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Protectionism vs. Free Trade

Martin Bronfenbrenner

• Duke University

“An Old Reactionary Free Trader on the New International Economic Order.” Nebraska Journal of Economics and Business 16 (1977): 5–18.

In recent years, Third World nations have demanded that a New International Economic Order (NIEO) replace the current system of international trade. These nations picture themselves as subservient members of a victimized “periphery,” doomed to raw material provision by the economic whims of “core” developed nations.

In order to eliminate the disparity between wealthy and poor countries, NIEO advocates calling for radical change in what they brand as a world of unfair “free” trade. First of all, NIEO would dramatically accelerate the provision of aid, without strings attached, from developed to less developed countries. Secondly, this new order would guarantee preferential treatment for the products of less developed nations in the more developed nations. In addition, it would give the Third World access to patented western technology; the right to expropriate a foreign owned business operating in their lands; and the privilege to contract new longterm debts at bargain interest rates.

Free trade economists, disputing the presuppositions of NIEO, retort that international trade is not free because it is encumbered by quotas, tariffs, exchange controls, and domestic preferences in government purchases. This series of interferences, not free trade, is the culprit causing the widening gap between nations.

Small impoverished countries, in fact, would have more to gain from the introduction of international free trade than would any large country. This is so because free trade would inevitably lead to economies of scale for small participating nations. Also, exports from smaller nations would be less likely to lower world prices, and import demand would also be insufficient to raise prices. Free trade would work to equalize the prices of productive inputs between free trade nations; this would eventually replace either migration of labor or movement of capital.

The overwhelming numbers of unskilled workers in less developed nations may hinder economic progress in these areas. Theoretical and historical evidence confirms, however, that a New International Economic Order would thwart the long-run interest of any participant in world trade. This policy would merely continue the protectionist mentality that has plagued economic growth. The NIEO policy would rest upon the dubious assertion that nonexistent free international trade is a culprit rather than a needed remedy.