U.S. Trade Policy: History, Theory, and the WTO

By William A. Lovett; Alfred E. Eckes Jr. et al. | Go to book overview
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3 RICHARD L. BRINKMAN Freer Trade: Static Comparative Advantage

Overview

Adam Smith urged the liberalization of commerce from guild restrictions, monopolies, and feudal privileges. Increased output and greater specialization derived from laissez-faire policies would improve the wealth of nations, especially for domestic industries and trading. But Smith accepted four major limitations on free international trade: (i) retaliation tariffs as a matter of statesman-like deliberation; (ii) protection for industries vital to national defense; (iii) navigation laws to promote the merchant marine and maritime commerce; and (iv) extensive public works (roads, canals, harbors, and waterworks) ( Smith 1937, 429-436, 410-414, and 651-716). Thus, while Smith broke with earlier, naïve mercantilist thinking, his support for internal improvements allowed scope for nation-building policies like those used in Britain ( 1650-1840s) or the United States ( 1791-1920s). Alexander Hamilton and Friedrich List later argued for substantial tariff protection to nurture manufacturing development, although accepting widespread laissez faire within nations in accord with Smith's liberal thinking.

But Britain, in the 1840s after their Industrial Revolution, decided that policies of freer trade, not protection, would better serve national interests. Britain's need was no longer to protect the economy from foreign manufacturing, because Britain enjoyed broad industrial ascendancy, but rather to open more global markets for expanding British industrial production. Adam Smith is widely credited with pioneering economic theory in support of freer trade. Yet Smith's support for laissez faire allowed considerable leeway for nation-building policies. In addition to support of policies promoting national defense as "more important than opulence," and with views that the "act of navigation is perhaps the wisest of all commercial regulations," as Jacob Viner noted, Adam Smith also made "concessions to the

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