912, except the two non-consecutive terms of Grover Cleveland) as thus:

"Under free trade the trader is the master and the producer the slave. Protection is but the law of nature, the law of self-preservation, of self-development, of securing the highest and best destiny of the race of man. [It is said] that protection is immoral…. Why, if protection builds up and elevates 63,000,000 [the U. S. population] of people, the influence of those 63,000,000 of people elevates the rest of the world. We cannot take a step in the pathway of progress without benefitting mankind everywhere. Well, they say, ‘Buy where you can buy the cheapest'…. Of course, that applies to labor as to everything else. Let me give you a maxim that is a thousand times better than that, and it is the protection maxim: ‘Buy where you can pay the easiest. ' And that spot of earth is where labor wins its highest rewards. "[3]

The tariff and support of protection to support the growth of infrastructure and industrialization of the nation became a leading tenet of the Republican Party thereafter until the Eisenhower administration and the onset of the Cold War.

In the 1930s, the US adopted the protectionist Hawley-Smoot Tariff Act which raised rates to all time highs beyond the Lincoln levels, which some economists believe exacerbated the Great Depression while others disagree. The Smoot-Hawley Tariff Act (sometimes known as the Hawley-Smoot Tariff Act) was an act signed into law on June 17 1930, that raised U In response the Democratic Party under Franklin D. Roosevelt resorted to Hamilton's earlier formula of Reciprocity with moderate tariffs coupled with subsidy to industry which went unbroken until the 1970s when the Free Trade era began for the United States after the Kennedy Round of trade talks in the late sixties were complete.

Present day (U. S. based)

Since the end of WWII, in part due to industrial supremacy and the onset of the Cold War, the U. S. government has become one of the most consistent proponents of reduced tariff barriers and free trade, having helped establish the General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization (WTO); although it had rejected an earlier version in the 1950s (International Trade Organization or ITO). The 'General Agreement on Tariffs and Trade' (typically abbreviated 'GATT' was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO Since the 1970s U. S. government has negotiated numerous managed trade agreements, such as the North American Free Trade Agreement (NAFTA) in the 1990s, the Dominican Republic-Central America Free Trade Agreement (CAFTA) in 2006, and a number of bilateral agreements (such as with Jordan). Jordan, officially the Hashemite Kingdom of Jordan (الأردنّ al-Urdunn) is an Arab country in Southwest Asia spanning the southern

Economics of free trade

The literature analysing the economics of free trade is extremely rich with extensive work having been done on the theoretical and empirical effects. Though it creates winners and losers, the broad consensus among members of the economics profession in the U. S. is that free trade is a large and unambiguous net gain for society. [4] [5] In a 2006 survey of American economists (83 responders), "87. 5% agree that the U. S. should eliminate remaining tariffs and other barriers to trade" and "90. 1% disagree with the suggestion that the U. S. should restrict employers from outsourcing work to foreign countries. "[6] Quoting Harvard economics professor N. Gregory Mankiw, "Few propositions command as much consensus among professional economists as that open world trade increases economic growth and raises living standards. Nicholas Gregory "Greg" Mankiw (mæŋˈkjuː (born February 3, 1958) is an American macroeconomist. "[7] Nonetheless, quoting Prof. Peter Soderbaum of Malardalen University, Sweden, "This neoclassical trade theory focuses on one dimension, i. e. , the price at which a commodity can be delivered and is extremely narrow in cutting off a large number of other considerations about impacts on employment in different parts of the world, about environmental impacts and on culture. " [8] Two simple ways to understand the benefits of free trade are through David Ricardo's theory of comparative advantage and by analyzing the impact of a tariff or import quota. In international trade the principle of comparative advantage refers to the fact that although one country may have an absolute disadvantage with another value can be created for both For other uses of this word see Tariff (disambiguation. A tariff is a tax imposed on goods when they are moved across a political boundary An import quota is a type of protectionist Trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period

The pink regions are the net loss to society caused by the existence of the tariff.
The pink regions are the net loss to society caused by the existence of the tariff.

