Economists and politicians alike debate the relative merits of free trade and fair trade. Although both concepts refer to a comprehensive approach to commercial activity, people who favor one approach over the other are often guided by ideological concerns that affect the political regulation of trade activity. Free trade and fair trade address the same subject but from very different perspectives.
Proponents of free trade emphasize the reduction in barriers between countries and the elimination of preferential policies that favor countries or specific industries. Free traders believe that a business should succeed or fail based on its ability to respond to the free and open market, without needing special governmental protections to protect the industry or its workers. Many free trade advocates advocate for the elimination of tariffs and subsidies, and oppose regulations that force companies to pay extra for doing business in foreign markets.
Fair trade advocates focus on the wages and working conditions of labor in developing markets. For example, a fair trade activist will fight to increase the wage rates of workers and improve their working conditions, especially when a large multinational corporation chooses to pay pennies per hour for labor in one country instead of dozens of dollars per hour elsewhere. Fair traders suggest that companies and governments should regulate trade to ensure that workers receive a just level of compensation and a safe working environment.
"Fair trade" as a term is sometimes used to refer specifically to policies that provide a living wage to farmers for their crops, usually above market prices, because local and small-hold farmers often cannot compete on price with large-scale factory farms.
Almost no government takes a purely free trade or fair trade approach to its commercial policy. Instead, countries blend policies in various ways. For example, the United States, Mexico and Canada are members of the North American Free Trade Agreement, which slashed protectionist barriers among the three countries. However, the U.S. also supports certain fair trade policies. For example, the U.S. Trade Representative works with the United Nations to provide preferential access to business resources to women and minorities in markets around the world.
Free trade advocates are usually conservative or libertarian; their support for smaller government and less regulation, in general, leads them to be skeptical of government programs to redistribute wealth or income. Fair trade advocates, by contrast, tend toward a communitarian outlook that favors equality of outcome, and they are more willing to embrace government action to improve people's quality of life. These differences in political outlook often make trade policy a matter of considerable debate within national legislatures.
In general, economists recognize that free trade provides the least amount of overhead during the production of goods and services, so a free trade economist will emphasize the lower end-price for consumers that results from trade policies that do not have government-mandated price minimums. However, some economists believe that fair trade policies help to add more consumers to an economy and that the additional price for "fair" labor is outweighed by the net economic benefit that comes from adding more consumers with disposable wages into the marketplace.
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