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What is Free Trade ?

Free trade exists when nations can swap goods and services without the constraints of tariffs, duties or quotas. Free trade lets nations concentrate on manufacturing their specialties, which are typically products other nations can’t make or produce as well. With revenues from selling such goods, nations can buy products from other nations that they need. For example, say two countries sit across an ocean from one another. One specializes in raising beef, but has fallen behind in technological fields. The other country makes some of the world’s best electronics, but needs more beef. The two nations enter into a free trade agreement. Each lowers tariffs exporters must pay and begin importing the other’s specialty. There are instances where governments restrict free trade in order to support local businesses and boost employment. But free trade is largely considered beneficial for nations that participate. It enables them to focus on core competitive advantages, thereby maximizing economic output and fostering growth. Nations like China and India started expanding faster when they adopted free trade principles in the 1980s and 1990s. Many nations are members of the World Trade Organization, which aims to ensure that trade flows as smoothly, predictably and freely as possible. Read more: Copyright © Investopedia.com