Trade and the relationship between economics and politics Domestic and international trade are important arenas in today’s globalizing world economy. How does trade demonstrate the relationship between economics and politics? Trade demonstrates a relationship between economics and politics in many ways. We can identify at least three main ways. First, conventional theories in economics hold that society’s welfare level will be higher when political authorities adopt a policy of trade liberalization that is diametrically opposed to the policy of autarky. This is clear in the theory of comparative advantage attributed to David Ricardo as well as in the standard theory of international trade that are both discussed in many of the undergraduate and graduate books of economics. One of the books discussing the two topics, for example, is that one by Krugman and Obstfeld (2003). A policy of trade liberalization adopted by policy makers through the political process commit a country to an economic environment that requires the conversion of tariffs to quota as well as the reduction of tariffs which are the standard policy prescriptions under the World Trade Organization (WTO). On the other hand, a policy of autarky emphasizes on the policy of self-reliance wherein nations produce all what they need. In contrast, the policy of trade liberalization emphasizes on interdependence among nations wherein self-reliance is achieved through domestic production as well as trade with other nations. In other words, the foregoing emphasizes that policy regimes that are adopted through the political process determine trade policy and, consequently, policy regimes or politics determine people’s access to higher welfare levels. Second, the discipline of economics recognizes that there is a definite and solid political economy dimension in the adoption of protectionism rather than trade liberalization. For example, this is clear in Salvatore (2001, p. 293-298). According to Salvatore (2001, p. 297), if society benefits overall from trade liberalization, protectionist policies are adopted by countries because although producers are few relative to consumers, local producers of import-competing goods can benefit greatly from protectionism and have a strong incentive and the means to lobby government for the latter to adopt protectionist measures. Salvatore (2001, p. 297) argued that even if consumers strongly benefit from trade liberalization, consumer losses from protectionism are highly diffused such that consumers are not likely to protest strongly against protectionism. Finally or third, several thinkers in economics have stressed the importance of a political economy perspective in both domestic and international trade. One of such thinkers is Adam Smith. Adam Smith explained that division of labor is labor is responsible for social progress (Smith 1784, Book I, Chapter I). However, Smith also pointed out that division of labor is limited by the extent of the market (Smith 1784, Book I, Chapter III). This is clearly a reference to the importance of politics in limiting or enhancing/facilitating the state of social progress. The book of David Ricardo in 1817 (with third edition in 1821), On the Principles of Political Economy and Taxation, is clearly a work on political economy. In the book, Ricardo has a chapter 25 on colonial trade, a chapter 22 on the prohibition of importation, and a chapter 7 on foreign trade. In all chapters, Ricardo emphasized the role of politics and policy on economics, particularly in the ways in which politics can facilitate or provide obstacles to advancement of economic development or benefits. In other words, the work of Adam Smith emphasized on the role of trade in promoting division of labor and how politics can limit both trade and the division of labor. On the other hand, the work of Ricardo emphasized on the role of politics in shaping both international and domestic trade policy. Thus, we can conclude the trade reveals the link between economics in at least the following ways: 1. politics or the political process can determine whether a country can benefit from trade liberalization. 2. a political economy perspective can explain better why a country can adopt protectionist rather than trade liberalization policies despite the benefits from trade liberalization. and 3. politics or political policies can either facilitate or provide obstacles to the division of labor promoted by domestic or international trade. References Krugman, P. and Obstfeld, M., 2003. International economics: Theory and policy. 6th Edition. Addison-Wesley: Boston. Ricardo, D., 1821. On the principles of political economy and taxation. 3rd Edition by David Ricardo. Ontario: Botoche Books (2001 printing). Salvatore, D., 2001. International economics. 7th Edition. New York: John Wiley amp. Sons. Smith, A., 1784. An inquiry into the nature and cause of the wealth of nations. 3rd Edition by Adam Smith. Amsterdam: Metalibri (29 May 2007 printing).

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