What Is Trade Freedom?


Quick Answer

Trade freedom, or free trade, is the policy in which governments do not restrict imports and exports between countries. The North American Free Trade Agreement and the European Economic Area are agreements between countries that establish open markets for free trade.

Continue Reading
Related Videos

Full Answer

Free trade involves the trade of goods and services without tariffs and other trade barriers such as quotas. Trade freedom also means that markets are unregulated, which increases competition. This results in growth because goods and services from around the world compete with domestic goods and services. It forces nations to maximize economic output and focus on core advantages unique to that nation. Free trade also results in cheaper products because the products can be manufactured in the nation that already has the raw materials to do so.

A potential disadvantage of trade freedom is that the competition can sometimes be crushing to certain nations and industries. If it is cheaper to obtain certain products from a foreign source than it is to get the products domestically, then it could result in entire industries failing. Another problem with free trade is that it sometimes leads to exploitation in developing countries.

The World Trade Organization is an international organization designed to facilitate free trade between the nations of the world. The multilateral trade agreements created by the World Trade Organization provide a framework for international commerce and were signed by most of the world's important trading nations.

Learn more about Economics

Related Questions