chapter  3
COMMERCIAL POLICY I: TARIFFS AND THE THEORY OF PROTECTION
Pages 10

Free trade exists if imports are allowed to compete on equal terms with domestic suppliers without any device introduced by governments to try to distort the choice of purchasers. Domestic producers may very well enjoy some natural protection, because of transport costs (or, in the extreme, geography). For example, a restaurant in Singapore cannot compete on equal terms for my custom with one in York. A painter in Germany could tender to paint York University, but his travelling costs handicap him such that he cannot be said to compete on level terms with York painters. Economists recognise this but normally simplify their analysis to consideration of only two types of goods:

1. traded goods in which free trade could exist if governments permitted it, i.e. there are no transport costs, and

2. non-traded goods in which there could never be any foreign competition, let alone free trade, i.e. transport costs are prohibitive.