History of international trade

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The history of international trade chronicles the way that the flow of trade over long distances has shaped, and been shaped by history. This article deals with the "economic history" of international trade and the history of theoretical economics in the field of international trade.

In the era before the rise of the nation state, the term 'international' trade cannot be literally applied, but simply means trade over long distances; the sort of movement in goods which would represent international trade in the modern world.

Contents

1 Chronology of free trade theory and practice

1.1 Pre 1500
1.2 1500 - 1776
1.3 1776 - 1841
1.4 1842 - 1889
1.5 1889 - 1945
1.6 1946 - 1995
1.7 1996 - Present day

2 World system theory

2.1 Fernand Braudel
2.2 Imannuel Wallerstein
2.3 Andre Gunder Frank
2.4 World system theory links

3 See also
4 References
5 External links

Chronology of free trade theory and practice

Pre 1500

1157 The Hanseatic League secures trading privileges and market rights in England for goods from the League's trading cities.
1498 Vasco da Gama opens up the Spice trade yes !

1500 - 1776

1500 In the sixteenth century Holland was the centre of trade and of free trade. The Netherlands imposed no exchange controls, and advocated the free movement of goods.
1592 Japan introduced a system of foreign trade licenses to prevent smuggling and piracy.
1580 Portugal's loss of independence to Spain creates a monopoly in spices from the Indies; without competition the Spanish were able to raise European prices, and shut the free-trading Dutch out of the market.
1602 The Dutch East India Company is formed.
1604 Hugo Grotius publishes Mare liberum (The Free Seas), advocating open use of the sea by maritime trade of all nations. In Britain, parliament moves in favour of free trade, but opposes the Dutchman's call for unlimited navigation rights; English and Dutch Republic traders are fierce rivals.
1651 Act of Navigation permits only English or originating-country ships to carry goods into England.
1654 After defeat in the First Anglo-Dutch War the Dutch agreed to respect the Act of Navigation in the Treaty of Westminster.
1685 The first British outpost in the East Indies was established in Sumatra.
1713 Important international trading rights are mostly assigned by monopoly contract. In the Treaty of Utrecht Britain receives the Asiento slave-trading contract, and secures the Canadian fur trade for the Hudson's Bay Company.
1751 Benjamin Franklin's Observations Concerning the Increase of Mankind, Peopling of Countries, &c. ([link]) argues that competition from third-country suppliers would prevent British merchants selling manufactured goods above world prices to the American colonies, in the liberal tradition of free trade. However, the same document advocates mercantile laws as "generative laws" which "strengthen a Country doubly". Mercantilism was a nationalist theory which dominated thought about the correct trade policy to adopt in eighteenth century Europe: Export as much as possible, but import the minimum to create a "favourable" trade balance.
1756 Richard Cantillon criticized the prevailing mercantile approach to trade which emphasised manufacturing; the Physiocrats emphasized the domestic agricultural sector.
1764 The Sugar Act raises a 3 pence per gallon tarrif on molasses imported from the French West Indies, to make British West Indies sugar more competitive in the American colonies. Since there is insufficient supply from the British West Indies New England merchants are forced to buy the taxed sugar from the French West Indies anyway, with the tariff acting as an unpopular means of wealth transfer to the British exchequer from consumers in the colonies.
1770 Turgot's Lettres sur la liberté du commerce des grains demands the end to restrictions on free trade in grain, with the claim that all parties would thereby benefit.

1776 - 1841

1776: An Inquiry into the Nature and Causes of the Wealth of Nations, questioned the wisdom of Mercantilism. Adam Smith argued that economic specialization could benefit nations just as much as firms. Since the division of labour was restricted by the size of the market, he said that countries having access to the largest markets would be able to divide labour more efficiently and thereby become more productive. Smith was later to say that he considered all rationalizations of import and export controls "dupery", which hurt the trading nation at the expense of specific industries.
1799 The Dutch East India company, formerly the world's largest company goes bankrupt, partly due to the rise of competitive free trade.
1815 The British Corn Laws are introduced, preventing grain imports.
1816 In line with protectionist opinion, the U.S. Congress extended its 1789 tariff to manufactured goods. The intention of limiting free trade was to help local industries compete with the products of industrial England.
1817: James Mill, Robert Torrens, and especially David Ricardo showed that free trade might benefit the industrially weak as well as the strong, in the famous theory of comparative advantage. In Principles of Political Economy Ricardo advanced the doctrine still considered the most counterintuitive in economics:

Both countries benefit when a totally inefficient producer sends the merchandise it produces least badly to a country able to produce it more efficiently at home.

1818 The majority of European intellectual opinion is persuaded by Ricardo's argument.

1828 The "Tariff of Abominations" is signed into U.S law with the express intention of raising the domestic price of British manufactured goods. This was in the interests of Northern producers, but was unpopular in the South, especially because England reduced agricultural imports in response.

1832 The U.S. starts to lower tariffs, but not enough to avoid the Nullification Crisis; South Carolina felt that the tariffs of 1828 and 1832 were against its vital economic interests and tried to pass the Ordinance of Nullification, declaring both federal tariffs null and void within state borders.

