Free Trade ( English free trade ) is in the Economic and Trade Policy , a international trade , in which neither barriers exist, nor repressive foreign trade instruments are used and no trade wars are fought.
An economic policy geared towards this is called free trade policy , and a policy that opposes free trade is called protectionism . Since free trade only concerns international trade ( foreign trade ) between at least two sovereign states , one describes free trade (traffic) in goods , capital, etc. a. within states and that have a single market (e.g. USA , EU , individual nation states , etc.) not as "free trade", but as internal trade .
The Middle Ages were not characterized by free trade, but by trade wars or trade conflicts . On June 24, 1258, a real trade war broke out in front of Acre for supremacy in the eastern Mediterranean , instigated by the economic metropolises Pisa , Genoa , Venice and Marseille in the Adriatic , with Genoa alone losing half of its 48 warships and 1,700 men. An agreement on separate trading venues only ended this trade war in January 1261. In August 1267 the Genoese blocked Acre again, but were routed by the Venetians under their doge Lorenzo Tiepolo . In 1372 another trade war broke out between Venice and Genoa, a campaign of revenge that lasted until 1373. From the 12th century until modern times, the Hanseatic League was an important European economic alliance in which many of the foundations for the first free trade agreements were laid. In 1353, England and Portugal negotiated reciprocal freedom of trade for the merchants, new confirmations were made on June 16, 1373 and July 5, 1380.
The trade treaty concluded by Lord Paul Methuen (1672–1757) in 1703 between England and Portugal is considered the beginning of liberal trade policy during the era of mercantilism . The aim of mercantilism was to reduce imports of finished goods through an appropriate customs policy in order to protect their own factories and prevent the flow of gold abroad. According to this doctrine, international trade was a zero-sum game : Only one of two trading partners could benefit from the exchange. The focus here was still on the participating states and their respective state revenues .
Scientists in particular campaigned for free trade. The physiocrats Pierre Samuel du Pont de Nemours , François Quesnay ("Freedom of Trade") and Anne Robert Jacques Turgot put forward their call for free trade. In 1764, Du Pont de Nemours wrote a pamphlet on "Export and Import of Grain and Flour", in which he advocated free trade. In 1767 Quesnay recommended: “Maintain complete freedom of trade; because the most secure, strictest and most favorable policy for the nation and the state ... consists in the complete freedom of competition ”. At Quesnay, the abolition of export bans and export tariffs was one of the cornerstones of his doctrine. In 1774, Turgot reintroduced the old freedom law of the grain trade. Turgot believed that only a free grain trade could guarantee an equal supply of the population.
Adam Smith made free trade the cornerstone of his economics. In his theory of ethical feelings in 1759 he advocated free trade, and generally advocated economic freedom. He saw free trade as an opportunity to use absolute cost advantages between the countries, since the existing limited volume of work can be used more productively than if each country only produced for its own needs. Smith's theory of the absolute cost advantages, however, had the consequence that a country which does not have an absolute cost advantage in the production of any good compared to the other countries, cannot profitably participate in world trade. Smith approved of free trade, but viewed it as a utopia. He was right, because in July 1759 the Prussian auxiliary warship "Prinz Ferdinand" began the trade war in the Mediterranean by privateer and brought a total of 14 ships up to his return in March 1760 after Frederick II had banned this privateer by order. Setbacks continued to occur in free trade. In 1774 England banned the export of machines. Marie Jean Antoine Nicolas Caritat, Marquis de Condorcet , published in the year of his death in 1794 the “Draft of a historical account of the progress of the human mind”. He held prohibitive laws in trade ( French loi prohibitive ) for the greatest violation of property even before taxation.
A welfare gain is achieved through increased free trade according to the foreign trade theory of the economist David Ricardo from 1817, because it achieves comparative cost advantages and thus a gain in economic prosperity. "Under a system of completely free trade, every country naturally devotes its capital and labor to uses that are most beneficial to everyone". The core of his free trade doctrine is the principle that every country should produce what it does best and exchange it for goods that other countries can produce better. He and most of the following foreign trade theorists concentrated primarily on foreign trade gains ( English gains from trade ), since all states involved in free trade benefit from them. This theory still forms the basis for the assumption of a positive effect of free trade between industrialized and less industrialized countries and beyond that for all free trade agreements.
