Free trade
States can unilaterally reduce regulations and duties on imports and exports, as well as form bilateral and multilateral free trade agreements.
Most governments still impose some protectionist policies that are intended to support local employment, such as applying tariffs to imports or subsidies to exports.
[15] However, in the short run, liberalization of trade can cause unequally distributed losses and the economic dislocation of workers in import-competing sectors.
[10][16][17] Two simple ways to understand the proposed benefits of free trade are through David Ricardo's theory of comparative advantage and by analyzing the impact of a tariff or import quota.
[18] A 2021 study found that across 151 countries over the period 1963–2014, "tariff increases are associated with persistent, economically and statistically significant declines in domestic output and productivity, as well as higher unemployment and inequality, real exchange rate appreciation, and insignificant changes to the trade balance.
[25][26] A 2023 study in Journal of Political Economy found that reductions in trade costs since 1980 caused increases in agricultural productivity, food consumption and welfare across the world.
[28][29] In a 2006 survey of American economists (83 responders), "87.5% agree that the U.S. should eliminate remaining tariffs and other barriers to trade" and "90.1% disagree with the suggestion that the U.S. should restrict employers from outsourcing work to foreign countries".
[31] In a survey of leading economists, none disagreed with the notion that "freer trade improves productive efficiency and offers consumers better choices, and in the long run these gains are much larger than any effects on employment".
There is a positive relationship of 0.66 between the average GDP growth rate for the years 2014 to 2017 and the percentage of people in a given country that say trade increases wages.
[36] The notion of a free trade system encompassing multiple sovereign states originated in a rudimentary form in 16th century Imperial Spain.
[38] However, it was two early British economists Adam Smith and David Ricardo who later developed the idea of free trade into its modern and recognizable form.
For example, Smith pointed to increased trading as being the reason for the flourishing of not just Mediterranean cultures such as Egypt, Greece and Rome, but also of Bengal (East India) and China.
Until the 1760s, few colonists openly advocated for free trade, in part because regulations were not strictly enforced (New England was famous for smuggling), but also because colonial merchants did not want to compete with foreign goods and shipping.
[42] In March 1801, the Pope Pius VII ordered some liberalization of trade to face the economic crisis in the Papal States with the motu proprio Le più colte.
[45] A review by the Economist of Irwin's 2017 book Clashing over Commerce: A History of US Trade Policy notes:[45] Political dynamics would lead people to see a link between tariffs and the economic cycle that was not there.
Mr Irwin also methodically debunks the idea that protectionism made America a great industrial power, a notion believed by some to offer lessons for developing countries today.
But American growth during its protectionist period was more to do with its abundant resources and openness to people and ideas.According to Paul Bairoch, since the end of the 18th century, the United States has been "the homeland and bastion of modern protectionism".
[48]During the interwar period, economic protectionism took hold in the United States, most famously in the form of the Smoot–Hawley Tariff Act which is credited by economists with the prolonging and worldwide propagation of the Great Depression.
The United States maintained weighted average tariffs on manufactured products of approximately 40–50% up until the 1950s, augmented by the natural protectionism of high transportation costs in the 19th century.
As of 2016, the top 30 countries and areas were the following:[61] Academics, governments and interest groups debate the relative costs, benefits and beneficiaries of free trade.
Domestic industries often oppose free trade on the grounds that lower prices for imported goods would reduce their profits and market share.
[70] Many anti-globalization groups oppose free trade based on their assertion that free-trade agreements generally do not increase the economic freedom of the poor or of the working class and frequently make them poorer.
For example, it is argued that it would be wrong to let subsidized corn from the United States into Mexico freely under NAFTA at prices well below production cost (dumping) because of its ruinous effects to Mexican farmers.
According to Correa, Chang showed that Treasury Secretary Alexander Hamilton (in office 1789–1795), rather than List, first presented a systematic argument defending industrial protectionism.
Protectionism involves tariffs to protect domestic goods and industry from international competition, and to raise government revenue in lieu of other forms of taxation.
In 1846, the United Kingdom abolished the Corn Laws (which had restricted import of grain), in response to the famine in Ireland and other domestic pressures over food prices.
The United States maintained weighted average tariffs on manufactured products of approximately 40–50% up until the 1950s, augmented by the natural protectionism of high transportation costs in the 19th century.
[58] The 2016 presidential election marked the beginning of the trend of returning to protectionism in the United States, an ideology incorporated into Republican president Donald Trump's platform and largely maintained by his successor Joe Biden.
[90]This statement uses the concept of absolute advantage to present an argument in opposition to mercantilism, the dominant view surrounding trade at the time which held that a country should aim to export more than it imports and thus amass wealth.
[94][95] Exceptionally, Henry George's 1886 book Protection or Free Trade was read out loud in full into the Congressional Record by five Democratic congressmen.
