Free trade

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Free trade, also called laissez-faire, is a policy by which a government does not discriminate against imports or interfere with exports by applying tariffs (to imports) or subsidies (to exports).

A free-trade policy does not necessarily imply, however, that a country abandons all control and taxation of imports and exports.[1]

The case for free trade

According to Adam Smith:

"It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy.. . . If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage."

Trade is profitable even if a country — say, China — can make everything, or almost everything, cheaper. Will free trade with China then lead to unemployment for American workers, who will find themselves unable to compete with cheaper Chinese labor? The answer - comparative advantage - which was provided by David Ricardo in 1810, is no.

Some lawyers are better typists than their secretaries. Should such a lawyer fire his secretary and do his own typing? Not likely. Though the lawyer may be better than the secretary at both arguing cases and typing, he will fare better by concentrating his energies on the practice of law and leaving the typing to a secretary. Such specialization not only makes the economy more efficient but also gives both lawyer and secretary productive work to do.[2]


  1. Encyclopædia Britannica Online. "free trade", referenced 2011-01-11.
  2. Alan Blinder. "Free Trade", The Concise Encyclopedia of Economics, referenced 2011-01-11.

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