FREE TRADE

policy by which a government does not discriminate against imports or interfere with exports. It does not necessarily imply that a country abandons all control and taxation of imports and exports. The theoretical case for free trade is based on the argument of Adam Smith that the division of labour among countries leads to specialization, greater efficiency, and higher aggregate production. From the point of view of a single country there may be practical advantages in restriction, particularly if the country is the main buyer or seller of a commodity. In practice, however, the protection of local industries may prove advantageous only to a small minority of the population, and disadvantageous to the rest. Since World War II considerable efforts have been made to reduce tariff barriers and currency restrictions among nations. Other barriers, however, that may be equally effective in hindering trade include import quotas, taxes, and subsidies to domestic industries.