Free Trade and Protection

Abstract

The pure theory of international trade demonstrates I convincingly that world production of goods and services is maximised by freedom of trade between countries and that specialisation of function according to natural and factoral endowments is, in the long run, in the interests alike of individual countries and of the world economy. Turning from theory to practice we bow to the fact that, in the real world, such freedom of trade nowhere exists between sovereign states but that nations, in accordance with what we call commercial policy, impede, divert, reduce or eliminate this optimal free movement. In the theory of commercial policy it becomes our task to examine the effects of barriers to trade and exchange, to explain why they are imposed, and to seek criteria by which their operation may be judged. In doing so we find ourselves concerned not only with the macro aspects of the problem — that is, with the effects of trade restriction on the national incomes, terms of trade and balances of payments of countries as a whole — but with its micro aspects — that is, with its significance for the many components of the economy, regions, firms, industries and individuals.