The Differences Between Free Trade and Protectionism

world trade image by Chad McDermott from

The global economy is set to decline for the first time since World War II. Economists have engaged in a lively debate over the benefits and pitfalls of free trade and protectionism. Many economies have adopted free-trade policy, or an economy in which trade tariffs and barriers have been lifted. allowing for the free flow of trade between one or more nations. Protectionism refers to policies where nations restrict imports and exports.


factory image by Zbigniew Nowak from

Governments utilise protectionist economic policies to restrict imports and exports. Protectionism helps to protect nations from an increase in the amount of imports, which could affect domestic production. One of the most common protectionist policies includes raising the price of imports via tariffs, keeping industry in the nation more competitive in the domestic market, according to Humboldt State University. Protectionism can also include import quotas, or the restrictions on the quantity of imports allowed to enter a country.

Free Trade

Free trade, on the other hand, lifts barriers to allow for the free flow of trade between two or more nations. Trade agreements can foster economic growth by increasing trade for a nation. Free trade opens markets and economic opportunities. Free trade allows for fair competition and non-discriminatory regulations, according to the Office of the United States Trade Representative.

Free Trade Agreements

Free trade agreements phase out barriers to trade between two particular countries or among a group of countries. The United States has entered many bilateral and multilateral free-trade agreements, a major component of U.S. trade policy in recent years, according to the Government Accountability Office. Major trade agreements include the North American Free Trade Agreement and the World Trade Organization (WTO) agreements.

New Protectionist Trend

Member nations of the World Trade Organization have reconsidered protectionist policies. The WTO has no laws or rules prohibiting banks from lending only in their own domestic markets, which could lead financial institutions based in other countries to withdraw investments, reports the Washington Post. The World Trade Organization has said that protectionism could prolong the current global economic recession, according to the Post. Since 2008 a number of nations have increased tariffs, applied import restrictions and reinstated subsidies. In addition, some countries have imposed financial protectionism, requiring financial institutions based in their countries to invest in domestic companies.

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