3.5.4 Free Trade

Free trade is defined in this book as countries’ ability to sell goods and services to each other without restrictions or the imposition of tariffs.  The World Trade Organisation (WTO) is the forum which was set up in 1994 to host negotiations on the freeing of world-wide trade.  It describes itself on its website as “the international organization whose primary purpose is to open trade for the benefit of all”.  It prevents countries from setting new tariffs that exceed agreed limits, or from banning imports – although it does allow exceptions on grounds of national security and health.  It has ruled on numerous trade disputes, as in examples listed in the BBC Timeline: World Trade Organization.

Despite the agreements reached in the WTO, free trade remains a contested issue.  The article, Why did The Economist favour free trade?, explained why that magazine is an enthusiastic advocate for it – but other voices bewail the changes wrought by globalisation (3.4.2): the resulting movement of jobs.  Many accept the argument that free trade has brought unprecedented prosperity to the world, yet they argue for some selected industries to be ‘protected’.

The following sub-sections describe different aspects of this controversial subject:

●  There are strong arguments in support of free trade: it has raised living standards all over the world, although it has led to some anomalies which need to be corrected (3.5.4.1).

●  There are people who argue for measures to protect particular industries (3.5.4.2); these can be politically popular but they reduce economic growth.

●  There is a perception that competition from some low-cost countries is ‘unfair’ (3.5.4.3).  There may be concerns about the environment and human rights, but these are matters for later chapters; from an economic perspective, free trade benefits both rich and poor countries.

●  Wealthy countries can lose some highly-paid jobs as a result of globalisation, but these pressures can be offset by raising productivity and setting minimum wage levels (3.5.4.4).

●  There are global free trade agreements, under the auspices of the World Trade Organisation, and numerous multilateral agreements between groups of countries, but these are constantly changing as a result of political pressures (3.5.4.5).

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This page is intended to form part of Edition 4 of the Patterns of Power series of books.  An archived copy of it is held at https://www.patternsofpower.org/edition04/354a.htm