ONE WORLD, ONE ECONOMY: Free Trade – or Protectionism?

How it works.

One of the most pressing choices facing modern economies is whether to adopt a policy of free trade or of protectionism, that is, whether to encourage foreign goods into the country with minimum tariffs and allow industries to relocate abroad; or whether to make it hard for foreign firms to sell their goods internally and discourage domestic producers tempted by cheaper wages in other lands.

It feels like a very modern dilemma, but the debates between proponents of free trade and protectionism go back a very long way. The argument began in earnest in Europe in the 15th century with the formulation of a theory known to historians as mercantilism, the forerunner of what we today more colloquially refer to as protectionism.


Mercantilism was, like more or less every economic theory before and since, interested in increasing a nation’s wealth. But it had very particular views about how this should be done. Mercantilists argued that in order to grow richer, a country had to try to make as many things as possible within its own borders – and reduce to an absolute minimum its reliance on foreign imports. The role of government was to help local industries in every sector, from food to textiles, machinery to agriculture, by applying huge tariffs on imported goods and discouraging foreign manufacturers from entering national borders and competing with local players. A strong country was one that knew how to provide for itself and could achieve more or less total independence in trade, a goal known as economic autarky.



The philosophy of mercantilism reigned supreme as the most prestigious and persuasive theory of economics until the 9th of March 1776, the publication date of possibly the most important book in the history of the modern world. In An Inquiry into the Nature and Causes of the Wealth of Nations, the Scottish philosopher and economist Adam Smith attempted to dynamite the intellectual underpinnings of mercantilism.   MORE