Page 209 - Global Political Economy_Understanding The International Economic Order

CHAPTER EIGHT
The Trading System

CONOMISTS OF every persuasion are convinced that free trade is
1
E superior to trade protection. In fact, they consider free trade to
be the best policy for a country even if all other countries should
practice trade protection, arguing that ifother countries resort to
trade protection, the economy that remained open would still gain
more from cheaper imports than it would lose in denied export mar-
kets. Despite this powerful inclination within the economics profes-
sion to favor free trade and open markets, trade protection has never
totally disappeared; and indeed, during the past two centuries, re-
stricted trade has been a pervasive feature of the world economy.
As economic historian Paul Bairoch has pointed out, free trade has
2
historically been the exception and protectionism the rule. Although
nations want to take advantage of foreign markets, they are fre-
quently unwilling to open their own economies. Nations and domes-
tic interests alike fear a world in which market forces rule and relative
prices determine the patterns and distribution ofthe gains from trade.
Throughout modern history, trade has been regarded either as an in-
ternational public good from which everyone benefits or a battle-
3
ground in which there are winners and losers. Even though the argu-
ment for free trade is powerful, trade protectionism continuously
resurfaces in new guises. 4
The classic era of free trade and international laissez-faire lasted
less than three decades, from the repeal of the Corn Laws (1846) to
approximately the 1870s, when protectionist tariffs increased. From
the latter decades ofthe nineteenth century to the years immediately

1
This chapter draws from Chapter 3 of my book, The Challenge of Global Capital-
ism: The World Economy in the 21st Century (Princeton: Princeton University Press,
2000).
2
Paul Bairoch, Economics and World History: Myths and Paradoxes (New York:
Harvester Wheatsheaf, 1993), 16.
3
John Dunn quoted in Vincent Cable, “The Diminished Nation-State: A Study in
the Loss ofEconomic Power,” in What Future for the State? Daedalus 124, no. 2
(spring 1995): 25.
4
A valuable history ofthe debate over free trade is Douglas A. Irwin, Against the
Tide: An Intellectual History of Free Trade (Princeton: Princeton University Press,
1996).
196