Difference between Free Trade and Fair Trade

The voluntary exchange of goods and services between economic actors is known as trade. Free trade and Fairtrade are different kinds of trade with notable differences, although both these trades aim to increase wealth globally.

What is Free Trade?

Free trade, also known as laissez-faire, is a policy where the government does not discriminate against imports or interfere with exports by applying tariffs or subsidies. Here goods and services can be bought and sold between countries or other sub-national regions without tariffs or restrictions.

One example of free trade is the agreement between the United States, Mexico, and Canada, known as the North American Free Trade Agreement (NAFTA).

What is Fair Trade?

Fairtrade is designed to help growing countries' producers achieve sustainable and equitable trade relationships. It is a system of certification that aims to ensure a set of standards are met in the production and supply of products. It involves ensuring the workers behind the production of these goods and services are treated fairly and that human rights are maintained throughout.

Difference between Free Trade and Fair Trade

The following table highlights the major differences between Free Trade and Fair Trade −

Free Trade
Fair Trade
The main goal of free trade is to increase the nation’s economic growth.
The main goal of fair trade is to improve people’s lives and empower marginalized groups of people in the communities.
Trade regulations
Free trade has few regulations for exchanging goods and services across borders. Most of the time, free trade between countries has no subsidies, tariffs, or regulations.
Fairtrade has regulations to ensure that the key players are not being taken advantage of.
Economic theory
Free trade provides the least amount of overhead costs in production. Hence, the product price will be lower, which the government does not regulate.
In the case of fair trade, the prices of goods and services are higher since it includes the additional cost of honest labor who work under strict rules.
It mainly focuses on trade policies among other countries.
It mainly focuses on trade policies among individuals and businesses.
Major players
It involves bilateral talks between the countries, so the government is more involved.
It involves small-scale business traders and other communities.
It mainly benefits businesses in the import and export industry.
It mainly benefits small-scale business owners in communities with limited social and economic ability.
Here it creates a change through market and government policies.
Here it creates a change through community development or improvement.


We can see that Fair trade is better than Free trade because fair exchange aims to produce a product without exploiting both labor and the environment. However, free work aims at generating more profit regardless of the process of production. A flourishing economy can ideally be achieved through free trade and fair trade.