Difference Between Free Trade and Free Market

Free Trade vs Free Market
 

Free markets and free trade are terms that are widely used in the modern concepts of economics. Free trade and free markets are generally perceived as beneficial to economies, to promote efficiency, improve innovation, and encourage healthy competition. There are, however, quite a number of differences between the two; in that free markets are generally concerned with the conditions within a domestic market, whereas free trade is concerned with the international trade among countries. The article provides clear explanations of the two terms and shows how they are similar and different to each other.

What is Free Trade?

Free trade is a market mechanism in which goods/services, labor, capital, and other factors of production can move freely between countries without any trade barriers. Countries have come together to form free trade agreements to facilitate free trade among member countries; such as the NAFTA (North American Free Trade Agreement) between Canada, Mexico and USA. Free trade will eliminate all kinds of trade barriers such as tariffs, quotas, taxes, embargos, and promotes tax holidays, subsidies, and other forms of support to encourage domestic production and promote free trade between countries. Free trade is beneficial to the country’s economies, industries as well as consumers. Free trade will provide the producers a bigger market place to sell their products in, and will promote healthy competition that will result in the improvement, in the quality of goods and services provided. Competition will also result in lower prices and more innovation which will also benefit consumers that can now purchase better quality goods at a lower price.

What is Free Market?

A free market is an economy based on the forces of demand and supply without any government intervention. The prices of goods and services and their costs are completely determined by the supply and demand for that product. In a free market, buyers and sellers can freely buy and sell goods and services without any external influences that arise from regulation, price controls, taxes, or subsidies. The most important feature of a free market is ‘voluntary exchange’. This means that there are no external influences or persuasion to the decisions made by individuals in such an economy. Another feature of a free market is that most of the factors of production are held by individuals and private corporations instead of the government. However, in reality there are very few free markets as there is always some form of government intervention used. Benefits of free markets are that such a market emphasizes individual liberty and freedom of choice to utilize their resources, funds or even skills in any manner that they please, which can result in economies that produce and sell a wider range of goods and services.

What is the difference between Free Trade and Free Market?

Free market and free trade are concepts that are related to one another and they both promote economic freedom for buyers and sellers. However, there are a number of differences between the two. A free market is a domestic market in which there is no government intervention and all prices, costs, decisions are based on market forces and voluntary exchange. Free trade, on the other hand, takes into consideration the international trade among countries; in which there is very little trade barriers and usually set up free trade agreements. The purpose of free markets is to reduce external influences on prices, costs, consumer decisions, and individual/corporate freedom of choice, whereas the purpose of free trade is to promote international trade among countries.

Summary:

Free Trade vs Free Market

• Free market and free trade are concepts that are related to one another and they both promote economic freedom for buyers and sellers.

• A free market is a domestic market in which there is no government intervention and all prices, costs, decisions are based on market forces of demand and supply, and voluntary exchange.

• Free trade will eliminate all kinds of trade barriers such as tariffs, quotas, taxes, embargos, and promotes tax holidays, subsidies and other forms of support to encourage domestic production and promote free trade between countries.

• The purpose of free markets is to reduce external influences on prices, costs, consumer decisions, and individual/corporate freedom of choice, whereas the purpose of free trade is to promote international trade among countries.