In the 19th century the free trade movement first developed in England with the Anti-Corn Law League , the movement of the industrialists against the grain tariffs. The great famine in Ireland from 1845 served as an argument to lift the import tariffs on grain in 1846 and to feed the workers more cheaply. The repeal of the Navigation Acts in 1849 removed import restrictions and made it easier for foreign goods to be imported. In Europe, the free trade period began with the Cobden-Chevalier Treaty between England and France in 1860 . Article V of this provided for most favored nation treatment between the contracting parties. Due to the economic importance of the contracting parties, more and more states were looking for preferential access, particularly in the French market. The result was a network of free trade agreements, all of which were based on the principle of most-favored nation treatment. With the exception of Russia and the USA, all economically relevant states at the time participated in this network.
Market opening and free trade with very unequal exchange relationships were, however, also enforced by force and secured militarily by the European powers, especially England and the USA. In two opium wars ( First Opium War , Second Opium War ) between 1839 and 1860, England forced China to open its markets for Indian opium , which resulted in millions of opium deaths in addition to the victims of the war. China, which had a trade surplus with Europe until around 1820, quickly became a European semi-colony. In 1853, the USA forcibly opened the Japanese ports for trade and concluded asymmetrical treaties (so-called unequal treaties ) with Japan. After the stock market crash of May 1873 ( Gründerkrach ), the German Reich government abandoned its line of favoring free trade in 1876. The free trade network also came under pressure from 1878 onwards from cheap grain imports from Russia and the USA, which led to isolated trade wars, but only collapsed with the outbreak of the First World War (and thus not primarily for economic reasons).
John Maynard Keynes , who advocated free trade, wrote in 1923: "Wherever the decision is ours, we must stick to free trade, in its broadest sense, as an indomitable dogma to which no exception is permitted." However, in 1931 he advocated a general tariff. At the height of the Great Depression in 1933, Keynes moved even further away from the free trade principle, which he also represented, and demanded a certain degree of "national self-sufficiency". The liberal economic policy of the time had no recipe for eliminating massive unemployment , so trade restrictions began to be used as employment programs. In the meantime, Frank William Taussig published a number of writings on the subject from 1924. He criticized that "despite the immense amount of writings on free trade and protective tariffs, there is still not a single work that shows this conflict of opinion in a satisfactory way". To the extent that the interwar period was marked by mutual distrust, international trade was also restricted. The USA practiced a general policy of isolation. The world economic crisis of 1929 ( Black Friday ), when it broke out, drew part of its dynamism from the fact that the countries, spurred on by the economic collapse, closed their borders to foreign products, and with the smashing of international trade, the economy again to put under pressure.
The idea of free trade only flourished worldwide from October 1947 when trade barriers were dismantled as part of the founding of the GATT . Since then, trade restrictions have tended to decrease in world trade . The World Trade Organization emerged from the GATT in April 1994 and deals with the regulation of international trade and economic relations. Multilateralism and economic integrations such as the Coal and Steel Community (April 1951), NAFTA (January 1994), the Peoples' Trade Agreement (April 2006) or the ASEAN-China Free Trade Agreement (January 2010) promoted free trade, but were later unable to prevent individual bilateral trade disputes .
Since then, there has been a noticeable tendency that instead of the multilateralism to be promoted by the World Trade Organization, states fall back on bilateral free trade agreements such as the Comprehensive Economic and Trade Agreement with Canada (September 2017) or the EU-Japan free trade agreement (July 2018).
The advancing free trade policy was a basis of globalization , the effects of which are controversially discussed. Critics of globalization see the danger of exploitation and cementing of existing divisions as well as the undermining of the economic policy of the nation states . However, economists like Jagdish Bhagwati point out that in India and China, for example, poverty declined dramatically between 1980 and 2000, two decades of accelerated integration into the world economy.
