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Free Trade

Free trade is a market model in which the trade of goods and services between or within countries flows unhindered by government-imposed restrictions. These restrictions may increase costs to goods and services, producers, businesses, and customers, and may include taxes and tariffs, as well as other non-tariff barriers, such as regulatory legislation and quotas. Trade liberalization entails reductions to these trade barriers in an effort for relatively unimpeded transactions.

One of the strongest arguments for free trade was made by classical economist David Ricardo in his analysis of comparative advantage. Comparative advantage explains how trade will benefit both parties (countries, regions, or individuals) if they have different opportunity costs of production.

Free trade can be contrasted with protectionism, which is the economic policy of restricting trade between nations. Trade may be restricted by high tariffs on imported or exported goods, restrictive quotas, a variety of restrictive government regulations designed to discourage imports, and anti-dumping laws designed to protect domestic industries from foreign take-over or competition.

Free trade is a term in economics and government that includes:

• trade of goods without taxes (including tariffs) or other trade barriers (e.g., quotas on imports or subsidies for producers)
• trade in services without taxes or other trade barriers
• The absence of trade-distorting policies (such as taxes, subsidies, regulations or laws) that give some firms, households or factors of production an advantage over others
• Free access to markets
• Free access to market information
• Inability of firms to distort markets through government-imposed monopoly or oligopoly power
• The free movement of labor between and within countries
• The free movement of capital between and within countries

For more detailed arguments in favor of and against free trade, see: Free trade debate. A South Korean container ship approaching the Bay Bridge in San Francisco Bay. Lawyers and Law Students! Can you improve this definition? Send us your improvements and we'll provide a link back to your website or blog.