Edited by William A. Kerr and James D. Gaisford
Chapter 3: History of Economic Thought on Trade Policy
Andrea Maneschi The theory of international trade is the oldest applied area of economics.1 During the mercantilist period that preceded Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations of 1776, pamphleteers and businessmen discussed the rationale for foreign trade and its policy implications, and concluded that it was vital to the health of an economy and the power of the nation state. Speculations on foreign trade continued to play a vital role in the evolution of economic thought and the conduct of economic policy during the classical and neoclassical periods that followed mercantilism. The theory of any branch of economics carries with it implications for economic policy, and trade policy has been the subject of much debate, advocacy and analysis since mercantilist times. International trade theory and policy have remained the object of active research and controversy to our day. Newspapers and magazines frequently report on trade negotiations and trade agreements, both multilateral and bilateral, that modify a country’s trade policy by altering tariﬀs and other trade impediments. At times they announce the formation of preferential trading areas whose member countries eliminate trade restrictions among themselves, while retaining them against nonmember countries. Trade policy instruments used since mercantilist times include: (a) import tariﬀs (or duties); (b) export taxes; (c) import quotas or prohibitions; (d) export quotas or prohibitions; (e) export bounties (or subsidies); and (f) treaties of commerce with other nations. Some of these instruments are substitutes for one another. An import...
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