Free Trade vs. Fair Trade

I’m no expert in economics by any stretch of the term. I can’t even say I really know that much. I mean, I only know the absolute basics. I’ve recently learned about Fair trade within this past year, and I continue to learn about such an expansive topic. Lately, I’ve been noticing how often people confuse fair trade and free trade, which brings me to the point of this post.  Clearly, I have a bias in writing this, but there are definitive differences between the two.

Free trade refers to trade with minimal barriers in exchange between countries. The idea behind free trade is that underprivileged nations will benefit by diminishing the interference that things such as tariffs and quotas have on trade. The goal is to encourage trading among nations, especially with countries that specialize in producing certain goods. In theory, this idea sounds ideal, right? It depends on who you ask.

Free trade is closely related to what people refer to when talking about economics, as ‘The Invisible Hand.’ Whatever imbalance occurs will eventually be balanced, in terms of allowing free trade. The problem with free trade is that it introduces competition. And competition is fine… between nations who are actually able to compete with each other. But what about those in disadvantaged countries? This only serves to increase the gap between the wealthier nations and the poorer nations. For example, take a nation that produces goods such as electronics as opposed to a nation that primarily produces goods that are a source of food. Generally speaking, the nations that are able to produce goods like electronics are larger and wealthier than those countries that mainly export products such as food. Here the smaller nation will become more dependent upon the larger nation and this is often times where groups who produce goods are exploited by companies, usually by unfair wages or working conditions.

Here’s where fair trade comes into play. Fair trade is concerned with the dignity of the human person and alleviating poverty, which, I feel is incredibly more effective, and much more important. Free trade tends to be more beneficial for those countries that are already prosperous or wealthy and tends to cause the countries of lesser wealth to become more dependent upon those of greater wealth. Fair trade, on the other hand, works to create opportunities for producers from these underprivileged nations and focuses on establishing partnerships that help with the development of the nation. By providing these opportunities, it helps the producers (and consequently, the nations) become more self- sufficient, with a more open access to market and a greater capacity to produce more goods. A large part of this is because of just compensation of a fair price and a guarantee of payment for work that has already been done. Trade does not occur at the expense of these production groups, fair trade focuses on maximizing profits for these groups, not at their expense. The payment and guarantee of a just price to these production groups enables fair trade to continue.

Both free trade and fair trade are concerned with equality in terms of trading, but both have different ways of attempting to achieve such a thing. Free trade is more laidback, allowing the “Invisible Hand” to take of things concerning trade. Fair trade is proactively focused on socially conscious consumerism, with emphasis on human dignity, equality, and the environment, and as Fair Trade USA puts it, teaching disadvantaged production groups on how to use the free market to their advantage.  These people in these under privileged nations want to work. Fair trade is not synonymous with charity, despite what some people may think. It’s affording them a means to keep producing and working, in fair conditions.

Would you stand for working without just compensation?

Websites for more information on the differences between Free Trade and Fair Trade:

Global Envision

World Fair Trade Organization (WFTO)