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 8: International trade and inequality within countries

Bill Dunn

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

Extract

This chapter explores the relationship between trade and inequality within countries. Discussions about the pros and cons of trade too often stop at whether or not it is in the national interest. Questions about winners and losers within countries can be at least as important. Indeed, these distributional issues are often the crux of the matter. Countries are internally divided and the ‘national interest’ is illusive. Questions of who gains and who loses are critical. The most influential proposition has been the Stolper–Samuelson theorem, a neo-classical theory which argues that there are likely to be winners and losers within countries from both protection and trade opening. As explained in the next section, according to this theorem, the owners of those factors of production in which a country is abundantly endowed are expected to reveal their efficiency on a world scale and increase their market and the prices received for their labour or for their products. Conversely, in a closed economy, the effective market remains limited and prices are kept down. Meanwhile, the owners of those factors of production that are relatively scarce within a country would be expected to be in the opposite situation. Having enjoyed protection, exposure to foreign competition would reveal their relative costliness and undermine their economic position. The theory has been widely invoked to explain concomitant rises in trade and inequality in recent decades, particularly in rich countries.

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