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Douglas Irwin, _Against the Tide: An Intellectual History of Free Trade_.  
Princeton, NJ: Princeton University Press, 1996.  274 pp.  Bibliography 
and index.  $29.95 (cloth).  ISBN 0691011389 
 
Reviewed for EH.Net by Brad De Long, Department of Economics, 
University of California- Berkeley <[log in to unmask]> 
 
Douglas Irwin has written the history of "free trade"--as an idea and 
as an economic policy--for our generation. His dominant organizing 
principle is that the move toward freer trade in economic policy has 
been "against the tide"- that there have been lots of reasons 
over the ages why free trade should not have triumphed as economic 
policy, and that its triumph to date is somewhat miraculous: akin to 
a river running uphill. 
 
Mercantilism and Free Trade 
 
Free trade as an idea was born in the shadow of mercantilism in 
early modern Britain. It is not the case that before Adam Smith's 
_Wealth of Nations_ thinkers rejected the idea of trade: the 
notion that countries, like individuals, stand to gain from 
specialization (producing what they make best and most efficiently) 
and exchange is powerful, fundamental, and obviously true. But before 
Adam Smith thinkers overwhelmingly believed that imposing 
delicately-calculated restrictions on international commerce could 
boost an economy's resources and achieve important non-economic goals 
as well. For example, even Adam Smith wrote that "defense is more 
important than opulence." 
 
It is hard from our current perspective to make much sense of the 
mercantilist writers. They were aggressively pro-export--sharply 
critical of restrictions that limited export. Irwin sees their 
doctrines as having four components: 
 
   A moral argument that foreign-produced luxuries were not worth 
   consuming, and that the state should (for the good of those who 
   would buy French fripperies if unrestrained) restrict imports of 
   foreign-produced luxuries. 
 
   An unemployment-equilibrium argument that allowing imports to 
   increase would throw people out of work. 
 
   A belief that manufacturing should be promoted to enhance 
   economic development--perhaps with some recognition that this 
   argument required that the benefits to society from expanding 
   manufacturing be greater than the profits to the manufacturer. 
 
   Non-economic goals: "defense more important than opulence." 
 
 
Against mercantilism, Adam Smith established a strong presumption in favor 
of the economic benefits of free trade. David Ricardo nailed the case down 
with his exposition of "comparative advantage." Ever since trying to 
construct a coherent intellectual case for trade protection has been like 
trying to roll Sisyphus's stone up the hill.  
 
This is not to say that people have not tried. The case for free 
trade is not absolute. It is limited by: 
 
   Worries about the distributional effects of trade--in which 
   case free trade can boost real national product but erode social 
   welfare if it shifts the distribution of income and wealth in an 
   unfavorable direction. 
 
   Worries about the effect of free trade on the 
   terms-of-trade--in which case finely-tuned protectionist measures 
   that erode the total surplus from trade can nevertheless garner a 
   larger surplus for the home country (under the assumption that 
   foreign governments do not retaliate). 
 
   Worries about the effect of free trade on high-externality 
   industries--in which case policies that restrict trade might boost 
   external benefits by more than enough to offset the lost gains 
   from trade. 
 
 
But as Irwin eloquently argues, all these limitations of the case 
for free trade are fragile. In many cases trade protection is a poor 
second-best policy, to be avoided because there are other more direct 
and less costly alternative policies that will produce higher 
economic welfare. In other cases, close scrutiny reveals that the 
reasons for rejecting free trade "have foundered under the weight of 
the manifold qualifications that narrow the range of circumstances 
under which the argument is valid.... [For example] the strategic use 
of trade policy to shift rents between countries... hinges critically 
upon numerous assumptions about competitive behavior and market 
structure." 
 
Irwin thus concludes--I believe correctly--that arguments for 
protection are fragile and frail compared with the presumption that 
free trade is a good thing. To do better than free trade requires an 
enormous amount of knowledge and policy-making skill on the part of 
the government, skill that can only make things a little bit better 
if protectionist policies are properly applied--but could make things 
a lot worse if misapplied. 
 
 
The Rent-Seeking Society 
 
However strong the _intellectual_ case for free trade, the 
victory of free trade as an economic _policy_ is still quite 
surprising.  We can run through--Irwin runs through--the standard 
rent-seeking society arguments: 
 
   Beneficiaries from protection know who they are. 
 