A simple economic analysis using the law of supply and demand and the economic effects of a tax can be used to show the theoretical benefits of free trade. Supply and demand is an Economic model describing effects on price and quantity in a Market. [9]

The chart at the right analyzes the effect of the imposition of an import tariff on some imaginary good. For other uses of this word see Tariff (disambiguation. A tariff is a tax imposed on goods when they are moved across a political boundary Prior to the tariff, the price of the good in the world market (and hence in the domestic market) is Pworld. The tariff increases the domestic price to Ptariff. The higher price causes domestic production to increase from QS1 to QS2 and causes domestic consumption to decline from QC1 to QC2. This has three main effects on societal welfare. Consumers are made worse off because the consumer surplus (green region) becomes smaller. Producers are better off because the producer surplus (yellow region) is made larger. The government also has additional tax revenue (blue region). However, the loss to consumers is greater than the gains by producers and the government. The magnitude of this societal loss is shown by the two pink triangles. Removing the tariff and having free trade would be a net gain for society. [10][11]

An almost identical analysis of this tariff from the perspective of a net producing country yields parallel results. From that country's perspective, the tariff leaves producers worse off and consumers better off, but the net loss to producers is larger than the benefit to consumers (there is no tax revenue in this case because the country being analyzed is not collecting the tariff). Under similar analysis, export tariffs, import quotas, and export quotas all yield nearly identical results. Sometimes consumers are better off and producers worse off, and sometimes consumers are worse off and producers are better off, but the imposition of trade restrictions causes a net loss to society because the losses from trade restrictions are larger than the gains from trade restrictions. Free trade creates winners and losers, but theory and empirical evidence show that the size of the winnings from free trade are larger than the losses. [9]

Trade diversion

According to mainstream economic theory, global free trade is a net benefit to society, but the selective application of free trade agreements to some countries and tariffs on others can sometimes lead to economic inefficiency through the process of trade diversion. Mainstream economics is a loose term used to refer to the non- heterodox economics taught in prominent universities Economic efficiency is used to refer to a number of related concepts Trade diversion is an Economic term related to International economics in which Trade is diverted from a more efficient exporter towards a less efficient It is economically efficient for a good to be produced by the country which is the lowest cost producer, but this will not always take place if a high cost producer has a free trade agreement while the low cost producer faces a high tariff. Economic efficiency is used to refer to a number of related concepts Applying free trade to the high cost producer (and not the low cost producer as well) can lead to trade diversion and a net economic loss. This is why many economists place such high importance on negotiations for global tariff reductions, such as the Doha Round. The Doha Development Round is the current trade-negotiation round of the World Trade Organization (WTO which commenced in November 2001 [9]

Opponents of free trade

Free trade is often opposed by domestic industries that would have their profits and market share reduced by lower prices for imported goods. [12][13] For example, if United States tariffs on imported sugar were reduced, US sugar producers would receive lower prices and profits, while US sugar consumers would spend less for the same amount of sugar because of those same lower prices. Economics says that consumers would necessarily gain more than producers would lose. [14][15] Since each of those few domestic sugar producers would lose a lot as an individual while each of a much greater number of consumers would gain only a little, domestic producers are more likely to mobilize against the lifting of tarrifs. [13] More generally, producers often favor domestic subsidies and tariffs on imports in their home countries, while objecting to subsidies and tariffs in their export markets.

Some socialists oppose free trade as a consequence of their exploitation theory and opposition to employment ("wage slavery"). The exploitation theory is the Marxist theory that profit is the result of the exploitation of wage earners by their employers E. g. Karl Marx wrote in The Communist Manifesto, "The bourgeoisie. Manifesto of the Communist Party ( often referred to as The Communist Manifesto, was first published on February 21, 1848, and is . . has set up that single, unconscionable freedom -- Free Trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation. "

Others oppose government managed trade, erroneously calling it free trade. Thus, "free trade" is opposed by many anti-globalization groups, based on their assertion that so-called Free Trade agreements generally do not increase the economic freedom of the poor, and frequently make them poorer. Economic freedom is freedom to produce trade and consume any goods and services acquired without the use of force fraud or theft See perfect competition for the basis for this view of how Free Trade should work. In Neoclassical economics and Microeconomics, perfect competition describes a market in which no buyer or seller has Market power. For example, it is argued [16] that letting subsidized corn from the US into Mexico freely under NAFTA at prices well below production cost (dumping) is ruinous to Mexican farmers. In economics " dumping " can refer to any kind of Predatory pricing. Of course, such subsidies violate free trade, so this argument might better be seen as against subsides and for free trade, properly understood.

