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There's been a lot of talk about Free Trade. People seem to either know nothing about it, or they seem to either support or oppose it with such passion that if you didn't know any better, you would think they were actually at war.

Now, I often don't like so called "Free Trade Agreements" like NAFTA, TPP, RCEP, CETA, etc. but more often than not my aversion to them tends to be based on toxic copyright provisions and a lack of Fair Use protections, not necessarily the actual macroeconomic effects of the trade deal as a whole.

Thus, I have to ask: what exactly is the argument in favor of Free Trade? What exactly is it trying to achieve? And are there ways a nation can address the negative effects of such deals? And what is Free Trade NOT?

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The theory behind free trade is denominated comparative advantage, and as mike stated, the advantage is that a country, as a whole, benefits from specializing in the fields at which it is best, as it will get more than it would if it would produce everything alone.

In practice, a big advantage is the ability to operate for a bigger market, reaping economies of scale. This is particularly advantageous for small countries.

The downside is that, although free trade will make the country as a whole richer, it wont make the society necessarily equally richer, so it wont guarantee that an economy will develop. This connects with the concept of exploitative trade and fair trade: by entering international trade, developing countries might leave their economies vulnerable to foreign companies or governments, sometimes in critical sectors such as food and energy.

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  • $\begingroup$ Are there ways a country can organise itself to mitigate the downsides of a FTA? Are there any examples of such? $\endgroup$
    – Tirous
    Aug 14, 2017 at 15:24
  • $\begingroup$ I can't think of a particular answer for it... I would look into the World Trade Organization and World Bank for more info on that. Perhaps related to it is the WB website doingbusiness.org There is also the fair trade debate: en.wikipedia.org/wiki/Fair_trade_debate | When I think of specific cases, China managed to improve their status from low wage exploitative trade to be a huge global market with their size. However several african countries find it hard to develop despite having open trade. South America might hold interesting cases... $\endgroup$
    – JoaoBotelho
    Aug 14, 2017 at 15:38
  • $\begingroup$ This research (1958) goes further on the topic: depfe.unam.mx/doctorado/teorias-crecimiento-desarrollo/… $\endgroup$
    – JoaoBotelho
    Aug 14, 2017 at 15:49
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Free trade in theory allows for a greater division of labor by allowing countries as a whole to specialize rather than a section of each country specializing. In theory this should make every country involved wealthier as they can focus on doing more of what they're good at. Its the country level version of division of labor and trading in general.

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