Page 214 - Global Political Economy_Understanding The International Economic Order

THE TRADI NG SYS TEM
avoid political persecution. Strongly influenced by Alexander Hamil-
ton’s protectionist ideas, List argued in his National System of Politi-
cal Economy (1841) that every industrial nation has pursued and
should pursue protectionist policies in order to safeguard its infant
9
industries. List maintained that once their industries were strong
enough to withstand international competition, these countries low-
ered their trade barriers, proclaimed the virtues offree trade, and
then sought to get other countries to lower their barriers. Free trade,
List believed, was the policy ofthe strong. Ifone were to translate
List’s ideas into modern parlance, one would say that every successful
industrial power at some point in its history has carried out an activ-
ist industrial policy. 10
At the beginning ofthe twenty-first century, many trade protection-
ists advocate promotion through national industrial policies ofhigh-
tech and certain other favored sectors in order to build the nation’s
industrial strength and increase its competitiveness. They believe that
the state should guide and shape the overall industrial and technologi-
cal structure ofthe society through trade protection, industrial policy,
and other forms of government intervention. In addition to such high-
tech industries as computers and electronics, economic nationalists
also favor support for more traditional manufacturing industries such
as the automobile and other mass-production industries characterized
by high value-added and high wages. Although in its efforts to catch
up with the West, Japan has conspicuously and aggressively pursued
an industrial policy, industrial policies have also been employed by
the United States, Western Europe, and many developing economies
to promote industries believed important for national security and
economic development.
Economists have strongly disputed the alleged benefits oftrade pro-
11
tection. Trade protection, they point out, reduces both national and
international economic efficiency by preventing countries from ex-
porting those goods and services in which they have a comparative
advantage and from importing those goods and services in which they
lack comparative advantage. Protection also decreases the incentive
offirms to innovate and thus climb the technological ladder; it also
discourages shifting national resources to their most profitable use.

9
Friedrich List, The National System of Political Economy (New York: Longmans,
Green, 1928; first published in 1841).
10
Support for List’s position comes from Paul Bairoch, Economics and World His-
tory: Myths and Paradoxes, Chapter 4.
11
An outstanding critique ofprotectionist arguments for protection is W. Max Cor-
den, Trade Policy and Economic Welfare (Oxford: Clarendon Press, 1974).
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