Neither Free Trade Nor Protection

Neither Free Trade Nor Protection

A Critical Political Economy of Trade Theory and Practice

Bill Dunn

This book challenges both sides of the debate around international trade. Most mainstream economists advocate free trade as a mainstay of national and global prosperity. Meanwhile, many critics see trade causing inequality and poverty. Unfortunately, supporters and opponents share many assumptions about trade and the character of the international economy and produce similarly abstract and asocialized theories. Their propositions need to be investigated critically, and in doing so, this book begins the task of assessing when and how trade matters.

Chapter 4: Market imperfections and state strategies

Bill Dunn

Subjects: economics and finance, political economy, politics and public policy, international politics, political economy


This chapter considers several perspectives that are critical of the dominant free trade narrative. They recognize that markets are imperfect and consider the consequences. There is no single, simple theory here, like comparative advantage, but a series of propositions about how trade is often an inelegant business, involving change over time and asymmetries of power and wealth. The chapter discusses three influential and in some respects overlapping schools of thought, before making some general criticisms. The next section discusses mercantilism, a longstanding and diverse tradition in favour of policy interventions in trade as part of broader strategies to build national economies. The section discusses the mercantilist tradition before Smith and the influential responses to classical political economy, coming particularly from Hamilton in the US and List in Germany. The second substantive section discusses ideas that poorer countries suffer structural disadvantages and deteriorating trading conditions. It begins with the theories of Singer (1950) and Prebisch (1950), considers other ideas of poorer-country disadvantage and goes on to discuss how even in a supposedly liberalizing world, trade remains an organized and managed activity. The chapter then introduces New Trade Theory (NTT), and suggests that (consciously or otherwise) this appropriates some of the insights of the poorer-country perspectives, of systematic power and disadvantage, to identify how large, rich countries can use asymmetries to their advantage and gain through trade restrictions.

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