Some free trade economists have recently begun to express their own doubts concerning the concept and practice of free trade. Alan S. Blinder, for example, a professor of economics at Princeton University, and former Federal Reserve Board vice chairman and advisor to Democratic presidential candidates, had previously argued, along with most economists, that free trade enriches the U. S. and its trading partners. However, he now says new communication technology will put 30-40 million American jobs at risk in 10-20 years. Blinder has not completely rejected free trade or Ricardo's ideas about comparative advantage, but he advocates greater protection for displaced workers and an improved education system. Blinder opposed steel, aluminum and farming export subsidies and protection, and pushed for the passage of NAFTA, though he did not agree that it would create jobs in the US. Trade changes types of jobs, not the number, he said. Technology allowed Indians in call centers to do the work of Americans at lower wages. "Tens of millions of additional American workers will start to experience an element of job insecurity that has heretofore been reserved for manufacturing workers," said Blinder. Democrats and Republicans are becoming skeptical. The debate is, "Should government encourage forces of globalization or try to restrain them?" Latin America performed poorly since tariff cuts in 1980s and 1990s, compared to protectionist China and Southeast Asia. Paul Samuelson, in his 2004 essay[17], condemned "economists' over-simple complacencies about globalization" and said that workers don't always win. Lawrence Summers, advocate for trade expansion as Clinton Treasury Secretary, said retraining is "pretty thin gruel" to the middle class. Ralph Gomory, former IBM chief scientist, says the rise of China and India could make the U. S. lose important industries. Harvard economist Dani Rodrik says trade barriers should help poor nations build domestic industries and give rich nations time to retrain workers. But Jagdish N. Bhagwati says jobs will grow in medicine, law and accounting. Blinder has created a list of "highly offshorable" jobs that could be lost in the next 20 years, which claims that 1,815,340 bookkeeping, accounting and auditing jobs could be lost. [18]

Ecuadorian President Rafael Correa has denounced the "sophistry of Free Trade," in an introduction he wrote for a book titled The Hidden Face of Free Trade Accords. For a topic outline on this subject see List of basic Ecuador topics. Rafael Vicente Correa Delgado (born 6 April 1963 in Guayaquil) is the President of the Republic of Ecuador. One of the authors of that book is today Correa's Energy Minister, Alberto Acosta. Citing as his source the book, Kicking Away the Ladder, [3] written by a Korean economist based at Cambridge University, Ha-Joon Chang, Correa identified the difference between an "American system" opposed to "a British System" of free trade. Ha-Joon Chang (b South Korea in 1963 is one of the world's foremost heterodox economists specialising in Development economics. The latter, he says, was explicitly viewed by the Americans as "part of the British imperialist system. " Correa wrote that Chang showed that it was Treasury Secretary Alexander Hamilton, and not Friedrich List who was the first to present a systematic argument defending industrial protectionism. Friedrich List ( August 6, 1789 – November 30, 1846) was a leading 19th Century German and American Economist who developed (Correa includes List's National System of Political Economy in his bibliographic references. )

Alternatives to free trade

Fair Trade

Main article: Fair Trade

Fair trade is an organized social movement and market-based approach that aims to alleviate global poverty and promote sustainability. Fair trade is an organized Social movement and market-based approach to empowering developing country producers and promoting sustainability Social movements are a type of group action. They are large informal groupings of Individuals and/or Organizations focused on specific The movement promotes the payment of a what it sees as a fair price as well as social and environmental standards in areas related to the production of a wide variety of goods. It focuses in particular on exports from developing countries to developed countries, most notably handicrafts, coffee, cocoa, sugar, tea, bananas, honey, cotton, wine, fresh fruit, and so on. Handicraft, also known as craftwork or simply Craft, is a type of work where useful and decorative devices are made completely by hand or using only simple tools CoFFEE is an Open source Software for computer supported collaborative learning (CSCL in a digital classroom Cocoa is the dried and fully fermented fatty seed of the cacao tree from which Chocolate is made Sugar is a class of edible Crystalline substances mainly Sucrose, Lactose, and Fructose. Tea refers to the cured agricultural product of the leaves leaf buds and internodes of Camellia sinensis, which have been prepared and cured for the market For the fruit see Banana. For other meanings see Banana (disambiguation. Honey is a sweet and Viscous fluid produced by Honey bees (and some other species and derived from the nectar of Flowers According to the Cotton is a soft staple Fibre that grows around the seeds of the cotton plant ( Gossypium sp Wine is an Alcoholic beverage made from the fermentation of Grape juice

