He quotes N. Gregory Mankiw, professor of economics at Harvard: “The new theses find as much consensus among professional economists as open world trade increases economic growth and living standards.” [25] In a survey of leading economists, no one disagreed with the idea that “trade liberalization improves production efficiency and gives consumers a better choice, and in the long run, these gains are much greater than any impact on employment.” [26] Widespread mercantilism in Europe from the 16th to the 18th century often led to colonial expansion and wars. As a result, popularity declined rapidly. Today, as multinational organizations like the WTO strive to reduce tariffs around the world, free trade agreements and non-tariff trade restrictions are replacing mercantilist theory. This has three main effects on social well-being. Consumers are worse off because the excess consumption (green region) is decreasing. Producers are doing better because the producer`s surplus (yellow region) is growing. The government also has additional tax revenues (blue region). However, the loss to consumers is greater than the profits of producers and the government. The magnitude of this social loss is shown by the two pink triangles. The abolition of tariffs and free trade would be a net gain for society. [20] [21] Sometimes consumers are better off and producers are less well off, and sometimes consumers are worse off and producers are better off, but the imposition of trade restrictions results in a net loss to society because the losses from trade restrictions are greater than the gains from trade restrictions. Free trade creates winners and losers, but theory and empirical evidence show that the amount of profits from free trade is greater than losses.
[16] As of April 2001, the United States had anti-dumping or countervailing duties on approximately 265 items from 40 different countries, making it by far the largest user in the world, according to the International Trade Administration (ITA, part of the Department of Commerce). The European Union and its 15 countries had 154 tariffs last year, according to a July 2001 report by Brink Lindsey and Dan Ikenson of the Cato Institute, a free market think tank. One of the strangest aspects of anti-dumping is the ability of countries to turn a blind eye to obvious inconsistencies, even double standards. During the interwar period, economic protectionism prevailed in the United States, notably in the form of the Smoot-Hawley Tariff Act, to which economists attribute the prolongation and global spread of the Great Depression. [42]:33[43] Beginning in 1934, trade liberalization began with the Reciprocal Trade Agreements Act. Free trade can apply to trade in services and goods. Non-economic considerations can hinder free trade, as a country is generally in favour of free trade, but prohibits certain drugs (such as alcohol) or practices (such as prostitution)[51] and restricts international free trade. Free trade arrived at what would become the United States in the wake of the American Revolutionary War. After the British Parliament enacted the Prohibitory Act, which blocked colonial ports, the Continental Congress responded by declaring economic independence and opening American ports to foreign trade on April 6, 1776. According to historian John W. Tyler, “[t]he trade had been imposed on Americans, whether they liked it or not.” [35] The comparative advantage is that all countries will always benefit from cooperation and participation in free trade. The law of comparative advantage, commonly attributed to the English economist David Ricardo and his 1817 book “Principles of Political Economy and Taxation,” refers to a country`s ability to produce goods and provide services at a lower cost than other countries.
Comparative advantage shares many of the characteristics of globalization, the theory that global openness of trade will improve living standards in all countries. In Kicking Away the Ladder, development economist Ha-Joon Chang gives an overview of the history of free trade policy and economic growth, noting that many of today`s industrialized countries have had significant trade barriers throughout their history. The United States and Britain, sometimes considered the cradle of free trade policy, have always used protectionist policies to varying degrees. Britain abolished the Corn Laws, which in 1846 restricted grain imports in response to domestic pressures and did not reduce protectionism for factories until the mid-19th century, when its technological advance was at its peak, but tariffs on industrial products had fallen to 23% by 1950. The U.S. maintained weighted average tariffs on industrial products of about 40 to 50 percent until the 1950s, reinforced by the natural protectionism of high transportation costs in the 19th century. [54] The most consistent advocates of free trade were Switzerland, the Netherlands and, to a lesser extent, Belgium. [55] Chang describes the export-oriented industrialization policies of the four Asian Tiger states as “much more sophisticated and finely tuned than their historical counterparts.” [56] These conditions reflect the existing scenario and suggest the possibility that many other countries will join the anti-dumping club […].