Laissez-Faire policy advocates for completely free trade without government intervention. Examples include the China-ASEAN free trade agreement and NAFTA, which have increased trade volumes and eliminated tariffs. Specialization based on competitive advantages promotes interdependence and trade.
The different types of Laissez-Faire policy revolve around the concept of completely free trade, where business interests are allowed to buy and sell goods across borders without any government intervention to control supply and demand and manipulate prices through taxes, tariffs or other types of control mechanisms. While the Laissez-Faire policy originated in 17th-century France, when the merchant class asked the French state to stay out of their business, free trade was practiced more in ancient times than in recent centuries. As government records of the flow of imports and exports become more precise, Laissez-Faire policy becomes a matter of degrees. Free trade as of 2011 often simply means a reduction of tariffs, taxes and restrictions rather than their complete elimination.
A good example of a Laissez-Faire policy is the one that was formed in 2010 between China and the Association of Southeast Asian Nations (ASEAN). Negotiations to reduce trade barriers had been ongoing since 2003 between the economic systems of all the nations involved, which at the time comprise nearly one-third of the Earth’s population and a combined economy under the $6,000 free trade agreement .000.000 US Dollars (USD) . As a result of the deal, tariffs on all goods crossing the border with China averaged 1% since 2011, and tariffs on goods exported from China to its ASEAN partners averaged 1%. .6%. The results of cost-cutting cross-border trade have increased the volume of trade by 44% in 2010 alone between China and its ASEAN partners, and some products such as cosmetics traded between China and the Philippines have seen dramatic reductions in tariffs from a level previous 60% up to 5% in the same year. Even small ASEAN member countries like Vietnam have seen dramatic increases in the flow of goods across borders attributed directly to a reduction in import and export taxes.
Other examples of Laissez-Faire policy involve harmonizing import and export regulations for the benefit of nations with widely differing needs. Economic efficiency involves adjusting trade to allow nations to produce those goods or services for which they have a competitive advantage. Nations near the equator, for example, have the best climates for growing tropical fruits and year-round agricultural crops, and nations with highly educated populations are more ideal for manufacturing end products like consumer electronics. . As countries increasingly specialize based on their unique competitive advantages, they become more interdependent on each other and this promotes trade, which is best facilitated by the Laissez-Faire policy.
The North American Free Trade Agreement (NAFTA) made in 1994 between the United States, Mexico and Canada was an attempt to harmonize the economies of these three different nations. It eliminated tariffs and limits on the quantity of a certain amount of particular products that could be imported or exported and removed all trade restrictions starting in 2008. By removing these barriers, trade between the three nations has increased by 190% since 1993 , the year before the agreement, through 2010. This kind of unfettered implementation of the Laissez-Faire policy created the largest free trade region in the world by trade value, with $17,000,000,000 in goods and services traded annually between NAFTA partners since 2011.
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