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Free trade refers to the international exchange of goods, services, and capital without the imposition of excessive government restrictions or barriers such as tariffs, quotas, subsidies, or import/export licensing requirements. It is the unrestricted importing and exporting of goods and services between countries. It is a policy approach that advocates for minimal government intervention and emphasizes the principles of open markets and unrestricted competition. 

The fundamental idea behind free trade is that it benefits participating countries by allowing them to specialize in the production of goods and services in which they have a comparative advantage. This means that countries can focus on producing the goods and services they can produce most efficiently and at the lowest cost, while importing goods and services that other countries can produce more efficiently.

The opposite of free trade is protectionism, a highly-restrictive trade policy intended to eliminate competition from other countries. Today, most industrialized nations take part in hybrid free trade agreements (FTAs), negotiated multinational pacts which allow for, but regulate tariffs, quotas, and other trade restrictions.

Arguments in Favour of Free Trade

Proponents of free trade argue that open markets lead to global prosperity and efficiency. The key advantages include:

1. Economic Efficiency and Specialization

Free trade allows countries to specialize in producing goods and services in which they have a comparative advantage. This specialization leads to an optimum and efficient utilization of resources and, hence, economy in production. It enables countries to produce more output with the same amount of resources, leading to overall economic growth. Even when limited restrictions like tariffs are applied, all countries involved tend to realize greater economic growth.

2. Consumer Benefits and Prosperity

Free trade offers consumers access to a wider variety of goods and services at competitive prices. When trade restrictions are removed, consumers tend to see lower prices because more products imported from countries with lower labour costs become available at the local level. It enables each country to get commodities which it cannot produce at all or can only produce inefficiently. Free trade leads to higher production, higher consumption and higher all-round international prosperity.

3. Business Growth and Competitive Spirit

As there exists the possibility of intense foreign competition under free trade, domestic producers do not want to lose their grounds; competition enhances efficiency. It tends to prevent domestic monopolies and free the consumers from exploitation. When not faced with trade restrictions, foreign investors tend to pour money into local businesses helping them expand and compete.

4. Innovation and Technological Advancement

Free trade fosters innovation and technological advancement. When countries engage in international trade, they are exposed to new ideas, technologies, and practices from around the world. In addition to human expertise, domestic businesses gain access to the latest technologies developed by their multinational partners.

5. Geopolitical Stability and Poverty Reduction

Free trade encourages countries to engage in peaceful economic relationships. By fostering interdependence and mutual benefits, it provides an incentive for countries to cooperate and resolve conflicts through diplomatic means rather than resorting to trade wars or armed conflicts. Free trade has the potential to lift people out of poverty and promote economic development, particularly in developing countries.

Arguments Against Free Trade

Despite its advantages, critics argue that completely unrestricted trade can cause severe socio-economic and environmental disruptions. The primary arguments against free trade are:

1. Job Displacement and Inequality

Critics argue that free trade can lead to job losses and wage stagnation, particularly in industries that face competition from imports. Free of tariffs, products imported from foreign countries with lower wages cost less. While this may be seemingly good for consumers, it makes it hard for local companies to compete, forcing them to reduce their workforce. Indeed, one of the main objections to NAFTA was that it outsourced American jobs to Mexico.

2. Threats to Domestic Industries

Because of free trade, imported goods become available at a cheaper price. Thus, an unfair and cut-throat competition develops between domestic and foreign industries. Domestic industries may struggle to compete with foreign producers benefiting from lower labour or production costs, subsidies, or less stringent regulations. In the process, domestic industries are wiped out.

3. Exploitation and Poor Working Conditions

Free trade can result in the outsourcing of production to countries with lower labour standards and wages. Because it is partially dependent on a lack of government restrictions, women and children are often forced to work in factories doing heavy labour under gruelling working conditions. Critics contend that this can lead to exploitation of workers, poor working conditions, and a race to the bottom in terms of labour rights.

4. Disadvantages for Less Developed Countries (LDCs)

Free trade may be advantageous to the advanced countries but not to the backward economies. It has brought enough misery to the poor, less developed countries. Comparative cost principle states that a country specializes in the production of a few commodities. On the other hand, inefficient industries remain neglected. Thus, under free trade, an all-round development is ruled out.

5. Environmental Degradation and Intellectual Property Risks

Critics of free trade argue that it can lead to environmental degradation. Since many free trade opportunities involve the exporting of natural resources like lumber or iron ore, clear cutting of forests and un-reclaimed strip mining often destruct local environments. Without the protection of patent laws, companies often have their innovations and new technologies stolen, forcing them to compete with lower-priced domestically-made fake products.

6. Loss of Sovereignty and Overdependence

Some critics argue that free trade agreements, particularly those that include dispute settlement mechanisms, can undermine a country's sovereignty and limit its ability to enact regulations and policies in the interest of public health, environment, or social welfare. Free trade brings in the danger of dependence; a country may face economic depression if its international trading partner suffers from it. Because of free trade, even harmful commodities, such as drugs, enter the domestic market.