Free trade has been the bedrock of American foreign economic policy for most of the 20th century. Before that it was advocated by the British. It is a key element of orthodox, laissez faire capitalist economics. While it would be more accurate to describe the world's trading regime as "freer trade" rather than free trade, the concepts of free trade are a cornerstone of the world economy.
Identification
Free trade is an economic regime where the barriers to the import and export of goods and services are eliminated. This includes all taxes, tariffs, quotas and regulations that are not also fairly applied to domestic products of a similar nature. The imports and exports should include all goods, services, capital, information and labor.
Effects
In theory, free trade benefits all parties involved by maximizing their comparative advantages. By importing better, cheaper products from a country that has advantages in making them, other countries can both save money, receive better products, and focus their resources on their own comparative advantages. In practice, this works well only if all countries involved have enough comparative advantages to at least balance out the reduction or elimination of the competitive sectors of their economy.
Misconceptions
In actual practice, no true free trade regime exists or has ever existed. For example, the closest that has ever been achieved to a free labor market is inside the European Union, where citizens of the member-states are permitted to move and seek work within the Union's borders at will. All states, even those trading within the terms of "free trade treaty," continue to employ some trade restrictions or impositions on imported products. Also, there are a variety of items that are barred from export, such as secret or patented technologies. As a practical matter, free trade is an issue of relative degree rather than absolute qualification.
Significance
Free trade is a cornerstone of liberal economics, and therefore of the free world's economic system. This is best illustrated by the numerous international agreements creating "free trade zones" (with varying degrees of actual freedom), such as the North American Free Trade Agreement, European Union, the Central American Free Trade Agreement, the World Trade Organization, and Mercosur. There are also a plethora of bi-lateral free trade agreements. The most significant in the US would be the "Most Favored Nation Status," which means that the trading partner gets the same terms as already established for the US's most favored trading partner
Warning
The most substantial criticism of free trade economics is that all the countries advocating free trade regimes had trade barriers in place to protect their nascent industries. In fact, nearly all examples of successful industrialization and economic development employ a mixture of focusing on comparative advantages while using trade protections. For example, Founding Father Alexander Hamilton was a protectionist, seeking to nurture the early industrial potential of the Northeast and Mid-Atlantic from British competition. The economic philosopher Adam Smith suggested that the United States should focus on their comparative advantage in agriculture. Had this advice been followed, it is doubtful the post-Revolutionary United States would have experienced much in the way industrial development.
