Free trade is the economic and sometimes diplomatic concept of allowing any country to buy goods from a different country without any additional fees or restrictions. Kids can learn a few facts which illustrate the basic concepts behind this issue, which they will hear a great deal about if they begin watching the news or reading newspapers early.
One fact kids can learn is the economic principle behind the notion of free trade, comparative advantage. This principle states that any given group of people or country will be able to produce some goods more efficiently that another group of people or country.
If everyone manufactures the products they can produce most efficiently and then trades another country for the goods it cannot produce as efficiently, the principle states that everyone will generate the most profit. This principle works across international borders, in that some countries will be more efficient at producing certain goods than other countries and the countries should trade these goods with each other.
Trade barriers create conditions for "unfair" trade. One of these trade barriers is the concept of a "Tariff," or a tax on a good entering a given county's market. If a country passes a tariff on a given product, the government collects a fee every time the product enters the country.
This makes the items more expensive, which reduces its ability to compete with similar domestically created products. Sometimes the passing of a tariff makes an item more expensive than a similar domestic product, when the government fee is included in the price.
A quota is another kind of trade barrier. Unlike a tariff, quotas are not taxes on goods entering a given country. Quotas specify a maximum amount of a foreign product that can enter a country in a given year. Once that quota is met, the country does not allow anymore of that product to enter the country. If a country sets a quota of ten tons of foreign steel for a given year, once a foreign country sells ten tons of steel in the country, it is not allowed to sell any more steel for the rest of the year.
Free Trade Agreements
Free trade agreements are treaties between different countries that agree to limit the number of trade barriers they put up regarding each other's products. These agreements allow products from each country to enter the trading country without the product being taxed by a tariff, or limited by a quota. One example is the North American Free Trade Agreement (NAFTA), which restricted trade barriers between Canada, the United States and Mexico.
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