INTERNATIONAL TRADE

all economic transactions that are made between countries. Among the items commonly traded are consumer goods, such as television sets and clothing; capital goods, such as machinery; and raw materials and food. Other transactions involve services, such as travel services and payments for foreign patents. International trade transactions are facilitated by international financial payments, in which the private banking system and the central banks of the trading nations play important roles. International trade and the accompanying financial transactions are conducted generally toward the purpose of providing a nation with commodities it lacks in exchange for those that it produces in abundance; such transactions, functioning with other economic policies, generally improve the standard of living of a nation. This article provides a historical and contemporary overview of the structure of international trade and of the classic controversy over free versus controlled trade. The Editors of the Encyclopdia Britannica the sale and purchase of consumer or capital goods and services, raw materials, securities, or gold across national borders. Such transactions may be accomplished by barter or, more typically, through the exchange of national currencies. Trade across national borders is as old as national borders themselves, but no fully satisfactory theory has been devised to account for its various aspects. The earliest theory of trade, mercantilism, developed in the 16th century and expressed the interests of the rising merchant class. With its insistence on the accumulation of national wealth in the form of gold by encouraging exports and discouraging imports, mercantilism was an inconsistent and ultimately self-defeating theory. The classical school of British economists suggested a more useful approach. David Ricardo, in particular, was able to show that international trade would work to the advantage of both partners and increase the real income of all concerned if it were left to develop freely. In demonstrating his principle of comparative advantage, Ricardo disproved the common assumption that a nation whose production of goods was less efficient, hence more costly, than that of other nations could not hope to engage in trade with more productive nations because, if such trade were to occur, the more productive nation would gain nothing from it. The classical position on trade, as elaborated further by John Stuart Mill and other economists through the 20th century, firmly supported free trade and laissez-faire. It was, however, built on several simplifying assumptions that limited its ability to explain or prescribe for certain real-world situations. As an essentially static model, for example, it could not offer guidance on the sensitive subject of trade between capital-rich industrial countries and developing nations that produce chiefly primary products while attempting to build an industrial base of their own. Free trade has throughout history been the exception rather than the rule. For numerous reasons, governments generally choose to erect barriers to trade, ranging from simple tariffs through sundry forms of regulation to outright prohibition. The most common motives for erecting such barriers include revenue generation from tariffs, protection of domestic industry or employment, national defense, a desire for self-sufficiency, or autarky, and persistent imbalances in international exchange. Additional reading General texts The classic works in the field of international trade are Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 2 vol. (1776), available also in many later editions, both complete and in selections; David Ricardo, On the Principles of Political Economy and Taxation (1817), available also in modern editions; John Stuart Mill, Principles of Political Economy, 2 vol. (1848, reissued in 1 vol., 1909; reprinted 1987); Gottfried von Haberler, The Theory of International Trade with Its Applications to Commercial Policy (1936, reprinted 1968; originally published in German, 1933); and Jacob Viner, Studies in the Theory of International Trade (1937, reprinted 1975). Useful textbooks include Richard E. Caves and Ronald W. Jones, World Trade and Payments: An Introduction, 4th ed. (1985); Wilfred J. Ethier, Modern International Economics (1983); Peter B. Kenen, The International Economy (1985); and Peter H. Lindert, International Economics, 8th ed. (1986). Surveys of recent international financial developments may be found in the annual compiled by the International Monetary Fund, World Economic Outlook. For surveys of recent advanced work in international economics, see Ronald W. Jones and Peter B. Kenen (eds.), Handbook of International Economics, vol. 1 (1984); and David Greenaway (ed.), Current Issues in International Trade: Theory and Policy (1985). Theories of international trade The Heckscher-Ohlin theory has been the most scrutinized explanation of trade patterns. The classic work is Bertil Ohlin, Interregional and International Trade, rev. ed. (1967). Other surveys are Nicholas Owen, Economies of Scale, Competitiveness, and Trade Patterns Within the European Community (1983); and Edward E. Leamer, Sources of International Comparative Advantage: Theory and Evidence (1984). Elementary treatments of the theory and practice of tariffs may be found in standard texts, such as those listed above. Institutional and historical studies of tariffs include Asher Isaacs, International Trade, Tariff, and Commercial Policies (1948); and F.W. Taussig, The Tariff History of the United States, 8th ed. (1931, reprinted 1967). An analysis of the economic and political issues in trade policy may be found in Bela Balassa, Trade Liberalization Among Industrial Countries: Objectives and Alternatives (1967); Robert E. Baldwin and Anne O. Krueger (eds.), The Structure and Evolution of Recent U.S. Trade Policy (1984); Jagdish N. Bhagwati (ed.), Import Competition and Response (1982); William R. Cline et al., Trade Negotiations in the Tokyo Round: A Quantitative Assessment (1978); William R. Cline (ed.), Trade Policy in the 1980s (1983); I.M. Destler, American Trade Politics: System Under Stress (1986); Gary Clyde Hufbauer and Howard F. Rosen, Trade Policy for Troubled Industries (1986); and Robert Z. Lawrence and Robert E. Litan, Saving Free Trade: A Pragmatic Approach (1986). Accounts of the General Agreement on Tariffs and Trade (GATT) may be found in Gerard Curzon, Multilateral Commercial Diplomacy (1965); Gardner Patterson, Discrimination in International Trade: The Policy Issues, 19451965 (1966); and Gilbert R. Winham, International Trade and the Tokyo Round Negotiations (1986). The effects of trade policies on the developing countries are studied in Harry G. Johnson, Economic Policies Toward Less Developed Countries (1967). International trade arrangements General analyses include F.W. Taussig, Free Trade, the Tariff, and Reciprocity (1920); League of Nations, Commercial Policy in the Interwar Period: International Proposals and National Policies (1942); Jacques Lacour-Gayet, Histoire du commerce, 6 vol. (195055); and Robert Schnerb, Libre-change et protectionnisme, 4th rev. ed., edited by Madeleine Schnerb (1977). Economic integration is treated in Maurice Allais, L'Europe unie: route de la prosprit (1960); Bela Balassa, The Theory of Economic Integration (1961, reprinted 1982); Bela Balassa et al. (eds.), European Economic Integration (1975); European Free Trade Association, The Effects of EFTA on the Economies of Member States (1969); Joseph Grunwald, Miguel S. Wionczek, and Martin Carnoy, Latin American Economic Integration and U.S. Policy (1972); Michael Hodges and William Wallace (eds.), Economic Divergence in the European Community (1981); James E. Meade, The Theory of Customs Unions (1955, reprinted 1980); Scott R. Pearson and William D. Ingram, Economies of Scale, Domestic Divergences, and Potential Gains from Economic Integration in Ghana and the Ivory Coast, The Journal of Political Economy, 88:9941009 (October 1980); Dennis Swann, The Economics of the Common Market, 5th ed. (1984); Jacob Viner, The Customs Union Issue (1950, reprinted 1983); William Wallace (ed.), Britain in Europe (1980); Paul Wonnacott, The United States and Canada: The Quest for Free Trade (1987); and Bruce Parrott (ed.), Trade, Technology, and Soviet-American Relations (1985). Paul Wonnacott