Instituting Trade in the Long Nineteenth Century
Chapter 1: Tariffs and Modern Political Institutions: An Introduction
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...