Mark Howard
Department of Politics, University of California, Santa Cruz
The term trade can be used to describe both a particular form of labor (i.e. a work specialization such as carpentry), and also as a general term for the transfer of goods and services. In the context of free trade only the latter description applies. However, what may appear at first to be a simple concept—the free transfer of goods and services—is complicated by many factors deriving from the unavoidably political dimensions of free trade practices. Indeed, many scholars working in the field of International Relations characterize trade, and by association free trade, as a clash of interests and where interests clash so too do freedoms (Skonieczny 2018, 441).
Of course, all trade within a closed economy is generally understood to be free. Most typically this closed economy would be coterminous with a sovereign state, even where multiple nations exist within one state. For instance, the UK has multiple nations within its economic borders—England, Scotland, Wales, and Northern Ireland—and yet in theory (and in post-Brexit terms) has one closed economy—the UK economy. That means that the transfer of goods and services between entities within the UK can move freely, without quotas, tariffs, industry limitations, or currency considerations. The UK’s economy is, however, presently complicated by its partial embeddedness within the European Union (EU); the one major counterexample to a sovereign state as closed economy paradigm (hereafter, domestic economy). The EU is a newer form of economic community which serves as a potential alternative to the closed economy of the sovereign state. It works by creating a theoretically frictionless economy of currency, labor, capital, goods, and services movements between distinct political sovereignties, and in doing so is intended to operate in the same way as a domestic economy.
This is not, however, the domain in which the term free trade generally appears; free trade is more commonly used in discussions pertaining to trade relations between domestic economies (hereafter international trade) in what has become over time a vast international market, or collection of international markets. Thus what becomes apparent for our definition, is that free trade only appears as a term where we have a presumed a prior (or potential) state of unfree trade; a state that has been (or ought to be) undone through the implementation of free trade . Free trade on these terms is a freeing up of otherwise unfree trade relations, which in regard to international trade remains an ongoing and unfinished process. Indeed, Adam Smith (1776, 593) noted over 200 years ago that it would be utopian for us to expect complete freedom of trade to become reality, and so far he remains correct.
Classical Political Economists such as Smith understood international trade, and particularly free trade, to be desirable because it produces an expanded and unfettered market beyond the resources, producers, and/or consumers of any one domestic economy. Smith (1776, 29) argued that “the propensity to truck, barter, and exchange one thing for another” is a “certain propensity in human nature”, thereby implying that an expanded international market would lead to a greater capacity for humans to realize their true nature. There are however a number of other reasons offered through Classical Political Economy, beyond the human nature argument, that suggest an expanded international market to be a good thing. For one, bigger markets mean greater economies of scale—producing in quantity lowers costs, and provides a larger consumer base for greater volume of exchange (Chang 2014, 299). For another, there is the possibility of greater productive efficiencies in what Ricardo refers to as comparative advantage. He gives a famous example involving the production and trade of cloth and wine between England and Portugal: assume England takes 100 hours to produce a certain amount of cloth, and 120 hours to produce a certain amount of wine, while it takes Portugal 90 hours for the cloth and 80 hours for the wine. Portugal has an absolute advantage in labor terms. However, says Ricardo, the opportunity cost of wine to cloth for England is in a ration of 6/5, while for Portugal it is a ration of 8/9. Because of the inverse opportunity cost, it is actually cheaper for Portugal to get cloth by making wine and then selling it to England, than it is for Portugal to produce cloth itself (Foley 1999, 60).
International trade is not necessarily free trade, however, and Ricardo’s thesis only applies in abstract theoretical terms that do not account for trade costs relating to market entry. In the absence of free trade, there are typically costs, such as tariffs, involved when trading between domestic economies; costs deriving from domestic economic policies put in place by sovereign states to give those sovereign states maximally beneficial economic outcomes. This suggests that while international trade may be beneficial for reasons of specialization and expanded market opportunities, free trade may not always be beneficial, nor desirable for that matter. Interestingly, one of the greatest early champions of protectionist policies (i.e. policies designed to create barriers of entry into a domestic economy by foreign domestic economic actors), was the US, who are today champions of free trade policies around the globe (Chang 2014, 48). So why the shift of position?