Tobin Tax

Main article: Tobin tax

A Tobin tax is the suggested tax on all trade of currency across borders. A Tobin tax is the suggested Tax on all Trade of Currency across borders This is intended to put a penalty on short-term speculation in currencies. This policy is an alternative to the free flow of capital across borders. This policy has little or nothing to do with the free flow of goods and services.

Protectionism

Main article: Protectionism

Protectionism is the economic and political policy of protecting a country's economy through the imposition of tariffs, quotas, restrictions, border security, and other measures. For the protectionist Australian political party from the 1880s to 1909 see Protectionist Party Supporters of protectionism affirm that it prevents the distortion of the fragile wage and price structure by foreign dumping, unfair trade with undeveloped nations, labor arbitrage, illegal immigration, and other foreign interference in the domestic market.

Protectionism was a key tenet of Alexander Hamilton's economic program, which sought to protect the domestic economic system and wage and price structure from foreign competition. See also American System (economic plan. The American School, also known as " National System " represents three different yet Some pro-administration newspapers called the Tariff Act of 1789, signed into law by President Washington on July 4 1789, the "second declaration of independence. "

Balanced trade

Main article: Balanced trade

Balanced trade is an alternative economic model to free trade. Balanced trade is an alternative economic model to Free trade. Under balanced trade, nations are required to provide a fairly even reciprocal trade pattern. They cannot run large trade deficits. If deficits appear, the surplus nation must find a way to balance out trade or risk sanctions, fees, or quotas. Critics say this may discourage innovation as one country may reduce its efforts to produce products needed by the other.

International barter

Some nations have prohibited trade under monetary terms of trade. For example, Hjalmar Schacht arranged barter for Nazi Germany to bypass the free market which he thought was rigged by Anglo-American capitalists. Dr Hjalmar Horace Greeley Schacht (22 January 1877 – 3 June 1970 was the Currency Commissioner and President of the Reichsbank under the Weimar Republic, and President [19] The former Soviet Union occasionally arranged bilateral barter within its sphere of influence. Barter is a type of Trade in which goods or services are directly exchanged See Comprehensive Program for Socialist Economic Integration or Comecon. See also History of the Comecon The Comprehensive Program for Socialist Economic Integration was set up in 1971 and laid the guidelines for Comecon activity Arab League nations have also occasionally replaced monetary trade with barter.

Increase the credit risk to international loans

George Soros and others argue that some of the most destructive free trade, such as developing world agricultural monoculture, is driven by export-oriented production targets set by the International Monetary Fund (IMF) and the governments it supports. George Soros (ˈsɔroʊs or /ˈsɔrəs/ Hungarian ˈʃoroʃ (born August 12, 1930, in Budapest, Hungary, as György Schwartz) is Monoculture is the agricultural practice of producing or growing one single crop over a wide area The International Monetary Fund ( IMF) is an International organization that oversees the Global financial system by following the Macroeconomic He suggests that the volume of this trade would be lower if the lending banks were liable for credit default instead of receiving IMF bail-outs. Credit risk is the risk of loss due to a debtor's non-payment of a Loan or other line of credit (either the principal or Interest (coupon or both Faced If banks were responsible for default, the levels of lending would be lower and lead to more sustainable export programs due to the discipline of the free market, he believes.

