… is from pages 168-169 of Razeen Sally’s excellent 1998 book, Classical Liberalism and International Economic Order [original emphasis; footnote deleted]:
Since 1945 the case for a liberal international economic order has been made in terms of multilateral reciprocity: freer trade is good, providing all parties liberalise trade. This is the kind of thinking that became the conventional wisdom of the GATT from the outset. The belief that nations benefit only when other nations open their markets has dominated GATT negotiations; the liberalisation of imports is a ‘cost’ one has to pay, or a ‘concession’ one has to make, in order to gain from exports to newly liberalised foreign markets….
This predominant approach to postwar trade liberalisation is foreign to basic presumptions introduced to economic analysis by the classical economists. As Jagdish Bhagwati puts it, reciprocity ‘builds on the notion, not consonant with good economic sense, that trade liberalisation is a cost rather than a source of gain’. Reciprocity leads us to believe that the national gain accrues from exports; classical trade theory teaches us that the national gain comes from imports, not exports (which are only a means of paying for imports). Hence, the unilateral repeal of trade barriers, even in an otherwise protectionist world, ushers in imports that replace inefficient domestic production and release resources for more productive uses. Quite apart from other benefits, import liberalisation provides cheaper inputs, and reallocates resources, to promising export sectors. This kind of gain is of greater national benefit than the gain that arises from the opening of foreign markets to home exports through intergovernmental negotiations.
DBx: Yes. A trillion times yes. And if anyone thinks that the truth that Sally here explains is trivial, let that person consult the countless statements by Donald Trump that explicitly reveal Trump’s belief – a belief as blind as it is confident – that imports are a cost, while exports are a benefit in and of themselves. Note also that Trump is hardly alone in clinging to this zombie mercantilist myth.
But it must also be said that for all the great truth of what Sally writes, it remains the case that the GATT did manage to liberalize trade more than trade would have been liberalized in its absence. The GATT channeled mercantilist motivations into liberalizing currents. It’s unquestionably true that each country and the world would have been better off had each country liberalized regardless of the policies of other countries. But special-interest politics and economic illiteracy, being what they are, make such economically sensible liberalization nearly impossible in reality to achieve politically.
