Economical and Philosophical Compatibility of Free Trade

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Description

In definition, free trade is a trade system that permits traders to act and transact their business with no government interference. As in the law of comparative advantage, the system allows business partners mutual benefits from trade of good and services. Comparative advantage principle refers to the ability of a partner to produce a particular commodity at a lower opportunity cost than another party. Under a free trade structure, the prices of commodities are a true reflection of supply and demand and these two factors (supply and demand) are the only determinant of resource allocation. This form of trade then differs significantly over other form of trades where allocation of  trading commodities among trading states are determined by price that are not real and which may or may not reflect the true nature of supply and demand. Such prices (artificial prices) are a factor of protectionist trade policies whereby governments intervene in form of supply restriction and price adjustment. A good example of such protectionist policy is in the agricultural industry where the government provides subsidies creating artificial low prices for their agricultural products to protect the agricultural industry.