Free Trade versus Protectionism

Abstract

Foreign (or international) trade has been an important part of countries’ economies and their economic policies since the period of mercantilism. Section 1 outlines the principal features of mercantilism, particularly those relating to foreign trade, and the opposing arguments it engendered in favour of free trade or protectionism. Section 2 focuses on the Corn Laws that prevented free trade in wheat and other grains in Britain in the early nineteenth century, and describes their eventual repeal. Section 3 examines the welfare implications of free trade according to the classical and neoclassical schools of thought. Section 4 considers monopoly power in trade and the protectionist policy that it inspires. Section 5 evaluates the infant industry argument for protection. Section 6 highlights the role of non-economic objectives and the way they can modify the choice between free trade and protectionism. Section 7 examines the debate between the advocates of unilateralism and reciprocity in trade liberalization and the role of the General Agreement on Tariffs and Trade after World War Two (until it was superseded by the World Trade Organization in 1995). Section 8 concludes.