   Each beneficiary from protection gains a lot more than each 
   consumer loses. 
 
   Beneficiaries from protection can organize easily. 
 
   The logic of politics is not the logic of market exchange--but 
   the logic of power exercised, and identifiable favors done for 
   those who can someday return them. 
 
For all these reasons, governments seeking to assemble coalitions 
of politically powerful elites _should_ be powerfully 
attracted by individual protectionist proposals. There is a principle 
that the set of economists is dense in the space of possible 
policies: for every small number epsilon, for every policy theta, 
there is someone who can wear a tie, speak with authority on 
television, and make semi-coherent arguments that some policy that is 
within epsilon of theta is in fact optimal. When the stakes are large 
the returns to being a tame politician or a tame intellectual for 
protectionist interests are large too, and the labor market works 
well enough that demand calls forth supply--and we have Pat Choate 
claiming with an apparently straight face that five million American 
manufacturing jobs are "at risk" if the United States lowers its 
tariffs on Mexican imports from an average level of 3% to zero. 
 
And it was here that I found myself wishing that Douglas Irwin had 
written a slightly different book. For I do not believe that the 
production and reproduction of intellectual arguments proceeds 
independently of the rest of social life, and I think the links 
between the strength of protectionist ideas and the potential 
benefits to those with the wherewithal to fund the creation and 
distribution of protectionist ideas are very strong and very 
interesting. But Irwin remains at the level of the intellect. He does 
not descend to the sociology of ideology at all--and I think that 
what is a very good book is less than the Platonic Ideal of a history 
of free trade because of its limited scope. 
 
In addition, there is powerful feedback from the political economy 
back to the case for free trade. The very strength of the 
political-economic pressures toward protection generated in a 
rent-seeking society serves to powerfully reinforce the case for free 
trade. Douglas Irwin quotes Paul Krugman that the most powerful case 
for free trade today "'is not the old argument that free trade is 
optimal because markets are efficient' but rather 'it is a 
sadder-but-wiser argument for free trade as a rule-of-thumb in a 
world whose politics are as imperfect as its markets.... to abandon 
the free-trade principle in pursuit of the gains from sophisticated 
intervention could therefore open the door to adverse political 
consequences that would outweigh the potential gains.'" 
 
 
The Future 
 
Irwin concludes his book with a resounding triumphalist sentence: 
"Yet if the historical experiences described here continue, free 
trade will remain one of the most durable and robust propositions 
that economic analysis has to offer for the conduct of economic 
policy." 
 
I find myself much more pessimistic--not that I think that free 
trade does not deserve to flourish, but that I doubt that it will 
flourish. There are two reasons to be skeptical of the future of free 
trade: 
 
The first reason is that the East Asian economies that have grown 
so impressively in the past two generations have not been committed 
to free trade. There are arguments that they have been committed to 
free trade in what matters most for production (if not for consumer 
welfare): "a free-trade regime for exports and for imports for 
exporting industries" is the phrase often used. There are arguments 
that they have been lucky not to have been badly hurt by their 
deviations from free trade. There are arguments that they have 
managed to find a set of trade restrictions that actually does 
promote high-externality activities and rapid growth. 
 
Which is true is unclear. 
 
What is clear is that for the next generation opponents of free 
trade will say: "Japan, Korea, Taiwan, etc. did not adopt free 
trade--and look how fast they grew." And at the level of economic 
policymaking and public ideology, this statement has the potential to 
erode a lot of support for free trade. 
 
The second reason is that arguments for protection today hinge 
much more on the duties that first world consumers owe third world 
workers than on the links between protection and first world 
prosperity. Does the restriction of imports that violate fair labor 
standards give employers in developing countries the right incentives 
to improve working conditions and boost social welfare? Or does it 
just destroy jobs in developing countries--making the life chances of 
the poor even worse? It is not clear. But consumers in the first 
world do have moral obligations toward workers in developing 
countries, and the economic theory of free trade sheds little light 
on what policies are best in light of these moral obligations. 
 
Brad De Long 
Department of Economics 
University of California- Berkeley 
 
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