What is Free Trade?

BY busadmin  December 10, 2008 at 4:09 PM EDT

Question/Comment: What is free trade? I know the simple answer, no tariffs. But if a government subsidizes the production of a product or provides subsidies to farmers isn’t this interfering with the intent of the process?

Paul Solman: Free trade is the extension of a relatively unmanaged market system across sovereign boundaries, so that Palm Beach Gardens can trade as freely with Poland or Peru as it does with Pensacola.

There is, however, no such thing as a free market – and therefore no such thing as free trade. Rules always exist – MUST exist – lest all competitors go the Don Corleone route and “take to the mattresses.” Competition without rules leads to chaos.

Subsidies to farmers interfere with the PROCESS of “free trade,” but whether they interfere with its INTENT depends on the specifics. Suppose the subsidies are a way to keep the farmers from overpopulating nearby cities, which would cost the economy more? Suppose they’re the only way to keep agriculture alive in a land that’s afraid to lose its capacity to feed itself because of an uncertain global food future? There are always extenuating circumstances. The challenge is to keep them from costing the world more than they’re worth. No easy job.