Fair Trade vs. Free Trade - What’s the Difference?
Terms such as “fair trade” and “free trade” are often used interchangeably, but they are different. It’s possible that one may fit your values better than the other. In short, the difference between fair trade and free trade is that the first focuses on equity in the global economy while the second wishes to remove trade restrictions.
Fair trade and free trade policies focus on commercial activity regulation, and they both seek to fix ongoing problems within the international and national economies. As consumers seek to create a greener and more equitable world, it’s crucial to understand the differences, similarities, and benefits of fair trade and free trade.
For the ethically-minded, curious, or confused, discover the basics of fair trade and free trade below.
Fair Trade Basics
Fair Trade can be summed up by its desire to empower producers so they can support themselves and their communities. Ideally, fair trade reduces human right violations, environmental issues, and trade market exploitation. When you purchase a product with a “fair trade” label, you vote with your dollar that these values are important to you.
Fair trade policies support these values and goals by working with local governments and companies to enhance working conditions and wages for marginalized people groups.
Fair Trade Benefits
- • Improved working conditions – companies prioritize workers’ health, decreasing safety issues such as harmful substances and providing safety equipment.
- • Better wages – global producers with a Fair Trade certification earn a minimum price for their goods and thus stay protected from market price fluctuations. This further grants them a chance for future planning and long-term stability.
- • No child labor – by offering fair wages to workers, fair trade helps lower the requirement of children in undeveloped nations to work in order to support their families.
Free Trade Basics
When it comes to Free Trade, the goal is to increase freedom within the international trade market by removing tariffs, regulations, and restrictions on the export and import of goods. Free trade advocates and policymakers cite the health of the overall economic growth of involved countries.
Free Trade Benefits
- • More efficiency – if consumers can easily access lower cost, top-quality imported goods, local businesses can develop more specialized goods and profit. Theoretically, this results in more efficiency and greater output.
- • Economic growth – with nations fulfilling their own needs, demand for local goods and services flourish. This leads to more exports, local jobs, and economic growth.
- • Lower prices – international competition implies that goods will be available for consumers to access at lower costs. This may ease inflation by providing consumers with more choices for less money.
The Differences Between Fair Trade and Free Trade
The economic theory and political ideology that separate Fair Trade and Free Trade bring different concerns to the table, seeking to fill demand according to their beliefs. While both seek to make the world a better place, they do it differently.
Economic Theory
Fair trade economists believe that fair trade policies bring more consumers to an economy by valuing human rights throughout industries. Much of their policy work depends on consumers with disposable incomes who desire to buy products that fit their values and are willing to pay more for fair labor. Economists believe the net economic benefit outweighs the negatives.
Free trade economy offers the minimum amount of overhead during the development of services and goods, which allows producers to meet demand faster. This also influences the final price of the product. Free trade economists push for lower prices, and this comes from trade policies with no government-mandated price minimums.
Political ideology
Most consumers make decisions based on their values, and fair trade and free trade advocates are the same. Generally, fair trade advocates believe in the benefits of increasing life quality for all human beings, and they seek that the government regulates trade in order to support human rights and liveable wages. On the other hand, free trade advocates want less government regulation to decrease overhead costs, meaning cheaper costs for consumers.
While both these policies may appear similar, fair trade and free trade are actually opposing forces. They often conflict in the policy-making room.
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