Douglas A. Irwin. Free Trade under Fire. Third Edition. Princeton University Press. 2009

Article excerpt

Douglas A. Irwin. Free Trade under Fire. Third Edition. Princeton University Press. 2009

In the fifteenth and sixteenth centuries trade and economic development received a painful hit, that of mercantilism. This was a system of monopolistic privileges given by the Crown to domestic producers of different goods; it also reflected a powerful attraction for acquiring, by means of increasing exports and taxing imports, of a greater quantity of money inside the country. Thus, it was believed that more money will necessarily lead to economic welfare. Or, at least, this was the official view, because often this additional money was a mean to fulfil the destructive military plans of the despots who happened to be in power at that time. Professor Douglas A. Irwin's Third Edition Free Trade under Fire is a striking proof that mercantilism still rules the minds of people. The book is a sound and clear exposition of all important problems of modern international trade (environmental and labour standards, multilateral and bilateral trade agreements, antidumping issues etc.), in an obvious liberal or free trade key. Chapter two The Case for Free Trade: Old Theories, New Evidence should be perhaps, the must-read of the book, because it states a theoretical vision of free trade, but also, by contrast, of protectionism, which is the new name for mercantilism. After reading chapter two, the rest of the book becomes empirical evidence, aiming at helping Irwin to show the great fallacies embodied in the theory of protectionism. Thus, the book assumes a certain degree of innovation by choosing to reflect empirical proof for the case against protectionism. To sum up, the essence of this book is the belief that whenever free trade is impeded by governmental intervention (tariff regulation or subsidies), the consumers bear the costs of higher prices while domestic inefficient producers are protected. But that is a matter of common knowledge. Others have stated it before. However, Irwin's contribution is to put the theory to work, using a clear and concise methodology of interpretation and comprehension, by analysing different historical facts. It also uses verbal logic analysis and the method of induction, these being very popular qualitative methods in economic science. Free trade under fire is a powerful tool for those who study international economics and are particularly interested in how political competition diverts resources in the global market. Or, in a more generous perspective, the book offers some key lessons (study cases) which reveal the true nature of what was termed as crony capitalism.

Following these lines, it can be easy to see how a great deal of trade policies are developed to improve the market position of some special interests, and not for the common good as is officially asserted. The case of U.S. sugar industry (for many years protected by tariffs) and Monica Lewinsky testimonials about Bill Clinton and the notorious sugar oligarch Alfonso Fanjul is the starkest example of how protectionism works. According to one of Lewinsky's reports, cited by Irwin (2009: 80), when she was in an "important" meeting with the president, he received a call from Fanjul, which he had to give course. In Irwin's opinion this fact suggests the influence and importance that Fanjul had around the White House. According to him, when politically well-connected firms make lobby to determine governments to protect them, they give a wrong signal on the market, meaning that "the way to get rich is to invest in political influence, not to invest in productive efficiency" (2009: 77). And this is true irrespective of the form of government. The protectionist argument according to which domestic producers create employment finds no mercy in the author's exposition, because, the reality shows "a trade-off between jobs in one sector of the economy for jobs in another sector" (2009: 90). We protect some jobs with the costs of losing others. …


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