The history of free trade generally goes back to ancient cultures where trade in spices and textiles was common. Later, as exploration and colonization proved the existence of the Americas, European powers began to develop colonies for economic gain. As government and economic systems became increasingly sophisticated, trade developed on a global scale. Global economic activity continues to thrive and develop but has also been subject to a fair amount of criticism.
Generally, the theory behind free trade emphasizes that the existence of less trade barriers helps promote economic development. Barriers to trade may include government taxation policies or limits on imports from a particular country. Instead, free trade may promote innovation, entrepreneurship and create employment free from government intervention. In addition, the importance of free trade rests on the ability of the marketplace to determine the best use of resources, money and labor to reach a favorable global economic equilibrium.
In theory, free trade proposes that individual economies may benefit from increased participation in global markets. Depending how these benefit are measured, free trade does result in tangible benefits. For instance, free trade encourages competition among businesses around the world. This increased competition puts downward pressure on prices. In addition, consumers have access to a wider variety of products to buy. As a result of the competition from foreign companies, domestic businesses must keep pace with production technology to remain competitive with foreign counterparts.
Generally, critics of free trade argue that the effects on developing countries are mostly negative. For instance, many developing countries do not have robust environment protection laws. As a result, some foreign companies may profit from less regulation but may also end up polluting the local environment. In addition, developing countries may be popular places to establish manufacturing operations because of low labor costs. Companies profit from a cheaper labor force but the same companies may not help alleviate poverty in the countries in which they operate. As a result, advocacy groups argue that free trade may harm poor countries and their citizens.
Countries around the world establish free trade with each other by signing trade agreements. For example, the United States, as of 2010, has 14 free trade agreements with other countries. According to the U.S. Department of Commerce's International Trade Administration, the U.S. implemented its six agreements in 2006 with Nicaragua, Morocco, Honduras, Guatemala, El Salvador and Bahrain.