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EBD Economics: What is free trade?

Critics of Free Trade argue that it benefits developed countries at the expense of the development of poor ones.
© Egypt Business Directory
 

To understand the concept of free trade, we have to refer to its opposite: Protectionism.

Protectionism is the application of restrictions on trade which can come in the form of:

1- Tariffs: taxes, customs, fees on imports and exports...

2- Quotas: putting a certain limit on the amount of imports.

3- Subsidies: to local products making it stronger and lowering production costs.

4- Currency exchange control: limitation by central banks on the amounts of foreign currency disposable for imports.

All these measures serve to protect the domestic economy from international competition, this is protectionism.

Free trade is the abolishment of restrictions (like the ones mentioned above) on international trade.

Governments always resort to protectionism in times of crisis to strengthen the domestic economy while the World Trade Organization is always trying to push for International Free Trade.

Since the 1950s many free trade areas and common markets were created (like the European Union or the CFTA) but these still impose restrictions on non-members.

Critics of Free Trade argue that it benefits developed countries at the expense of the development of poor ones.