Trade Liberalization versus Trade Protection

The debate on trade liberalization as opposed to trade protection is an old, “classical” one. Since the 1930s, it is heating up or cooling down depending upon the economic crises cyclically affecting the world economy.

International trade holds a central part in the classical and neoclassical economic theories, from Adam Smith’s critique against the 18th century mercantilism and David Ricardo’s highlighting of the defining role played by comparative advantages in the process of economic development up to the 20th century Heckscher’s and Ohlin’s theory of factor proportions [Lindert, 1991]. 

One of the constant and most articulate supporters of free trade is Jagdish Bhagwati. Noting that in the 1990s free trade has returned in the limelight, he argues that at present the theory in the field “distinguishes between two propositions:

(1) if market failures remain unfixed, free trade can harm rather than help; and

(2) if market failures are fixed through suitable intervention, than free trade can once again be used to exploit best the gains from trade (…).