Patterns of trade

Difficult problems frequently arise out of trade between developed and developing countries. Most less-developed countries have agriculture-based economies, and many are tropical, causing them to rely heavily upon the proceeds from export of one or two crops, such as coffee, cacao, or sugar. Markets for such goods are highly competitive (in the sense in which economists use the term competitive)—that is, prices are extremely sensitive to every change in demand or in supply. Conversely, the prices of manufactured goods, the typical exports of developed countries, are commonly much more stable. Hence, as the price of its export commodity fluctuates, the tropical country experiences large fluctuations in its “terms of trade,” the ratio of export prices to import prices, often with painful effects on the domestic economy. With respect to almost all important primary commodities, efforts have been made at price stabilization and output control. These efforts have met with varied success.

Trade between developed and less-developed countries has been the subject of great controversy. Critics cite exploitation of foreign labour and of the environment and the abandonment of native labour needs as multinational corporations from developed countries transport business to countries with cheaper labour pools and relatively little economic or political clout. Especially after 1999, when trade talks were disrupted by globalization protesters during the WTO ministerial conference in Seattle, the work of the WTO came under increasing scrutiny from its critics. These critics voiced a number of concerns about the power and scope of the WTO, with the gravest criticisms clustering around issues such as environmental impact, health and safety, the rights of domestic workers, the democratic nature of the WTO, national sovereignty, and the long-term wisdom of endorsing commercialism and free trade to the neglect of other values.

The classic works in the field of international trade are Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 2 vol. (1776), available also in many later editions, both complete and in selections; David Ricardo, On the Principles of Political Economy and Taxation (1817), available also in modern editions; John Stuart Mill, Principles of Political Economy, 2 vol. (1848, reissued in 1 vol., 1909; reprinted 1987); Gottfried von Haberler, The Theory of International Trade with Its Applications to Commercial Policy (1936, reprinted 1968; originally published in German, 1933); and Jacob Viner, Studies in the Theory of International Trade (1937, reprinted 1975). Useful textbooks include Richard E. Caves and Ronald W. Jones, World Trade and Payments: An Introduction, 4th ed. (1985); Wilfred J. Ethier, Modern International Economics (1983); Peter B. Kenen, The International Economy (1985); and Peter H. Lindert, International Economics, 8th ed. (1986). Surveys of recent international financial developments may be found in the annual compiled by the International Monetary Fund, World Economic Outlook. Surveys of recent advanced work in international economics include Ronald W. Jones and Peter B. Kenen (eds.), Handbook of International Economics, vol. 1 (1984); and David Greenaway (ed.), Current Issues in International Trade: Theory and Policy (1985).

The Heckscher-Ohlin theory has been the most scrutinized explanation of trade patterns. The classic work is Bertil Ohlin, Interregional and International Trade, rev. ed. (1967). Other surveys are Nicholas Owen, Economies of Scale, Competitiveness, and Trade Patterns Within the European Community (1983); and Edward E. Leamer, Sources of International Comparative Advantage: Theory and Evidence (1984).

Elementary treatments of the theory and practice of tariffs may be found in standard texts, such as those listed above. Institutional and historical studies of tariffs include Asher Isaacs, International Trade, Tariff, and Commercial Policies (1948); and F.W. Taussig, The Tariff History of the United States, 8th ed. (1931, reprinted 1967). An analysis of the economic and political issues in trade policy may be found in Bela Balassa, Trade Liberalization Among Industrial Countries: Objectives and Alternatives (1967); Robert E. Baldwin and Anne O. Krueger (eds.), The Structure and Evolution of Recent U.S. Trade Policy (1984); Jagdish N. Bhagwati (ed.), Import Competition and Response (1982); William R. Cline et al., Trade Negotiations in the Tokyo Round: A Quantitative Assessment (1978); William R. Cline (ed.), Trade Policy in the 1980s (1983); I.M. Destler, American Trade Politics: System Under Stress (1986); Gary Clyde Hufbauer and Howard F. Rosen, Trade Policy for Troubled Industries (1986); and Robert Z. Lawrence and Robert E. Litan, Saving Free Trade: A Pragmatic Approach (1986). Accounts of the General Agreement on Tariffs and Trade (GATT) may be found in Gerard Curzon, Multilateral Commercial Diplomacy (1965); Gardner Patterson, Discrimination in International Trade: The Policy Issues, 1945–1965 (1966); and Gilbert R. Winham, International Trade and the Tokyo Round Negotiations (1986). The effects of trade policies on the developing countries are studied in Harry G. Johnson, Economic Policies Toward Less Developed Countries (1967).

General analyses include F.W. Taussig, Free Trade, the Tariff, and Reciprocity (1920); League of Nations, Commercial Policy in the Interwar Period: International Proposals and National Policies (1942); Jacques Lacour-Gayet, Histoire du commerce, 6 vol. (1950–55); and Robert Schnerb, Libre-échange et protectionnisme, 4th rev. ed., edited by Madeleine Schnerb (1977). Economic integration is treated in Maurice Allais, L’Europe unie: route de la prospérité (1960); Bela Balassa, The Theory of Economic Integration (1961, reprinted 1982); Bela Balassa et al. (eds.), European Economic Integration (1975); European Free Trade Association, The Effects of EFTA on the Economies of Member States (1969); Joseph Grunwald, Miguel S. Wionczek, and Martin Carnoy, Latin American Economic Integration and U.S. Policy (1972); Michael Hodges and William Wallace (eds.), Economic Divergence in the European Community (1981); James E. Meade, The Theory of Customs Unions (1955, reprinted 1980); Scott R. Pearson and William D. Ingram, “Economies of Scale, Domestic Divergences, and Potential Gains from Economic Integration in Ghana and the Ivory Coast,” The Journal of Political Economy, 88:994–1009 (October 1980); Dennis Swann, The Economics of the Common Market, 5th ed. (1984); Jacob Viner, The Customs Union Issue (1950, reprinted 1983); William Wallace (ed.), Britain in Europe (1980); Paul Wonnacott, The United States and Canada: The Quest for Free Trade (1987); and Bruce Parrott (ed.), Trade, Technology, and Soviet-American Relations (1985).