1833 The U.S. tariff issue is defused by a protectionist, Henry Clay, who promotes a staged reduction of tariffs down to the levels of 1816.

1840 Opium War - Britain invades China to overturn the Chinese bar on opium imports (Britain was shipping a ton of opium per day from India into Chinese ports). The British case was argued in Ricardian terms against the import barriers the Chinese wished to impose; parliament argued that the trade in opium should not be restrained.

1841 Friedrich List's Das Nationale System der Politischen Okonomie disputed the equivalence between individuals and countries in the conduct of trade. Within a country the ideal economic system would be the free market, but the importance of developing national productive power made free trade between nations a danger for a country specializing in agriculture. He said that such a country would stagnate and never reach an industrial stage of development. He compared a period of protectionism for an industrially weak nation to a period of education for an individual; costly in the short term, but paying off in time. He acknowledged the immediate economic advantages of free trade, and advocated returning to this policy as soon as the 'industrial education' of Germany was complete.

1842 - 1889

1842 first opium war ends.
1844 The ascendancy of free trade was primarily based on national advantage. That is, the calculation made was whether it was in any particular country's self-interest to open its borders to imports. Ricardo and others had shown that it might well be, but John Stuart Mill proved that a country with monopoly pricing power on the international market could manipulate the terms of trade through maintaining tariffs, and that the response to this might be reciprocity in trade policy. This was taken as evidence against the universal doctrine of free trade, as it was believed that more of the economic surplus of trade would accrue to a country following reciprocal, rather than completely free, trade policies.
16 May 1846 - Repeal of the Corn Laws passed by the British House of Commons.
1848 The infant industry scenario developed by J.S. Mill anticipated New Trade Theory by promoting the theory that government had the "duty" to protect young industries, although only for such a time as would be necessary for them to develop full capacity. This theory became policy in many countries, these nations attempting to industrialize and out-compete English exporters.
1860 Free trade agreement finalized between Britain and France under the presidency of Napoleon III, prepared by Michel Chevalier and Richard Cobden, sparking off successive agreements between other countries in Europe.
1868 The Japanese Meiji Restoration lead the way to Japan opening its borders and quickly industrializing through free trade. Under bilateral treaties restraint of trade imports to Japan were forbidden.
1873 The Wiener Börse slump signals the start of the continental Long Depression, during which support for protectionism grows.
1879 Influenced by List's nationalist argument for industrial protect Biskmark abandons the German free trade policy, enacting tariffs over he objections of his National Liberal Party allies.
1888 Benjamin Harrison wins the U.S. presidency on a protectionist ticket.

1889 - 1945

1890 William McKinley argued that the revenues generated from the current tariff levels were too high; by raising import barriers it was said that imports would drop sufficiently to lower tariff income, reducing the dangerously high treasury surplus ([link]). President Harrison tried to make the tariff more acceptable by writing in reciprocity provisions, and through direct payments to domestic sugar producers rather than tarrifs on sugar imports. The McKinley tariff sets U.S. rates to 50%, and was widely blamed for substantial consumer price inflation.
1892 France introduces the Méline Tariff, ushering in an era of protectionist measures.
1897 In the Dingley Tariff, U.S. import duty is raised to a 46.5% average.
1904 George Reid, leader of the Australian Free Trade Party becomes Prime Minister, and with the support of parliament abolishes protective tariffs, against the opposition of the Protectionist Party.
1909 Payne-Aldrich tariff
1930 The most famous trade restriction in history was passed in the wake of the Stock Market Crash of 1929: the Smoot-Hawley Tariff Act roughly doubled the U.S. tariff levels from those set in 1913.
1933 Bertil Ohlin publishes Interregional and International Trade, giving conditions under which a comparative advantage can exist despite identical technologies internationally (the Heckscher-Ohlin model).
1945 MITI is given powers to control imports to post war Japan, in the hopes of helping reconstruction.

