Free Trade and Protectionism
ENCYCLOPEDIA OF POLITICAL ECONOMY, Phillip O'Hara, ed., Routledge Publishing, pp. 372-375, 2000
Posted: 22 Jan 2010
Date Written: 2000
Most economists support free trade as the policy which is most conducive to maximizing the economic welfare of a given society. It is argued that free trade allows different economies to take advantage of comparative advantages by the exchange of commodities. However, mainstream economic theory does not rule out protectionism as a welfare maximizing policy option under certain economic conditions. Whether or not a particular economy warrants protection depends on whether it will maximize the economic welfare of its populace. Historically, most economies developed while significant tariffs were in place and high tariffs tended to coincide with relatively high rates of per capita GDP growth. However, after the signing of the General Agreement on Tariffs and Trade, per capita growth was at an all time high while tariffs were at a historically low level. The main argument for protectionism is that of infant industry; industries in newly developing countries can only effectively compete with those already developed if they receive some initial protection from the government in form of tariffs or subsidies. Unfortunately the introduction of such measure can give rise to a beggar-thy-neighbor cycle, whereby trading partners of the nation imposing tariffs retaliate with a tariff on imports. Choosing or rejecting protectionism should be an empirical, not an ideological, question; informed by economic theory and economic history.
Keywords: Free trade, Welfare, Comparative advantage, Commodities, Protectionism, Tariffs, GDP, Growth
JEL Classification: F13, O24
Suggested Citation: Suggested Citation