To Trade or Not to Trade

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A free trade policy is one in which there is minimal or no government influence on the import and export of goods and services. Free trade agreements are deals entered into between multiple nations to reduce impediments and barriers on imports and exports between them.[1] Under these agreements commerce in goods and services can occur with reduced or no tariffs, quotas, or other inhibitions.[2] The concept of free trade which these agreements is the opposite of trade protectionism, under which countries work to protect their interests with tariffs.[3]

This discussion as to the effectiveness of free trade agreements is especially relevant as the Trump administration has made clear their intention to renegotiate such agreements and have started imposing high tariffs on various countries including Canada, Mexico, China, Colombia and “reciprocal” tariffs on all nations.[4]

President Trump argues that the revenue generated by tariffs could help balance the budget.[5] However, others argue that tariffs “would actually lose revenue because of the contractionary consequences of such high tariffs.”[6]

Currently, the United States has 14 free trade agreements with 20 countries.[7] A free trade agreement ensures minimal trade obstacles between countries and is the ideological opposite of tariff imposition, an exploration of their effectiveness could shed light on the current controversy surrounding tariffs.

Proponents of free trade policies argue that such policies allow consumers to access goods at the cheapest prices. Connecting consumers to world markets allows citizens of countries with high labor costs to take advantage of lower labor costs in other countries; this arrangement can also benefit those countries with cheaper labor costs which are typically still developing and in need of foreign capital.[8] Other advantages include stimulated economic growth, increases in foreign investment, a reduction in government spending caused by government subsidies of businesses which lose income due to export quotas.[9]

Opponents of the policy argue that it disadvantages local businesses by placing them in competition with foreign exports which leads to domestic unemployment and business failures.[10] Furthermore, it can cause companies to relocate to jurisdictions with fewer regulations, causing environmental damage, abusive labor practices, and other forms of harm that regulations seek to prevent.[11] Additionally, it can cause countries to overly on the global market for key goods, disadvantaging them in emergency situations or in situations where markets produce goods critical to national security.[12]

According to the Federal Reserve Bank of Saint Louis, in the United States, economists support free-trade policies at far higher rates than the general public.[13] Seemingly, this difference is caused by the theoretical benefits of free trade which economists perceive, and the real-life consequences of such policies that the general public feels.

Examples of free trade agreements include the United States – Mexico – Canada Agreement (USMCA).[14]Under the USMCA, over 500 million consumers across three nations were combined into a shared, lightly trade-regulated market.[15] It also grew the total merchandise trade between the United States and Mexico & Canada to over $1 trillion in 2021.[16] Imports from the United States to Mexico have tripled since 1993 and increased more than any other country since 2007.[17]

Another concrete way to determine the affects of free trade agreements, is by examining the result of the United Kingdom leaving the European Union and their trade arrangement. According to the BBC, the impact leaving the EU single market and customs union has had on U.K. trade exports is negative,[18] and this is in spite of another free trade deal with the between the U.K. and EU which avoided significant tariffs and taxes being imposed on imports and exports of goods.[19]

As recent weeks have shown, the imposition of tariffs can have disastrous effects on a country’s economy. The wiping out of trillions of dollars of U.S. wealth to generate $100B of revenue in a best-case scenario, seems to provide clear evidence that tariffs are actually quite harmful.[20] and it can be inferred from this that free trade agreements would have the opposite effect. Proof of this exists in the surges the stock markets have seen in recent weeks whenever the Trump administration makes statements implying their goals are free trade.[21] Whenever markets think tariffs are going away, they expect the economy to improve.

In conclusion, it seems clear that free trade agreements are in fact effective means of stimulating economies, an efficient practice in the production of goods, and a great way of ensuring ties between nations.

Joseph Mizrahi is a Staff Editor at CICLR.

[1] Gordon Scott & Yarilet Perez, Free Trade Agreement (FTA): Definition, How It Works, and Example, Investopedia , https://www.investopedia.com/terms/f/free-trade.asp [https://perma.cc/7SGL-GDRD].

[2] Id.

[3] Id.

[4] Shawn Donnan, Trump’s Growing Focus on Tariff Revenue Raises Trade War Odds, Bloomberg https://www.bloomberg.com/news/articles/2025-02-21/trump-s-growing-focus-on-tariff-revenue-raises-trade-war-odds [https://perma.cc/66YF-69U2].

[5] Donald J. Trump, Truth Social (Feb. 20, 2025 at 9:16 A.M.), https://truthsocial.com/@realDonaldTrump/posts/114036638899167319[https://perma.cc/TLB5-YPG5].

[6] Donnan supra note 4.

[7] U.S. Comprehensive Free Trade Agreements and Other Trade Agreements, U.S. Customs and Border Protection, https://www.cbp.gov/trade/priority-issues/trade-agreements/free-trade-agreements [https://perma.cc/9RHY-CU43].

[8] Scott & Perez, supra note 1.

[9] Robert Longley, What Is Free Trade? Definition, Theories, Pros, and Cons, ThoughtCo (Dec. 5, 2018) https://www.thoughtco.com/free-trade-definition-theories-4571024 [https://perma.cc/65J6-B89Q].

[10] Scott & Perez, supra note 1.

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] Rylee Cheney, The Economic Impacts of the United States-Mexico-Canada Agreement, Pol’y Rev Berkely (Jan. 6, 2024) https://www.ocf.berkeley.edu/~prb/the-economic-impacts-of-the-united-states-mexico-canada-agreement/ [https://perma.cc/WP2W-F9H4].

[16] Id.

[17] Id.

[18] Studies show UK goods exports are between 6% and 30% lower than if the UK remained in the single market and customs union. See Ben Chu & Tamara Kovacevic, Five Key Impacts Of Brexit Five Years On (Jan. 30, 2025) Brit. Broad. Co., https://www.bbc.com/news/articles/cdrynjz1glpo [https://perma.cc/4WMR-R8S2].

[19] Id.

[20] Josh Boak, Stocks Surge After Trump Reverses Most Tariffs but Hikes China’s Rate, Time (Apr. 9 2025) https://time.com/7276107/trump-tariff-pause/ [https://perma.cc/SQV2-RHN8].

[21] Id.