While free trade is supposed to mean that governments do not interfere with trade by applying policies to affect trade, all governments do intervene in trade to give their country an increased financial advantage. The effects of the government policies are further discussed as well as how those policies affect free trade.
Role of Governments
Global trade occurs between many nations. While the intent of free trade is just that for trade to occur freely without government intervention in the open market. The truth is that governments do intervene in free trade imposing many sanctions, tariffs, quotas and other economic policies to limit free trade. To better regulate governments role in free trade a General Agreement on Tariffs and Trade (GATT) was created in 1947 (Carbaugh, 2011, p. 191). GATT helped trade by having all nations, included in the original group, trade on mutually beneficial policies. GATT has since been replaced by the World Trade Organization (WTO) that still honors many policies of GATT that now includes 153 nations that is inclusive of 97% of all world trade.
Untrammeled Market Activity
In order for international trade to work well, governments must allow the world market to determine how goods are sold, manufactured and traded for all to economically prosper. While all nations may have the capability to produce any goods or services needed by their population, it is not possible for all nations to have a comparative advantage for producing a good due to natural resources of the country or other available resources needed to produce a good or service. The example of trading among states comprising the United States is an example of how free trade works best without the interve...
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...tervene despite evidence showing that most interventions are counter-productive is the ambiguity presented by various economists making arguments for or against trade. Ambiguous arguments and nationalist pride will continue to influence more government interventions in free trade.
Carbaugh, R. (2011). International economics (13th ed.). Mason, OH: South-Western,
Hufbauer, G.C. & Erb, J.S. (1984). Subsidies in International Trade.
Washington, D.C.: Institute for International Economics. Retrieved from
Moran, M. (2008). The Rebirth of Industrial Policy. Retrieved from
Trade Problems for Developing Countries. (2012). Retrieved from
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