Economic Diplomacy and the Geography of International Trade

Economic Diplomacy and the Geography of International Trade

Peter A.G. van Bergeijk

The book presents an overview of the general aspects of trade uncertainty, a central element in the analysis of economic diplomacy, illustrating that some instruments, such as sanctions (both positive and negative), increase trade uncertainty, whilst others – multilateral trade policy, for instance – aim to reduce this uncertainty. Commercial policy and bilateral economic diplomacy are explored, and economic sanctions analysed. An extensive review of the literature and empirical investigations of 161 sanctions and the commercial relationships of 37 countries provide topical and empirical perspectives on how international diplomacy may both be a cost and a benefit of the key drivers of productivity growth. Finally, policy conclusions are drawn, and a future research agenda presented.

Chapter 4: Commercial Policy and Economic Diplomacy: Why?

Peter A.G. van Bergeijk

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

Extract

It is worthwhile to always be critical about the role of the government when international economic relations are concerned. A long history of misguided stimuli, preferential treatments of exports and protectionism warrant an attitude in which disbelieve and anti-dogmatic thinking are key competences. The roots of many export promoting ideas and policies lay in the Mercantilist approach of which Law (1705) and Cantillon (1755) are well known early examples. In a nutshell Mercantilism can be seen as a set of beliefs and policy prescriptions that maximize the surplus on the balance of trade in order to earn the means that are deemed necessary for warfare (Schumpeter 1954, pp. 364–7). A key element of this theory is the vision on trade as a zero sum game which implies that surpluses on one’s trade balance are to the detriment of other countries and thus reduce their capacity to arm themselves and wage war and vice versa. A key exponent is the French interventionist set of policies called Colbertism. Around the middle of the seventeenth century Colbert repeatedly argued that trade is the income source par excellence for the government that wants to wage a war. Colbert saw the power of England and the Netherlands around 1670 as fully dependent on their commercial success. Thus he was willing to meet his opponents on the international markets – with state companies and all available interventionist instruments – which led to commercial clashed. Indeed, trade wars had a strong military component in those years.1 Modern theories...

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