Free Trade


DEFINITION of 'Free Trade'

The unrestricted purchase and sale of goods and services between countries without the imposition of constraints such as tariffs, duties and quotas. Free trade is a win-win proposition because it enables nations to focus on their core competitive advantage(s), thereby maximizing economic output and fostering income growth for their citizens.


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Formerly insular economies such as China and India have expanded at much faster growth rates since they adopted free trade principles in the 1980s and 1990s, respectively.

Free trade enables nations to concentrate their efforts on manufacturing products or providing services where they have a distinct comparative advantage, according to the theory first espoused by economist David Ricardo two centuries ago. A free trade policy should enable a nation to generate enough foreign currency to purchase the products or services that it does not produce indigenously. The process works best when there are few if any barriers to entry for such imports. The imposition of artificial constraints such as tariffs on imports or the provision of subsidies to exports will introduce distortions and impede free trade.

  1. North American Free Trade Agreement ...

    A regulation implemented on Jan. 1, 1994, that decreased and ...
  2. Free Trade Area

    A group of countries that invoke little or no price control in ...
  3. Tariff

    A tax imposed on imported goods and services. Tariffs are used ...
  4. Dumping

    In international trade, the export by a country or company of ...
  5. Quota

    A government-imposed trade restriction that limits the number, ...
  6. Protectionism

    Government actions and policies that restrict or restrain international ...
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