Free trade is an important part of free enterprise. Free trade is the practice of allowing individuals to exchange goods and services, without restriction or manipulation, across international borders.
There are many benefits to free trade. The largest benefit is the more efficient, and therefore more productive, use of resources. Since individuals in many nations are competing to produce at the lowest price, the countries that are best able to produce some good or service will become more focused on that. Countries in the Middle East have abundant oil supplies that can be extracted from cheaply; therefore, they can concentrate their economies in those areas. By allowing each nation to focus on what it does best, global wealth increases. Furthermore, some nations have access to resources they otherwise could not produce, as least not economically. Free trade also allows ideas to travel around the world. Companies are able to expand to international markets to sell a great product. This raises the standard of living. Free trade has numerous benefits.
The term “trade balance” refers to the net amount of the imports or exports of a country. Importing more than is being exported creates a trade deficit. Contrary to the ideas of mercantilism, sustainable trade deficits can actually be beneficial to the economy. Trade surpluses occur when a country exports more than it imports. In order to promote prosperity, countries should not try to regulate their trade balances. Free enterprise will always result in the most beneficial trade balance over the long-term.
However, there are countries that attempt to regulate trade to create a trade surplus. Those countries use three mechanisms to achieve that: tariffs, quotas, and embargoes. Tariffs are taxes on imports, thus raising their price. Quotas state a legal limit on the quantity of imports for a certain good or service. Embargoes are bans on the importation of all goods and services from some country. All trade restrictions prevent the lowest-cost producers from producing. This increases the cost of everything, thus lowering the standard of living. International trade is best left untouched by governments.
Free enterprise entails free trade as free trade is simply an extension to the freedom of exchange. Free trade improves the standard of living for everybody involved. Free trade lowers costs, increases income, and overall produces wealth for the globe.