International price floors

Some argue that free trade is responsible for the decline in international commodity prices. One reason for these low prices is the over-production of subsidized commodities in the developed world. Rather than removing the production subsidy for farmers in the rich world some suggest extending them to farmers in the developing world. For instance, producers in Poland lobbied to be included in the Common Agriculture Policy. The reason that rich-country farmers need subsidies to thrive is the comparative advantage of cheap land and labour enjoyed by their poor-country competitors. In international trade the principle of comparative advantage refers to the fact that although one country may have an absolute disadvantage with another value can be created for both

Separating world prices from domestic prices

Foreign trade of Communist Czechoslovakia was conducted at "free trade" import prices, with the Ministry of Foreign Trade selling the goods on, into the internal market, at pre-determined prices for each good. Foreign trade played an important role in the Czechoslovak national economy (as opposed to the Soviet Union) In this way, Czechoslovakian consumers were insulated from shifts in world prices whilst having some access to foreign products. Czechoslovakia may also refer to what is now the Czech Republic and Slovakia.

It is difficult for governments to sustain different internal prices over the long term. If the internal price is set below world prices, smugglers try to profit from the differential by illegally exporting the product to nations where they can sell it at a higher price. Smuggling, also known as trafficking, is the clandestine transportation of goods or persons past a point where prohibited such as out of a building into a Prison To the extent smugglers succeed, the domestic government is indirectly subsidizing foreign consumers. This problem has been vividly illustrated in nations where fuel prices are subsidized below world prices; domestic shortages frequently occur as a significant portion of the good is illegally smuggled out of the country. Rationing and black markets are stimulated by artificially low prices; in Iraq the famously long petrol pump queues for petrol at 50 dinars/litre can be bypassed by buying on the black market at 250 dinars/litre. Rationing is the controlled distribution of resources and scarce goods or services For a topic outline on this subject see List of basic Iraq topics. The Dinar is the name of the official currency in several countries Unofficial markets are a common problem wherever the "official" price is below (or above) the free trade price. [20]

Despite the difficulties of maintaining fixed commodity prices, many Governments that attempt it claim that doing so "immunizes" their economies against destabilizing price shocks. It is sometimes argued that the social and economic benefits alone, outweigh the disadvantages (of import-price stability).

On the other hand, international prices tell the costs of producing certain products and the benefits of consuming them. By separating the prices this flow of information is halted and therefore the local decisions are decoupled from the global needs and possibilities, thus hindering the producers in the country to produce the products where they have a comparative advantage and the consumers to consume the products that can elsewhere be produced so cheaply that they would like to consume them at those prices instead of consuming some other kind of products or less products (or services). In international trade the principle of comparative advantage refers to the fact that although one country may have an absolute disadvantage with another value can be created for both

Regional trading blocs

James Goldsmith advocated free trade within regional trading blocs, but not between blocs (such as European Community countries). Sir James Michael Goldsmith ( February 26, 1933, Paris, France - July 18, 1997, Benahavis, Spain A trade bloc is a large Free trade area formed by one or more Tax tariff and trade agreements The European Community (EC is one of the Three pillars of the European Union (EU created under the Maastricht Treaty (1992 If countries within the "customs union" had similar living standards and norms of social and environmental policy they would not race to the bottom. A customs union is a Free trade area with a Common external tariff. In Government regulation, a race to the bottom is a phenomenon that is said to occur when competition between nations or states (over Investment capital for example He also proposed protectionism in the goods market, whilst allowing free trade in technology and capital. For the protectionist Australian political party from the 1880s to 1909 see Protectionist Party

Miscellaneous

The relative costs, benefits and beneficiaries of free trade are debated by academics, governments and interest groups. In Economics social cost is defined as the sum of private and external costs While the academic debate is essentially settled in favor of free trade, a number of arguments for and against in the ongoing public debate can be seen in the free trade debate article. Free trade is one of the most debated topics in economics of the 20th and 21st century.

Depending on the specific context, use of the term free trade can signify one or more of the above conditions. However, it is fundamental that only governments can restrict trade: they have the legal monopoly over the use of physical force to influence trade in a geographical area.

The term free trade has become very politically based, and it is not uncommon for so-called "free trade agreements" to impose additional trade restrictions. Such restrictions on trade are often due to domestic political pressure by powerful corporate, environmental or labor interest groups seeking special protections of their perceived interests. The environmental movement, a term that includes the conservation and green movements is a diverse scientific social and Political movement for The labour movement or labor movement is a broad term for the development of a collective organization of working people, to campaign in their own interest for better An interest group (also advocacy group, lobby group, pressure group or special interest group) is an organized collection of people who seek

Free trade agreements are a key element of customs unions and free trade areas. A customs union is a Free trade area with a Common external tariff. See also List of free trade agreements This is article is on free international trade The details and differences of these agreements are covered in their respective articles.

