The term “free trade” refers to the exchange of money, goods, and services across political barriers without restrictions, or in other words, the extension of the concept of the “market” across national boundaries.

The term “market” refers to a process by which production of goods and services follows paths where production best serves the most pressing needs of consumers. In the free world, the market requires an economy based on private ownership of the means of production to best employ the division of labor in society. A “free market”—that is, a market economy neither centrally planned nor hampered by centralized regulations—seeks to guide the command of the means of production into the hands of those private entrepreneurs who are able to use these means most effectively to satisfy the most pressing needs of consumers. The consumers are made sovereign, as it were, since their decisions to purchase or not to purchase determine the profits and losses of entrepreneurs. A dynamic system of “market prices” therefore emerges in such a system. In a market free from barriers and restrictions to entrepreneurial and consumer decisions, the market price best represents the informational relationship between what the consumers want and the means to satisfy the most pressing of those needs.

Restrictions and barriers placed on consumer and entrepreneurial decisions distort the informational content of the market price. The result is a decline in the efficiency of the market to provide for the needs and wants of consumers. Socially, the effect is a decline in the accumulation of capital goods and a decrease in wealth and well-being generally. To advocates of a free market, consumer decisions work best to increase the wealth and well-being of everyone whom the market serves.

Free trade between nations seeks to eliminate barriers and restrictions to the decisions of consumers and entrepreneurs across national boundaries. The effect is a widening of the division of labor, where production is steered onto paths across political barriers to better serve the most pressing needs of the sovereign consumers of all nations. In sum, free trade seeks globally to enfranchise the consumer. In the West, the recent trend toward globalized markets reflects the desire to extend to as many nations and peoples as possible the wealth of the free world.

The economic policy of free trade contrasts with protectionist policies that use trade restrictions to stimulate or protect domestic production. Historically, the ruling dynasties of Renaissance Europe understood the simple truth that economic activity is not only a source of domestic well-being but also a source of real political power among ruling regimes in competition for international primacy. In Europe from the sixteenth through the eighteenth centuries, kings and emperors, intent on establishing their primacy in international politics, increasingly exercised government control over trade and industry. Mercantilism was not so much an economic theory as it was a political conception of a regime’s capacity to threaten and make war. According to this conception, a regime increased its strength by achieving a preponderance of exports over imports across its borders. Rulers and parliaments believed the wealth of nations depended mainly upon the possession of gold and silver, accumulated chiefly by a favorable balance of exports over imports with colonies and other nations. They considered colonial exploitation a legitimate and indispensable means to provide the fatherland with precious metals and raw materials upon which domestic industry depends to create exports.

Ruling regimes exercised mercantilist policies of strict control over foreign trade to achieve domestic wealth at the expense of other nations over whom they intended to establish a primacy in international politics. Their very success at stimulating domestic industry and obtaining colonies soon gave rise to opposing pressures. Mother countries used their colonies like supply depots and often forbade their trade with other nations. Politically, the American Revolution may be seen as a reaction against the mercantilism of the British Crown and Parliament. Intellectually, François Quesnay and the Physiocrats in France began a reaction against mercantilist policies, and the classical economists Adam Smith, David Ricardo, and J. S. Mill argued for a century in Britain that all nations would share in the wealth in real goods brought by free trade. In The Wealth of Nations (1776), Smith argued that the individual interests of the mass of market participants work like an invisible hand to increase the wealth and well-being of all.

Economic arguments for protection take three main forms. The oldest is the infant industry argument. Advocates of protection maintain that foreign competition, matured by years of activity, holds advantages that must be reduced or eliminated by import tariffs or trade quotas. Other arguments advocate the protection of domestic industry from dumping. Foreign suppliers may wish to provide domestic markets with plentiful imports at prices significantly lower than domestic prices. The intent is to drive domestic suppliers out of a market that foreign suppliers may then dominate without competition. Still other arguments take the form of national defense. These protectionists point to domestic dependence on foreign sources for essential raw materials and finished goods that might become unavailable in times of national crisis.

Advocates of economic globalization contend that the move toward international modernization and free trade will extend to all nations the wealth and well-being of the free world. Many disagree, arguing that the benefits will not outweigh the costs. Concerning the issue of equality, some argue that globalization tends to increase inequality both within and between nations. Indeed, a move toward meritocratic organization of a national economy favors the educated and the able with wealth and advancement. The Chinese equality of incomes achieved in the 1970s will not survive her advance toward modernization, for meritocratic forces are no less elite than those of dynasty or the strong arm. Politically, capital flow across national borders perpetuates power relationships as the ownership of many national assets falls into foreign hands.

Religious and cultural critics advance a different series of arguments that work against the case for free trade. Hilaire Belloc and G. K. Chesterton complained of the spiritual poverty that industrialized England was inflicting on the British character. In the American South, the Southern Agrarians complained that northern industrialization was creating a spiritual emptiness in the post-Reconstruction South and that the modern industrial city begets a wholly different sort of Southern citizen incongruous with those who populated rural farming communities. Agrarians like Allen Tate and John Crowe Ransom mourned the loss of the self-reliance and independence that broadly distributed communities of landholding citizens championed, and in which agriculture was the leading vocation.

In international relations theory, Samuel Huntington of Harvard University has revived the argument for international primacy. Like the European mercantilists, he recalls the simple truth that economic activity is a source of real political power. According to Huntington, in the present era it matters more than ever which state holds primacy in the international system. One needs only to consider what alternative distributions of power would have meant to the twentieth century. Moreover, in a world where direct military action between competing states and civilizations has become less probable, economic power has now become the determining factor that will form or maintain the primacies and subordinations of the new century. Western primacy has lent prestige to the liberal ideals of liberty, equality, democracy, and private property throughout the world. An alternative distribution of economic primacy might mean for the twenty-first century a dispensation of prestige less favorable to those ideals that Westerners cherish. Benjamin Barber of Rutgers University also has argued that the present trend is producing a global consumer culture that is unlikely to be democratic.

Further Reading

Benjamin R. Barber, Jihad vs. McWorld

F. A. Hayek, Individualism and Economic Order

Samuel P. Huntington, The Clash of Civilization and the Remaking of World Order

Ludwig von Mises, “The Sovereignty of the Consumer,” in Planning for Freedom and Sixteen Other Essays and Addresses

This entry was originally published in American Conservatism: An Encyclopedia, p. 321.