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The Importance of NAFTA and Free Trade to Texas

Background: Free Trade in Theory and Practice

Free trade between nations is one of the foundational concepts of modern economics. In the 19th century, British economist David Ricardo demonstrated in the clearest possible terms how unfettered trade between nations benefits both countries:

Ricardo demonstrated that for two nations without input factor mobility, specialization and trade could result in increased total output and lower costs than if each nation tried to produce in isolation. Since Ricardo’s exposition, the distinction between absolute and comparative advantage has been taught as one of the field’s most brilliant insights. Nations will export not only what they have an absolute advantage in producing, but also what they have a comparative cost edge in producing.

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