In principle, free trade, regulated by bilateral or multilateral agreements , is always riskier for small and less developed economies, especially the economies of the Third World , than for large, highly developed economies. The politically often unstable states of the Third World can hardly influence the standards on which trade is based (e.g. hygiene standards for food, social standards for the production of consumer goods). Their local production is hardly competitive with cheap imports. Regional alliances of developing and emerging countries do little to change this, because within these free trade zones it is mainly the larger and more efficient economies that benefit. In a study on the planned Transatlantic Trade and Investment Partnership ( TTIP ) between the USA and the EU, the Bertelsmann Foundation found that not only the Latin American countries, but even Canada, China and Japan would be negatively affected.
Free trade goes hand in hand with agreements on the liberalization of capital movements and thus in turn investment protection agreements . These usually provide that an investor in the host country receives the right to transfer the profits from the investment to another country. The situation can also arise that a host state is forced by the investment protection to freeze its internal legal system and to prevent democratically decided processes in the interests of the investor and against the will of the people in order to meet the requirements of the investment protection. In arbitration proceedings such as those of the International Center for the Settlement of Investment Disputes ( ICSID ) of the World Bank , specialized large law firms or lawyers who work for investors in the private law sector usually work. Since investment protection suits are often subject to confidentiality and there are no possibilities of appeal against the decisions of the arbitral tribunals, there is a lack of democratic and legal control options. Conceivable are (and were submitted) z. B. Investor lawsuits against minimum wages (as in the case of Egypt), against guaranteed prices for the feed-in of alternative energies, against fracking bans or against warnings on cigarettes.
The NAFTA agreement in particular was a door opener for securing the privileges of investors through arbitration tribunals. Stephen Gill from York University in Toronto , one of the "Fifty Key Thinkers of International Relations", speaks of the privatization of commercial law and the "juridification of neoliberal dogmas". In 2014, there were lawsuits pending before the arbitration tribunals with claims for damages against governments (especially the Canadian one) amounting to 12.4 billion US dollars.
The idea of free trade is based on classic economic liberalism . Free trade is based on the fact that trading partners refrain from any measures that hinder the free, unhindered exchange of goods , services or capital . Above all, trade barriers (such as import tariffs , export subsidies , import quotas or export restrictions ) or foreign trade instruments (such as foreign exchange control , capital controls or luxury taxes ) are prohibited. Then there is absolute free movement of goods . This has absolute free movement of capital are facing because otherwise lack of free foreign trade financing and unimpeded international transfer of foreign payments not for the return can provide the goods.
Since the foreign trade theory and the reality of world trade do not show any foreign trade balance to be striven for , there are structurally always both exporting nations (“ export world champions ”) and import-heavy states. In 2015, 123 countries worldwide (2/3 of all countries) had a trade deficit , but only 62 countries had a trade surplus . Both lack the foreign trade balance, because this is the balance of the current account advance. In the case of export- and import-heavy countries, measures could be necessary if the importing country has a trade balance deficit that cannot be reduced even in the medium term through devaluation . This state cannot defend itself other than restricting imports and / or promoting its own exports . If this does not succeed , the import-heavy states face high national debt with the risk of national bankruptcy , while export-heavy states initially amass state assets . However, this includes export claims against import-heavy countries, which trigger a bad debt loss in export-heavy countries, which as a result have to accept a loss from depreciation .
According to StabG , the external balance in Germany requires the federal and state governments to take into account the requirements of overall economic balance in their economic and financial policy measures. "The measures are to be taken in such a way that, within the framework of the market economy, they simultaneously contribute to the stability of the price level , a high level of employment and an external balance with steady and appropriate economic growth ". In the event of external trade disruptions in the overall economic equilibrium, which cannot be countered by internal economic measures or only with impairment of the goals specified in Section 1 of the StabG , the Federal Government has to use all possibilities of international coordination in accordance with StabG. If this is not sufficient, it uses the economic policy resources available to it to maintain the external balance ”. In order to comply with this law, Germany would either have to revalue (obstacle: unilateral revaluation of the euro is not possible) or internally revalue (wage increases in all export sectors), levy export duties (obstacle is the customs union ) or implement the comparative cost advantages and leave industries to the trading partners . However, these economic policy instruments are capable of restricting free trade.
