World Trade October 1996, U.K. Globalisation and Free Trade Contrary to the hopes of the 'small is beautiful' environmentalists, capitalism is becoming increasingly globalised, with attempts to regulate world trade being brushed aside. The 'Benefits' of Free Trade Environmentalists have often joined the anti-free trade lobby, pointing to the current global trading system as a cause of many social and environmental problems. If we compare the world trading system now to fifty years ago it has certainly been 'liberalised' in many areas, with the removal of many trade barriers.
Free trade is the exchange of goods at their free market price, in the absence of distortions.
Protectionism often has an associated cost for the nation that adopts it, given that its trading partners will be likely to introduce their own protectionist measures in retaliation. While protectionism might favour the short term interest of a state, it raises the possibility of retaliation and hence a trade war. Such a trade war obviously reduces the amount of trade between nations which can damage the interests of all the nations involved. The theory of the benefits of trade was founded upon Ricardo's theory of 'comparative advantage'. Ricardo's theory is supported by empirical evidence.