free trade:

International Free Trade

In 18th-century Britain, free trade eventually came to mean the desire for a moderate tariff policy in international trade, especially with France. The rapid growth of British industry in the late 1700s (see Industrial Revolution) gave added force to the attack on international trade restrictions (see mercantilism). Adam Smith's Wealth of Nations (1776) provided a powerful intellectual basis for the free trade movement, and the later work of David Ricardo was important in developing the notion of comparative advantage as an argument in its favor. The most important practical blow in favor of the free-trade movement came with the formation (1839) of the Anti-Corn-Law League, and the repeal (1846) of the corn laws. The Anglo-French commercial treaty of 1860 represented perhaps the high-water mark of free trade.

After World War I, Britain reintroduced protection and a system of imperial preference in an attempt to establish a greater measure of economic autonomy. France, along with other European nations, historically followed a policy of protection. In the period of international economic dislocation in the mid-1930s, the United States reversed earlier policy and signed reciprocal trade treaties with many foreign governments, embracing a policy of selective tariff reduction for economic and political reasons. At present the United States is a relatively low tariff nation, although it still maintains a fairly restrictive system of import quotas. Japan also has restrictive import quotas, as well as high tariffs and other trade restrictions.

After World War II, strong sentiment developed throughout the world against protection and high tariffs and in favor of freer trade. The results were new organizations and agreements on international trade such as the General Agreement on Tariffs and Trade (1948), the Benelux Economic Union (1948), the European Economic Community (Common Market, 1957), the European Free Trade Association (1959), Mercosur (1991), and the World Trade Organization (1995). In 1993 the North American Free Trade Agreement (NAFTA) was approved by the governments of Canada, Mexico, and the United States. In the early 1990s the nations of the European Union (the successor organization to the Common Market) undertook to remove all barriers to the free movement of trade and employment across their mutual borders.

Critics of free trade zones argue that such measures are detrimental to domestic economies. In the case of NAFTA, for example, opponents contended that the jobs of some American workers would be exported to Mexico, where labor costs are lower. Many have continued to oppose the international impetus toward freer trade, arguing the accords not only fail to protect jobs in more developed nations but also harm workers and the environment in less developed nations, where the laws are more lax or less enforced. Despite such objections, support for free trade continued. In 2001, for example, 34 nations of the Western Hemisphere committed themselves to the development of a Free Trade Area of the Americas, though movement toward such an organization subsequently stalled. In 2004 the Central American Free Trade Agreement was finalized by the United States and five Central American nations; the Dominican Republic is also a member of the group. Twelve Pacific Rim nations, including the United States, signed the Trans-Pacific Partnership (TPP), an agreement to reduce or eliminate many tariffs and to set common standards on a number of trade-related issues, in 2016, but criticism of it and other free-trade agreements in the United States during the 2016 elections called into question the ratification of the TPP. The United States, Japan, China, and other countries have also negotiated bilateral free-trade agreements with individual nations or regional trade associations; such agreements generally open trade in some areas while preserving the protection of politically sensitive economic sectors. Donald Trump, who accused free-trade agreements of harming U.S. workers, withdrew (2017) the United States from the TPP and called for renegotiating NAFTA after becoming president; modifications to NAFTA, to be renamed the United States Mexico Canada Agreement, were agreed in 2018. Subsequently Japan and the European Union announced (2017) an agreement in principle on free-trade deal covering most exports, and the TPP nations signed (2018) a renegotiated Comprehensive and Progressive Agreement for Trans-Pacific Partnership without the United States, which became effective at the end of 2018. Also in 2018, most African nations signed an agreement to establish the African Continental Free Trade Area, envisioned as a continent-wide single market. The effectiveness of the agreement was unclear, given that the several regional African free trade agreements have generally not succeeded in promoting greater and freer trade. In 2019 the European Union signed a free-trade agreement with the South American nations in Mercosur.

See also reciprocal trade agreement.

Sections in this article:

The Columbia Electronic Encyclopedia, 6th ed. Copyright © 2012, Columbia University Press. All rights reserved.

See more Encyclopedia articles on: Economics: Terms and Concepts