Free_Trade

Free trade is a system of trade policy that allows traders to act and or transact without interference from government. According to the law of comparative advantage the policy permits trading partners mutual gains from trade of goods and services. Under a free trade policy, prices are a reflection of true supply and demand, and are the sole determinant of resource allocation. Free trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by artificial prices that may or may not reflect the true nature of supply and demand. These artificial prices are the result of protectionist trade policies, whereby governments intervene in the market through price adjustments and supply restrictions. Such government interventions can increase as well as decrease the cost of goods and services to both consumers and producers. Trade negotiation is a process in which nations meet together to discuss the possibility of trade, with the goal of reaching a trade agreement. Both nations have a vested interest in negotiating a successful trade agreement because it has the potential of promoting economic growth and allowing companies to expand their markets, but both are also concerned with protecting their economy and safety. Trade negotiations can become quite complex, and may involve more than two nations, along with moderators who take a neutral stance to help the countries reach an agreement. Countries that open their trade barriers to allow free trade have the chance to enter the global market, which will increase income for the country. There are many advantages to free trade for example Countries that specialize in creating commodities where they have the comparative advantage will increase their production, instead of focusing on products or industries in which other countries have the comparative advantage. Another advantage is that by increasing production, countries increase their efficiency. Also by specializing, countries better allocate their resources and purchase cheaper resources from other countries. Although free trade may cause jobs in one particular industry to move overseas, jobs in the exporting and importing sides will increase. When productivity increases in importing and exporting, wages also tend to rise. For example as the U.S. has lowered its trade restrictions, the gross domestic product has risen. Since consumers can purchase quality products for cheaper, they have a more expendable income. Another advantage was shown in the 1990s, when developing countries that lifted trade restrictions tended to grow three times faster than countries that restricted trade.