Put simply, there are reasons why free trade works for some economies and does not for others, and this depends on their level of economic development and the global demand relating to their economic specializations. Free trade negates what is known in technical terms as infant industry protection, a way for domestic economies to develop their own capabilities in a burgeoning industry by putting up barriers of entry to foreign economic actors, thereby blocking that industry from interference by other, more developed, economic actors (Chang 2014, 297). This is where protectionism can be beneficial, even if the term has today come to be seen as pejorative. The fact is, the US is the powerful nation it is today in part because its early protectionist policies allowed it to develop its industries relatively undisturbed by more technically advanced economic powers such as Great Britain, which was at that time (due to its empire, an example of unfree free trade) the greatest industrial power in the world. Now that the US is the world’s largest economy, it suits the US to have free trade policies with other nations, as it has a distinct economic advantage going into what are supposed to be equal trade interactions. This discourse of equality in economic freedom obscures what is in fact an unlevel playing field tipped to the advantage of developed economies. As it happens, the US has been far more inconsistent (and creative) on this point than many may think. Between 1981 and 1986, for instance, the US, under pressure to implement trade protection to stimulate its economy after years of stagflation, instead opted for currency depreciation relative to the currencies of its major trading partner (Frieden 1991, 448), a policy it currently criticizes China for given the negative impact it has on US trade. Free trade does not evidently signify trade practices free from hypocrisy.
It also does not signify trade practices free from unequal power relations. Isaiah Berlin (1969, 168) famously distinguished between two forms of liberty (i.e. social or political freedom): negative (e.g. freedom from interference from others), and positive (e.g. freedom to pursue an aim or cause). Most discourses of freedom focus on negative freedom, the removal of restrictions or threats. What is interesting about free trade is that the form in which freedom appears in a trade agreement depends on who you are in that trade relationship: if you are a weaker economy that may benefit from infant industry protection, then free trade may actually mean negative freedom to trade without interference from others; if you are a strong economy with a distinct advantage, and in need of new markets, then free trade means both positive freedom to trade with the foreign domestic economy, and negative freedom from barriers to entry in that economy. The two are in tension, and rarely, unless there is genuine power parity, along with mutually compatible comparative advantage opportunities, is free trade not instigated without an element of force.
Being forced to be free is no kind of freedom, but such practices are very much part of the history of free trade. Gunboat diplomacy in the nineteenth century is a particularly brutal example of domestic economies being forced to engage in free trade, the most notable example being the infamously unequal Nanking Treaty that Great Britain imposed on China following their 1842 defeat in the Second Opium War (Chang 2014, 49). Today the imposition of free trade treaties constitute a central aspect of the neoliberal thinking propagated by US-created global institutions including the World Bank and the IMF. Though military force is no longer typically used—the US invasion of Iraq and subsequent implementation of neoliberal policies a (perhaps contentious) counterexample—weaker economies are frequently forced into free trade postures in return for debt restructuring or foreign aid (Harvey 2007, 7, 29). In the end, although the question we began with was ‘what is free trade?’, the question we arrive at is ‘what is actually free about free trade?’. The answer, it appears, depends on who you are.
(See Liberalism, Neoliberalism, Labor Migration)
Bibliography
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Foley, Duncan K. “Notes on the Theoretical Foundations of Political Economy.” 1999.
Frieden, Jeffry A. “Invested Interests: The Politics of National Economic Policies in a World of Global Finance.” International Organization 45 (4) (1991): 425-451.
Harvey, David. A Brief History of Neoliberalism. Oxford University Press, USA, 2007.
Harvey, David. Marx, Capital, and the Madness of Economic Reason. Oxford University Press, 2017.
Skonieczny, Amy. “Trading with the Enemy: Narrative, Identity and US Trade Politics.” Review of International Political Economy (2018): 1-22.
Smith, Adam. The Wealth of Nations. 2003 ed. New York: Bantam Dell, 1776.