Jay Rush, age 13, of Nogales, Ariz., for his question:
WHAT IS MEANT BY FREE TRADE?
Free trade means the interchange of commodities across political frontiers without restrictions such as tariffs, quotas or exchange controls. This economic policy contrasts with protection, or the fostering of domestic industrial or agricultural production by means of import tariffs or other legal obstructions to the movement of goods across frontiers.
Early free trade doctrines started to develop with the emergence of dynastic nation states during the 15th century.
One early form of this economic policy, known as mercantilism, dominated Western Europe from about 1500 to about 1800. Supporters of this policy worked to promote national unity and to increase the strength of the state. They considered wealth a necessary condition of power and the accumulation of gold and silver specie a necessary condition of wealth.
Countries without gold or silver mines acquired specie (coined money) by maintaining a surplus of exports over imports through strict governmental control of foreign trade.
A reaction against strict governmental control of trade occurred in France during the 18th century. This led to the formation of the first theory of free trade by a group of economic philosophers known as the physiocrats. They maintained that the free movement of good was in accordance with the principles of natural liberty.
The physiocrats influenced a British economist named Adam Smith. His free trade theories contributed to the later development of governmental trade policy in Great Britain.
Although most countries officially favor freer trade and deny protectionism today, the achievement of this goal is somewhat difficult, even among highly industrial nations. Since World War II a concerted move has been under way by the leading trading countries to promote freer trade and remove protection barriers. When economies are booming, free trade is supported. But when recessions occur, many nations become more protectionist.
Throughout modern history, few countries have ever actually adopted a policy of free trade. The major exception was Great Britain, which, from the 1840s until the 1930s, levied no import duties of any kind.
The historical prevalence of protectionist policies reflects in part the strength of industrial vested interests fearful of foreign competition, and in part the strength of various theoretical arguments for protection.
Such arguments can be classified in three groups: those intended to influence the composition of production; those intended to influence the level of employment; and those intended to influence the distribution of income.
One of the oldest arguments for protection says when foreign competition is reduced or eliminated by import barriers, domestic industries can develop rapidly. After their development is completed, they should theoretically be able to hold their own in competition with industries of other nations, and protection should no longer be required. But it doesn't always work out that way.