From the point of view of most economists, welfare gains can be achieved through free trade ( comparative cost advantage ). However, the development, environmental and social policy consequences of free trade are controversial.
Most foreign trade theories conclude that free trade serves a country's welfare more than protectionism. The advantages of free trade include, for example, increased efficiency (tariffs lead to production and consumption distortions and thus to welfare losses), faster achievement of optimal company sizes through international competition and innovation accelerated by competition.
In a much-cited 1995 study, Jeffrey Sachs and Andrew Warner divided developing countries into three categories: countries that have historically tended towards free trade; Countries that switched from protectionism to free trade in their history; and countries that have always acted strongly protectionist in their history. In 2006 the average gross domestic product (GDP) in the first category was 17,521; that of the third $ 2,362 per capita. Free-trading developing and industrialized countries had very high growth rates in the period 1970–1990. In particular, the countries with initially relatively low GDP per capita grew rapidly (often over 5%). The protectionist countries grew an average of only 0.5% per year. Protectionism was particularly damaging to poor countries during the chosen period.
Ha-Joon Chang (economist at the London School of Economics) made it clear, however, that developing countries had significantly higher economic growth in the 1960s and 1970s (before they opened and deregulated their markets) than later. The annual increase in per capita income fell from an average of 3% (1960–1980) to only 1.7% (1980–2000). Francisco Rodriguez and Dani Rodrik criticized some of these studies, which found a positive link between free trade and growth, for the fact that trade policy indicators were chosen incorrectly or that they strongly correlated with other causes of weak growth. The willingness to open up one's own market is more the result of previous rapid growth due to successful industrialization (as in England in 1846).
- In the textiles dispute in 2005 between the People's Republic of China on the one hand and the EU and the USA on the other hand, the EU and the USA urged the People's Republic of China to impose export quotas in China for textiles from China as a substitute for import restrictions in the EU (and the USA) for these same textiles from China. This happened a few months after import quotas (Engl. Import quotas ) for such textiles from China to the beginning of the year 2005 have been lifted.
- Third world countries partly advocate free trade in agricultural products . The EU and the US officially advocate general free trade, as they in turn have comparative cost advantages in capital-intensive goods. However, farmers in the US and the EU receive agricultural subsidies , which mean that, despite the higher production costs for agricultural products in industrialized countries than in developing countries, the market prices of the former are lower than those of the latter. For years , the World Trade Organization was not able to persuade the USA to renounce the cultivation and export subsidies decided in 2002, which has seriously damaged African producers in particular. The same was true of grain and soy. The subsidy policy means that the market opportunities for agricultural products from developing countries are significantly lower than they would be if there were general free trade without subsidies . There are also import quotas for agricultural products in the EU. According to critics, developing countries are being persuaded to dismantle all import tariffs and quotas and to refrain from subsidizing their farmers in any other way, under threat of the suspension of development aid and the cancellation of loans. In developing countries this not only means that they have no way of exporting agricultural products according to their comparative advantages , but also to the destruction of domestic agriculture through imports of surplus production from the European Union and the USA. Subsidizing agriculture prevents structural change in the industrialized countries and social convergence of the developing countries.
This becomes particularly clear in the example of Mexico's role in the NAFTA zone. When negotiating the NAFTA agreement, the US government reserved the right to support large parts of US agriculture with import tariffs and subsidies against import competition from Mexico. American corn production in particular, but also parts of meat production, can be massively subsidized by the American government under the NAFTA treaties. Mexico, formerly self-sufficient in its staple food, corn, has been inundated with these subsidized US agricultural products and meat, which are 20 percent cheaper than production costs. The expected specialization and increase in value added in Mexican agriculture did not materialize: Millions of smallholders had to give up, but the many landless and unemployed could not be absorbed in the newly emerging supplier industries. Crime increased. Mexico today has to import 60 percent of its wheat and 70 percent of its rice needs. Canada has also returned to being an exporter of raw materials and is increasingly struggling with environmental problems, while at the same time the international oil industry is putting pressure on environmental regulations. Overall, incomes stagnated in the NAFTA member states, while income inequality rose.
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- Special economic zone
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