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Free Trade Agreements

Free Trade Agreements

Individuals around the globe should be allowed to trade freely with each other, without government restrictions such as tariffs and protectionism. Throughout history, it is clear that tariffs and restrictions on international trade hinder economic growth.

Increased globalization and free trade since the time of the Enlightenment has resulted in over 200 years of sustained global economic growth. This same period has also seen a phenomenal increase in standards of living, particularly in places where free trade and free markets have been more prevalent.

Advantages of free trade

Free trade has spearheaded increasing economic development worldwide, and continues to do so. Greater freedom leads to greater prosperity, as can be seen in the previously communist countries of the former Eastern Bloc after they began trading with the wider world.

The comparative advantage resulting from free trade benefits all concerned, particularly in the long term. Where trade agreements are in existence, production can be carried out in areas where this can be done at the most competitive price, which translates to a lower cost for the final product, meaning greater purchasing power for consumers.

In terms of global economic development, the liberalization of trade actively promotes the sale of goods from producers in the developing world, thus providing an economic boost to the economy of previously less developed countries. As well as being beneficial to consumers worldwide, this will subsequently have a significant positive impact on the quality of life and purchasing power in these countries.

Developing markets increase the potential for companies to trade from the already more prosperous nations, providing new opportunities and furthering economic growth for all involved. Increasing free trade also helps to promote peace, since countries will be less likely to start disputes with important trading partners.

Free trade promotes healthy competition and economies of scale occur when production is concentrated in the most efficient area. Such competition provides incentives for each country’s production to become more specialized. 

Although this may have some initial negative consequences for workers in certain industries, there is an opportunity to retrain for more sustainable jobs in industries which can be more competitive in the global market.

Surplus raw materials are also put to more effective use through free trade agreements. Some countries have more of a specific resource than they could possibly consume domestically. 

For example, Qatar’s huge oil reserves would be of little use if this was unable to be exported, whereas Japan, conversely, has few natural resources and could not survive easily without imports. The same can be said for any country that exports or imports a significant amount of food.

Free trade promotes efficiency as only those businesses with a quality, cost effective product will survive. When tariffs are in place, this incentive is greatly diminished.

Consequences of government interference

Government interference with free trade can result in disastrous consequences, whereby people throughout the entire world end up worse off due to the loss of potential global economic growth. This can be seen in the recent trade wars between the United States and China, causing undue hardship to producers and consumers in both countries as well as slowing growth for both economies.

In addition to negative economic consequences, trade wars can heighten tensions between nations, and even create conditions for physical conflict.

In terms of trade deficits, there is no reason for concern when one country imports more goods than they export from another. In The Wealth of Nations, Adam Smith argues against government intervention to address trade deficits. This is because the idea of trade benefiting one party at the expense of the other is fundamentally flawed. Any amount of voluntary transactions will benefit both parties, at least to some degree. In terms of trade, one nation’s gain is not another nation’s loss.

Where protectionism dominates government policy, opportunities for growth, increased purchasing power, and rising standards of living are squandered.

Threats to free trade

The recent surge in nationalistic and protectionist rhetoric and policies across much of the world presents a major threat.

Other challenges facing free trade are issues such as diplomatic or territorial disputes. For instance, recent tensions between South Korea and Japan, initially stemming from disagreements over Japan’s conduct during World War II, have proved problematic for certain industries. The negative economic impact of these tensions is already apparent.

It is of vital importance for arguments against free trade to be countered. For example, in the case of concerns surrounding issues of quality and safety, rigorous industry quality standards are crucial.

Consumer protection legislation is not always effective, since numerous defective products and services have caused loss, injury and even death. Arguably, governments implementing such policies can actually create a false sense of security by disincentivizing the evaluation of products by consumers. More government intervention will do nothing to solve these issues.

Why free trade is important to SFL

At Students For Liberty, we believe that the free exchange of goods and services is a vital aspect of liberty, and must be protected.  It is a fundamental philosophical consideration that any trade negotiations between two consenting parties should not be prevented or interfered with in any way.

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