International Trade and Political Institutions

International Trade and Political Institutions

Instituting Trade in the Long Nineteenth Century

Fiona McGillivay, Iain McLean, Robert Pahre and Cheryl Schonhardt-Bailey

International Trade and Political Institutions broadens the public choice theory of trade politics to allow for the study of ideas and institutions within a longer time horizon. The authors use theoretically rigorous historical analysis of international political economy and four important case studies to help untangle the role of ideology, institutions and interests. This illuminating book connects the fields of economics, political economy and history to shed new light on trade theory.

Chapter 1: Tariffs and Modern Political Institutions: An Introduction

Fiona McGillivay, Iain McLean, Robert Pahre and Cheryl Schonhardt-Bailey

Subjects: politics and public policy, international politics

Extract

1. Tariffs and modern political institutions: an introduction THE POLITICAL ECONOMY APPROACH TO TRADE POLICY It is widely accepted that politics plays an important role in determining international trade policy. Pinning down why, and how, politics matters is more difficult. Economic theory tells us that any two individuals can make themselves better off by engaging in trade. Even though one individual might be absolutely better than the other at making a variety of goods, if they both focus their efforts on those goods that they are relatively better at making, and then engage in trade, they are both better off. This simple interaction needs no monitoring, coordination or enforcement by the state. Prices are determined by the market, itself affected by assets, technology and the desires of individuals. Parallel arguments have suggested since the 1700s that nations benefit from trade in much the same way as individuals (Irwin, 1996). If nations specialize in those goods that they are relatively better at making, and exchange these for goods that they produce less well, then all nations will have more of the goods they desire. Despite these benefits of trade, the politics of free trade are fraught with controversy. Historically, few nations have wholeheartedly adopted free trade policies. Most nations today maintain some protectionist policies, including tariffs, import quotas and indirect barriers such as regulatory restrictions or subsidy assistance. When nations do engage in free trade, they typically ‘manage’ it through international institutions and multilateral...