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Free trade is a trade policy that does not restrict imports or exports. In government, free trade is predominantly advocated by political parties that hold economically liberal positions, while economic nationalist and left-wing political parties generally support protectionism,[1][2][3][4] the opposite of free trade.
Most nations are today members of the World Trade Organization multilateral trade agreements. Free trade was best exemplified by the unilateral stance of Great Britain who reduced regulations and duties on imports and exports from the mid-nineteenth century to the 1920s.[5] An alternative approach, of creating free trade areas between groups of countries by agreement, such as that of the European Economic Area and the Mercosur open markets, creates a protectionist barrier between that free trade area and the rest of the world. Most governments still impose some protectionist policies that are intended to support local employment, such as applying tariffs to imports or subsidies to exports. Governments may also restrict free trade to limit exports of natural resources. Other barriers that may hinder trade include import quotas, taxes and non-tariff barriers, such as regulatory legislation.
Historically, openness to free trade substantially increased from 1815 to the outbreak of World War I. Trade openness increased again during the 1920s, but collapsed (in particular in Europe and North America) during the Great Depression. Trade openness increased substantially again from the 1950s onwards (albeit with a slowdown during the 1973 oil crisis). Economists and economic historians contend that current levels of trade openness are the highest they have ever been.[6][7][8]
Economists are generally supportive of free trade.[9] There is a broad consensus among economists that protectionism has a negative effect on economic growth and economic welfare while free trade and the reduction of trade barriers has a positive effect on economic growth[10][11][12][13][14][15] and economic stability.[16] However, in the short run, liberalization of trade can cause significant and unequally distributed losses and the economic dislocation of workers in import-competing sectors.[11][17][18]
- ^ Murschetz, Paul (2013). State Aid for Newspapers: Theories, Cases, Actions. Springer Science+Business Media. p. 64. ISBN 978-3642356902.
Parties of the left in government adopt protectionist policies for ideological reasons and because they wish to save worker jobs. Conversely, right-wing parties are predisposed toward free trade policies.
- ^ Peláez, Carlos (2008). Globalization and the State: Volume II: Trade Agreements, Inequality, the Environment, Financial Globalization, International Law and Vulnerabilities. United States: Palgrave MacMillan. p. 68. ISBN 978-0230205314.
Left-wing parties tend to support more protectionist policies than right-wing parties.
- ^ Mansfield, Edward (2012). Votes, Vetoes, and the Political Economy of International Trade Agreements. Princeton University Press. p. 128. ISBN 978-0691135304.
Left-wing governments are considered more likely than others to intervene in the economy and to enact protectionist trade policies.
- ^ Warren, Kenneth (2008). Encyclopedia of U.S. Campaigns, Elections, and Electoral Behavior: A–M, Volume 1. Sage. p. 680. ISBN 978-1412954891.
Yet, certain national interests, regional trading blocks, and left-wing anti-globalization forces still favor protectionist practices, making protectionism a continuing issue for both American political parties.
- ^ "Freetrade". Parliament.uk. Retrieved 2 March 2022.
- ^ Federico, Giovanni; Tena-Junguito, Antonio (2019). "World Trade, 1800–1938: A New Synthesis". Revista de Historia Economica – Journal of Iberian and Latin American Economic History. 37 (1): 9–41. doi:10.1017/S0212610918000216. hdl:10016/36110. ISSN 0212-6109.
- ^ Federico, Giovanni; Tena-Junguito, Antonio (2018-07-28). "The World Trade Historical Database". VoxEU.org. Retrieved 2019-10-07.
- ^ Bown, C. P.; Crowley, M. A. (2016-01-01), Bagwell, Kyle; Staiger, Robert W. (eds.), "Chapter 1 – The Empirical Landscape of Trade Policy", Handbook of Commercial Policy, 1, North-Holland: 3–108, doi:10.1016/bs.hescop.2016.04.015, hdl:10986/24161, ISBN 978-0444632807, S2CID 204484666, retrieved 2019-10-07
- ^ Krueger, Anne O. (2020). International Trade: What Everyone Needs to Know. Oxford University Press. doi:10.1093/wentk/9780190900465.001.0001. ISBN 978-0190900465.
- ^ See P.Krugman, «The Narrow and Broad Arguments for Free Trade», American Economic Review, Papers and Proceedings, 83(3), 1993; and P. Krugman, Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations, New York, W.W. Norton & Company, 1994.
- ^ a b "Free Trade". IGM Forum. March 13, 2012.
- ^ "Import Duties". IGM Forum. October 4, 2016.
- ^ N. Gregory Mankiw, Economists Actually Agree on This: The Wisdom of Free Trade, New York Times (April 24, 2015): "Economists are famous for disagreeing with one another.... But economists reach near unanimity on some topics, including international trade."
- ^ William Poole, Free Trade: Why Are Economists and Noneconomists So Far Apart, Federal Reserve Bank of St. Louis Review, September/October 2004, 86(5), pp. 1: "most observers agree that '[t]he consensus among mainstream economists on the desirability of free trade remains almost universal.'"
- ^ "Trade Within Europe | IGM Forum". www.igmchicago.org. Retrieved 2017-06-24.
- ^ Tenreyro, Silvana; Lisicky, Milan; Koren, Miklós; Caselli, Francesco (2019). "Diversification Through Trade" (PDF). The Quarterly Journal of Economics. 135: 449–502. doi:10.1093/qje/qjz028.
- ^ Oatley, Thomas (2019). International Political Economy: Sixth Edition. Routledge. ISBN 978-1351034647.
- ^ "What's Wrong with Protectionism?". Mercatus Center. 2018-08-20. Retrieved 2021-09-24.