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PPGPortal > Home > Concept Dictionary > F, G, H > Free Trade

Free Trade 

International trade, which is neither restricted nor encouraged by direct government intervention.

(World Bank. Beyond Economic Growth Online Glossary


In theory, most economists believe that free trade maximizes overall economic efficiency, which is a feature that makes it attractive. However, in the real world, international trade is usually strongly influenced by import tariffs and quotas as well as export subsidies and other market distorting policy interventions. Bilateral free-trade agreements between two countries and free-trade areas including many countries are often used as tools to remove or at least reduce such barriers to trade.

In addition to the fact that many economists find free trade attractive because it maximizes efficiency, some have put forward a moral argument for free trade as an essential component of economic freedom. According to the Government of the United States, the concept of “free trade” arose as a moral principle even before it became a pillar of economics. This moral argument holds that if you can make something that others value, you should be able to sell it to them. If others make something that you value, you should be able to buy it, regardless of whether a border separates the two willing trading partners.


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School of Public Policy and Governance