What is Free Trade?

Free trade or free trade is an economic approach that deals with trade between countries without any limitations between them, in order to obtain efficiency in the allocation of resources on a global scale thanks to the division of labor and specialization.

Among the limitations that we can find between the markets we find the duty and the fees as the most common. Free trade advocates competition between the different economies of the countries, allowing there to also be a significant flow of goods between them.

However, it is important to distinguish this concept from that of capitalism. With capitalism, we are facing a free market economic and social system in which supply and demand determine the price. While free trade was an economic approach, capitalism is about a system that goes to the roots of society.

Advantages of Free Trade

Among the most relevant advantages, we highlight the different alternatives for consumers and producers, which are increased by free trade (against economic protectionism).

On the producer side, by increasing producer demand, production will be able to take advantage of Scale economy, thus reducing prices and increasing efficiency and productivity.

On the consumer side, the division of labor and international specialization allows the price and quality demands that are required of new products to be better met.

Disadvantages of Free Trade

As for the disadvantages, we can find them when there are inefficient producers, since they are threatened by global competition, thus falling national businesses at the expense of international ones. If this happens, there could be social confrontations against these measures, affecting the concept of free trade between companies, and making it difficult to implement this type of measure.

Another disadvantage can be of a political nature, making the opening to the market cause that certain strategic sectors in the economy are no longer viable.

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