ABSTRACT
This chapter illustrates the scope of contemporary international trade. It explains the economic gains from trade and discusses policies of trade restriction. The chapter examines the causes of these policies and presents the mainstream economic argument in support of free trade. It focuses on the international distribution of the gains from trade. In the 17th and 18th centuries, international economic relations were dominated by the doctrine of mercantilism. Governmental assistance to producers can change relative prices of goods and result in changes to comparative advantages. Strategic trade policies are used, to a varying degree, by most developed countries. This approach argues that governments can generate a comparative advantage through a combination of temporary protectionism, tax benefits, subsidies, and financial and/or research and development cooperation with the private sector. Business cycles — fluctuations in macroeconomic performance — promote demand for free trade in good times and protectionism in bad times.