See also

Concepts/topics

Trade organizations

Other lists

Criticism

Conservative Opposition to Free Trade

References

  1. ^ Chang, Ha-Joon (2002). For the protectionist Australian political party from the 1880s to 1909 see Protectionist Party See also List of free trade agreements This is article is on free international trade Free trade is one of the most debated topics in economics of the 20th and 21st century. A free trade zone ( FTZ) or export processing zone ( EPZ) is one or more special areas of a country where some normal Trade barriers such as Fair trade is an organized Social movement and market-based approach to empowering developing country producers and promoting sustainability International trade is exchange of Capital, Goods, and Services across International borders or Territories. A trade barrier is a general term that describes any government policy or regulation that restricts International trade. A trade war refers to two or more Nations raising or creating Tariffs or other Trade barriers on each other in retaliation for other trade barriers In economics " dumping " can refer to any kind of Predatory pricing. The European Union and the United States have strong disagreements over the EU's regulation of Genetically modified food. Offshore outsourcing is the practice of hiring an external organization to perform some business functions in a country other than the one where the products or services Offshore may refer to oil and Natural gas production at sea see Oil platform. Definitions Borderless selling is defined as the process of performing Sales transaction between two or more parties from different countries (an Exporter Balanced trade is an alternative economic model to Free trade. A trade bloc is a large Free trade area formed by one or more Tax tariff and trade agreements Mercantilism is the idea that a colony should export more goods than it imports and that a colony should sell at higher prices and buy at lower prices The 'General Agreement on Tariffs and Trade' (typically abbreviated 'GATT' was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO This is list of Free trade agreements and Free trade areas between one or more countries and/or Trade blocs For a list of blocs see Trade bloc. This is a list of trade-related International organisations only This is a list of International trade topics. Absolute advantage Agreement on Trade-Related Aspects of Intellectual Property Rights Louis Carl Dobbs (born September 24 1945 is a CNN anchor and managing editor for Lou Dobbs Tonight. " Anti-globalization " is a term that encompasses a number of related ideas Paleoconservatism (sometimes shortened to paleo or paleocon when the context is clear is a term for an anti-communist and Anti-authoritarian Chronicles is a US monthly Magazine published by the paleoconservative Rockford Institute. The American Conservative (TAC is a biweekly US opinion magazine founded in 2002 by Scott McConnell, Pat Buchanan, and Taki The John Birch Society is a political education and action organization founded by Robert W Middle American News is a monthly Paleoconservative newspaper published by the Middle American Institute in Raleigh North Carolina known for its anti-globalist stances and VDAREcom, or VDARE, is a Website that advocates reduced immigration especially illegal immigration into the United States. Russell Kirk ( 19 October 1918 &ndash 29 April[[ 994]] was an American Political theorist, Historian, Social Paul Craig Roberts (born April 3, 1939, in Atlanta Georgia) is an Economist and a nationally syndicated columnist for Creators Syndicate Patrick Joseph "Pat" Buchanan (born November 2 1938 is an American Political commentator, Author, syndicated Columnist Thomas Fleming is a Roman Catholic writer president of the Rockford Institute, and editor of Chronicles A Magazine of American Culture, a Chronicles is a US monthly Magazine published by the paleoconservative Rockford Institute. Rod Dreher (b February 14, 1967) originally from St Francisville, Louisiana, is a Dallas -based writer and editor Clyde N Wilson (born 1941) is a Distinguished Professor of History at the University of South Carolina, U The Council of Conservative Citizens ( CofCC) is an American Right-wing organization that supports a large variety of conservative causes along with Kicking Away the Ladder: Policies and Institutions for Economic Development in Historical Perspective, Anthem Press. ISBN 978-1843310273
