free trade

Economy-And-Finanzas

2022

We explain what free trade is and what are the advantages and disadvantages of this commercial dynamic. What is protectionism.

It is an open business situation, with few restrictions and tax burdens.

What is free trade?

When we speak of free trade or free market, we refer to a dynamic regulated by the so-called laws of supply and demand, that is, by the factors that participate in the market, with the least forms of intervention by the Condition as a regulatory entity. In other words, it is an open business situation, in which transactions are poorly controlled through taxes, restrictions and other artificial obstacles.

Free trade is one of the main flags of liberalism, a social, political and economic current born around the Bourgeois Revolutions that marked the entry of the world into the Modern age (XV-XVI centuries). The defense of economic freedoms (of prices, hours of sale, participation in the market, etc.) went against the doctrines that advocated the intervention of a strong state (protectionism).

These situations are governed by the “invisible hand of the market”, according to the liberal theories, which is nothing more than the balance between offer of producers of goods and services, versus the demand from the consumers. In principle, these two forces would have to build a stable and self-regulating market, free from situations that artificially favor one sector or another, as occurs in the monopolies, oligopolies or in situations of state protection.

The free trade doctrines apply both to the internal trade of a country, as well as to the external or international exchange of a region or two associated countries.

Free trade agreements

Free Trade Agreements (FTA) are international, regional or continental associations between two or more countries that decide to trade reciprocally in the most open way possible, without tariffs, trade barriers or obstacles of another nature that could limit the flow of goods and services between their territories.

The first FTA in history was signed in 1891 and was the Cobden-Chevalier Treaty between Great Britain and France. Since then, many more have emerged, especially in the context of the integration of countries whose regions have historically tended to mutual aid. Some examples are the Pacific Alliance, the now defunct Free Trade Area for the Americas, the North American Free Trade Agreement, the Chile-United States Free Trade Agreement or the MERCOSUR Free Trade Zones, the Andean Community of Nations or the European Union.

Advantages of free trade

Advocates of free trade rely on the following virtues of the model:

  • Generates codependency. The nations that trade freely come to depend on each other and to forge commercial and diplomatic ties, thus going against the appearance of the wars.
  • Promote comparative advantage. That is, countries tend to specialize in goods that are more efficient in producing and exporting, thus being able to import goods in which they are not so efficient at a good relative price. This would mean an improvement in the quality of life in the country.
  • It does not distort trade. It allows the emergence of international trade dynamics free of tariffs and other mechanisms that interfere with its dynamic "natural".
  • Allows regional growth. Enrich regions that trade freely with each other, as opposed to international market Ordinary.

Disadvantages of free trade

Commercially robust countries can flood local markets that fail to match them.

Many oppose Free Trade Agreements based on the following accusations:

  • Favors the powerful. The commercially more robust countries can benefit from the non-intervention of the state in the foreign trade balance, flooding local markets since national production cannot compete on equal terms.
  • It generates dizzying changes. Especially in the ways of life and work of the workers, which can result in crisis future and unpredictable.
  • It does not benefit the workers. In the cases of not being accompanied by a free movement of workers.
  • Migrate employment. Especially when it comes to more developed nations exploiting smaller nations, industries and businesses tend to move to more favorable conditions, often destroying employment.

Protectionism

The doctrine against free trade is known as protectionism. In it, the State is called to play an active role in the regulation of the commercial rate, applying barriers and taxes to import or export, in order to shape or control the way in which these occur. processes. This would produce advantageous situations for the local industry and would provide the State Profits from the capitals international, defending the economy location of a possible avalanche of goods and services from other countries.

Protectionism emerged in opposition to liberal positions in the nineteenth century and again in the twentieth century, but this time on the part of the developmentalist sectors of the left and progressivism, who perceive the global market as a source of inequalities Y poverty for less favored countries.

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