International Business

What Is Free Trade | Meaning Of Free Trade

Free trade refers to the situation when movement of goods between two countries is unrestricted. The government of a country does not impose any restriction on the free movement of goods to and from the country or countrymen are free to import or export the goods without any restriction being imposed by the state, Thus under a free trade policy, the state makes no difference between the internal and the international trade.

The government follows no policy in favor of or against the internal or international trade. Adam Smith defined Free Trade as the “System of commercial policy which draws no distinction between domestic and foreign commodities and therefore, neither imposes additional burden on the latter, nor grants any favor to the former.

 Free trade policy does not mean that the government of the country shall not impose any duties on imports from and exports to other countries. But the main purpose of such levies is to get revenue for the state and not to restrict the free flow of trade between the two countries. The policy of free trade is generally adopted by the countries for the free flow of resources between the countries larger production, specialization and division of labor and to follow a non-discriminatory policy against other nations of the world.

 Free trade helps the free movement of goods and raw materials between the countries and as a result, ensures their equitable distribution of these resources all over the world. Every country is free to import raw materials and furnished goods at a cheapest price from any countries in the world and sell its own products in any market where they can get maximum price. Thus, under free trade policy every country enjoys unrestricted freedom as buyer as well as seller.

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