What Are Free Trade and Fair Trade?

Globe in hand

Knowing what free trade and fair trade are can help the consumer make an informed decision when shopping for products. While many environmental and social leaders support fair trade principles, most products sold in the United States and other first world countries are the result of a system that more closely resembles free trade principles.

Basics of Free Trade

Free trade relies on the idea that regulation at its essence harms the participants of trade. Proponents of free trade insist that the market will protect both the producer and consumer of goods and services without government regulations, taxes or restrictions. Supporters of free trade are often supporters of capitalism. They also seek to reap the benefits of globalization as a means to achieve a truly borderless means of trading.

Principles of Free Trade

Free trade is an economic principle that encourages the deregulation of trade relationships between countries. Supporters of free trade believe that the market will fairly govern prices and protect the interests of all involved.

  • Free trade encourages trading without tariffs, taxes, quotas, or subsidies for goods and services.
  • Access to markets and market information without limitation or restriction is also an important tenant of free trade.
  • Preventing the distortion of markets using government imposed regulations is also a principle of free trade.
  • Free trade also encourages allowing workers and capital to move between countries without restrictions.

The Basics of Fair Trade

Fair trade is formally defined by four international fair trade organizations, under the association called FINE. These organizations set agreed upon standards for products to be sold under the fair trade label. At its essence, fair trade seeks to eliminate the inequalities between third world and first world countries, allowing both parties to achieve an equal benefit through the trade. It also seeks to eliminate the depletion of non renewable resources and encourages the use of renewable natural resources.

Principles of Fair Trade

Fair trade was established as a means to promote certain basic international principles that would help bridge the gap between third world and first world countries.

  • Fair trade safeguards natural resources by taking into account all production costs and paying for these costs.
  • Encouraging sustainable production by making sure that workers can earn a living wage and meet essential needs is also an important part of fair trade.
  • Fair trade seeks to educate consumers about the implications of their purchasing decisions and encourage them to advocate for developing countries.
  • Empowering people that produce products to advance their living conditions through government and knowledge of the markets is also a stated goal of fair trade organizations.

What Do Free Trade and Fair Trade Mean to Consumers

In general, most environmental and social organizations support fair trade over free trade. They see fair trade as a means to protect the environment in developing countries by preventing the selling and depleting of natural resources at the hands of the highest bidder. For this reason, fair trade products are often more expensive than their free trade counterparts. Some products, such as coffee, are readily available from fair trade sources in most supermarkets. Other products may be difficult to buy from fair trade sources without research or visiting a specialty store.

Final Considerations

Learning about free trade and fair trade is just the first step in advocating for developing countries using consumer buying power. The next step is, of course, to start taking this information into account when purchasing products. While most manufacturers will advertise fair trade status on their labels, larger purchases may merit some research before making purchases. There are also many arguments for free trade over fair trade policies, so be sure to read about these issues before making purchasing policies for your own home

What Are Free Trade and Fair Trade?