Draft Paper – Not to be cited without author’s permission
can act as barriers, as can rules orienting governments to purchase locally or to support local or minority owned businesses.
When governments remove barriers to trade (like import tariffs and quotas), they are opening their markets to foreign competitors. The risk they take is that domestic producers may be driven out of business if the imports are too cheap. If that is because the same good can be produced more cheaply elsewhere because of pure comparative advantage—climatic conditions, for example—then theory postulates it would be better
in any event to be producing something else where comparative advantage. The problem is that in the real products are rarely cheaper because of pure comparative
the home country has a true world, as we shall see, cheaper advantage, but rather because of
of the Third
effects of market concentration. And World country, may be nothing more
comparative advantage than a lower paid, more
at home, for a typical exploited workforce.
When examining issues behind this global controversy, it is important to understand the historical context of trade liberalization. World economic history has long been characterized by cycles—or pendulum swings—between freer trade and protectionism. Swings toward trade liberalization are sometimes referred to as “economic integration”— as in integrating the economies of Canada, the US and Mexico via NAFTA—and the most recent swing has been dubbed “economic globalization.”
It would be erroneous to presume that integration and globalization have never happened before. The most clear historical example is that of European colonialism, in which the economies of the colonies were integrated into the increasingly global economies of Europe. That “swing” ended during the last century in the period marked by the two world wars, when a combination of war, national independence of former colonies and economic nationalism reversed a century of trade liberalization. This ushered in an era of relative protectionism, which was to be reversed again beginning in the 1970s and 80s.
In the 1970s, businesses in the United States and Europe began to confront crises brought on by rising wages at home and excess productive capacity. In other words, they now found themselves with the ability to produce more than their home markets could absorb. They need access to Third World markets to move their excess production. This brought the issue of protectionism by Third World governments to the fore, precisely at the same time as these same developing country governments became enmeshed in the debt crisis. This set the stage for the renegotiation of the debt in venues like the World Bank and the International Monetary Fund (IMF), where both Southern and Northern countries were represented.
2.1.1 Structural Adjustment: Precursor to Trade Agreements
The “South” needed debt restructuring, and the “North” wanted greater access to Southern markets. The solution was debt restructuring conditioned upon the adoption of