Free Trade works only when countries are equal trading partners.
An example of free trade working is this:
- Country #1 produces WidgetA at a cost of $1.00 and WidgetB at a cost of $3.00.
- Country #2 produces WidgetA at a cost of $3.00 and WidgetB at a cost of $1.00.
- By specializing in production and trading both countries enjoy more WidgetAA and more WidgetBs and at a lower cost.
An example of Free trade not working is this:
- Country #1 produces WidgetA And WidgetB.
- Country #2 produces neither, but has abundant excess labor.
- By Trading, Country #2 produces both WidgetA and WidgetB cheaper than Country #1 did.
- To make matters worse Country #2 doesn't buy any products from Country #1 with the proceeds of Widgets they sold to Country #1.
- Instead Country #2 use the proceeds to buy the manufacturing firms that manufacture other widgets in Country #1 and dismantle them and move them Country #2.
- Country #1 gets cheap widgets initially but soon has high unemployment and no money to buy widgets from country #2.