1946 - 1995

1946 The Bretton Woods system goes into effect; it had been planned since 1944 as an international economic structure to prevent further depressions and wars. It included institutions and rules intended to prevent national trade barriers being erected, as the lack of free trade was considered by many to have been a principal cause of the war.
1947 23 countries agree to the General Agreement on Tariffs and Trade to rationalize trade among the nations. Low tariffs are beneficial to the economies of the nations in that it encourages imports, increases government revenues and gives local industries some motivation to improve their efficiency. High tariffs discourage trade between the nations, reduces or eliminates government revenues from this sector of taxation, and gives more monopoly power to local industry. So low tariffs are beneficial to the world economy but not free trade. Free trade does not necessarily mean increased trade among the nations. Nations who cannot compete in the world market will have their standard of living reduced and this reduction in their standard of living will reduce world trade. Free trade does not enable governments to earn taxes from this sector. Free trade transfers monopoly power from local industry to foreign companies and the job of government regulating the economy for the common benefit of everybody will be lost. Foreign companies cannot be regulated by government because they are aliens to a local economy.
1948 Ludwig Erhard's trade liberalization is credited by some with making Germany quickly competitive in industrial production after the damage of the second world war.
1948 The International Trade Organization's charter is agreed at the UN Havana conference on Trade and Employment, but blocked in the U.S. Senate.
1951 The European Coal and Steel Community, forerunner of the European Union, creates a free trade area for certain raw materials inside Europe.
1959 Oxfam opens the first Worldshop, retailing foreign goods under fair trade principles.
1960 European Free Trade Association established.
1971 Without accepting the doctrines of free trade the, "Comprehensive Program for Socialist Economic Integration" moved the Comecon countries to world prices in calculating the value of intra-Comecon trade. The free market price was observed for five years and the mean of these prices used to give the relative value of the imports and exports between communist countries in the trading group over the following five years.
October 16 1973: OPEC raises the Saudi light crude export price, and mandate an export cut the next day, plus an Embargo on oil exports to nations allied with Israel in the course of the Yom Kippur War. The cartel's apparent ability to manipulate prices by restricting supply was taken by many oil importers as an example of the "reciprocity" violation of free trade advanced by John Stuart Mill in 1848. See: A detailed chronology of the embargo, and [Fuel price chronology from NPR].
1974 The oil price shock was felt around the world, because production reductions increased the international price even on the open market (to countries outside the OPEC embargo). Some oil importing countries respond with the rationing of oil consumption.
1975 Inter-Comecon trade tied even more closely to the "world price" dictated by free trade.
1988 Solidaridad launches "Fair trade" labeling with the sale of Mexican coffee which was certified to meet ethical standards of sustainable development. This and other initiatives promoted the idea that some trade between regions could be socially beneficial (outside of the economic elites). The movement is especially active in campaigning to remove agricultural subsidies in the developed world (which some see as campaigning for free trade).
1992 European Union lifts barriers to internal trade in goods and labour.
January 1 1994 NAFTA takes effect
1994 The GATT Marrakech Agreement specifies formation of the WTO.
January 1 1995 World Trade Organization is created to facilitate free trade, by mandating mutual most favoured nation trading status between all signatories.

For the World Trade Organization Chronology of Free Trade see: WTO 1986 - 2005.

1996 - Present day

World system theory

Marc Bloc once wrote: Il n'y a pas d'histoire de l'Europe, il y a une histoire du monde! (There is no history of Europe, there is a history of the world.) World-system theory was introduced during the 1970s by historians like Immanuel Wallerstein, Samir Amin, Giovanni Arrighi, Andre Gunder Frank as opposition to classic historical and economical views. Main goal of World-system theory is to show that one cannot limit history and especially economic history to arbitrary units like modern nation-states, empires like Byzantine Empire or even units like Western Europe instead we must look at world-systems which are historically formed and interconnected units.

Fernand Braudel

One of the precursors and an early application of this theory can be found in Fernand Braudel's La Méditerranée et le Monde Méditerranéen a l'époque de Philippe II which originally appeared in 1949 where he thinks of the Mediterranean as a center around which an economy-world formed. Later in Civilization and Capitalism, 15th–18th Centuries (1979) Braudel claims that there are long term cycles in capitalist economy which developed in Europe in 12th century. Cities and later nation-states follow each other subsequently as centers of these cycles. Venice in 13th to 15th century (1250-1510), Antwerpen in 16th (1500-1569), Amsterdam in 16th to 18th (1570-1733), London and England in 18th and 19th (1733-1896). The other source is Dependency theory first developed in the 1950s by Raul Prebisch.

Imannuel Wallerstein

Wallerstein locates the origin of the modern world-system in 16th century Western Europe and defines: "A world-system is a social system, one that has boundaries, structures, member groups, rules of legitimation, and coherence. Its life is made up of the conflicting forces which hold it together by tension and tear it apart as each group seeks eternally to remold it to its advantage. It has the characteristics of an organism, in that it has a life-span over which its characteristics change in some respects and remain stable in others. One can define its structures as being at different times strong or weak in terms of the internal logic of its functioning."

Andre Gunder Frank

Andre Gunder Frank goes even further and claims that there is really only one world system which includes Asia, Europe and Africa and claims that we can trace ongoing trade in this system in the last 5000 years. The center of this system has always been in Asia. Europe only prospered when Asian economy was in its contracting phase of long-term economic cycle and Europe had access to virtually free silver and gold from the Americas. There was no European miracle, Europe simply had geographical advantage in discovery of Americas. This contracting phase is now coming to an end and the center is moving back to Asia.

World system theory links

References

Krugman, Paul., 1996 Pop Internationalism. Cambridge: MIT Press,
Mill, John Stuart., 1844 Essays on Some Unsettled Questions of Political Economy
Mill, John Stuart., 1848 Principles of Political Economy with some of their Applications to Social Philosophy ([Full text])
Smith, A. 1776, An Inquiry into the Nature and Causes of the Wealth of Nations

External links

[The BBC's illustrated history of free trade]
[The Cato institute] says free trade has brought wealth to countries engaging in it for 500 years.
[Personal recollections of the rise of the fair trade movement]
[A chronology of maritime Asian trade] from 425 BC (Chinese silk trade with Greece by sea.) to 1700
[Tariffs and Subsidies - The Literal Cost of High Fructose Corn Syrup]

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