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International Trade

Trade can mean different things in different contexts. In financial markets, “trading” refers to the act of buying and/or selling stocks and securities. But more generally, trade can be the voluntary exchange of any good or service, taking place within an economy of producers and consumers. International trade has been a reality for centuries, giving people access to goods that would otherwise be unavailable in their home country. Governments have long taken a variety of different positions on international trade. Some have implemented protectionist policies designed to keep foreign goods out, while others have embraced international trade and sought to promote it as much as possible. And still others have taken a more relaxed approach, allowing the market itself to determine the appropriate level of international trade.

Trade With (Fewer) Limits

The concept of free trade entails that any restrictions, quotas, or tariffs are eliminated, allowing the unfettered access of goods from one market to another. A free trade agreement (FTA) is an arrangement between two or more governments that reduces these barriers to trade and, theoretically, allows for unrestricted access into each others’ economies. Today, FTAs come about after lengthy negotiations, often lasting years, between the relevant governments. After negotiations come to a close, all parties will sign an agreement that lays out the exact terms of “free” trade and a timeline for implementation. Most FTAs do not result in trade that is completely 100% free of all barriers and tariffs. Often governments will put exceptions into the agreements—sometimes influenced by lobbyists and special-interest groups—and there may be restrictions on food or medication in cases where the parties have differing regulations in place.

Examples of Free Trade

There are numerous examples of free trade today. The European Union Single Market is one notable example, as the member states essentially form a single block for the purposes of trade and there are no restrictions on the movement of goods or services within the area. The North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico has been in place since 1994 and though it has significantly integrated these three economies, it has also attracted controversy for its unintended economic consequences in all three states.