  2. ^ [1] Lind, Michael. New America Foundation.
  3. ^ William McKinley speech, Oct. 4, 1892 in Boston, MA William McKinley Papers (Library of Congress)
  4. ^ Fuller, Dan; Geide-Stevenson (Fall 2003). "Consensus Among Economists: Revisited". Journal of Economic Review 34 (4): 369-387.  
  5. ^ Friedman, Milton. "The Case for Free Trade". Hoover Digest 1997 No. 4.  
  6. ^ Whaples, Robert (2006). "Do Economists Agree on Anything? Yes!". The Economists' Voice 3 (9).  
  7. ^ Mankiw, Gregory (May 7, 2006). Outsourcing Redux. Retrieved on 2007-01-22. Year 2007 ( MMVII) was a Common year starting on Monday of the Gregorian calendar in the 21st century. Events 565 - Eutychius is deposed as Patriarch of Constantinople by John Scholasticus.
  8. ^ Post-Autistic Economics Review, Sept 2007
  9. ^ a b c Steven E. Landsburg "Price Theory and Applications" Sixth Edition Chapter 8
  10. ^ ALan C. Stockamn "Introduction to Economics" Second Edition Chapter 9
  11. ^ N. Gregory Mankiw "Macroeconomics" Fifth Edition Chapter 7
  12. ^ William Baumol and Alan Blinder, Economics: Principles and Policy, p. 722.
  13. ^ a b Brakman, Steven; Harry Garretsen, Charles Van Marrewijk, Arjen Van Witteloostuijn (2006). Nations and Firms in the Global Economy : An Introduction to International Economics and Business. Cambridge: Cambridge University Press. ISBN 9780521832984.  
  14. ^ Richard L. Stroup, James D. Gwartney, Russell S. Sobel, Economics: Private and Public Choice, p. 46.
  15. ^ Pugel, Thomas A. (2003). International economics. Boston: McGraw-Hill. ISBN 007119875X.  
  16. ^ Institute for Agricultural and Trade Policy NAFTA Truth and Consequences: Corn
  17. ^ Journal of Economic Perspectives, 18(3):135-46, Summer 2004, Where Ricardo and Mill rebut and confirm arguments of mainstream economists supporting globalization, Paul A. Samuelson. Mainstream economists have argued for globalization. Good jobs may be lost here in the short run, they say, but the total U. S. net national product must, by the economic laws of comparative advantage, be raised in the long run. The gains of the winners exceed the losses of the losers. Schumpeter called this "creative capitalist destruction. " But Samuelson says it is wrong to assume a necessary surplus of winnings over losings. This paper asks, "Will inventions A or B lower or raise the new market-clearing real wage rates that sustain high-to-full employment" in China and America?
  18. ^ Job prospects: Pain from free trade spurs second thoughts; Mr. Blinder's shift spotlights warnings of deeper downside, David Wessel and Bob Davis. Wall Street Journal, 28 Mar 2007, p. A1
  19. ^ Officially, the 1933 bilateral-barter policy was designed to ensure that foreign countries bought as much from industrial Germany as she bought from them. Germany, officially the Federal Republic of Germany ( ˈbʊndəsʁepuˌbliːk ˈdɔʏtʃlant is a Country in Central Europe. However, Milton Friedman has argued ([2]) that Hjalmar Schacht's exchange controls were primarily designed to restrict capital flight. Milton Friedman (July 31 1912 November 16 2006 was an American Nobel Laureate Economist and Public intellectual. Dr Hjalmar Horace Greeley Schacht (22 January 1877 – 3 June 1970 was the Currency Commissioner and President of the Reichsbank under the Weimar Republic, and President Foreign exchange controls are various forms of controls imposed by a government on the purchase/sale of foreign currencies by residents or on the purchase/sale of local currency
  20. ^ See The Economist’s review of fuel subsidy's effects The Economist online. The Economist is an English-language weekly news and International affairs publication owned by The Economist Newspaper Ltd and edited in London

External links

Ben Shalom Bernanke (born December 13, 1953) is the incumbent Chairman of the Board of Governors of the United States Federal Reserve. Edward Nicolae Luttwak (born 1942 is an American military strategist and historian who has published works on Military strategy, history Events 30 BC - Octavian (later known as Augustus enters Alexandria, Egypt, bringing it under the control of the Roman Year 2001 ( MMI) was a Common year starting on Monday according to the Gregorian calendar.

Dictionary

free trade

-noun

  1. international trade free from government interference, especially trade free from tariffs or duties on imports
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