A Study on the History of Trade Policy

There is a long history of the struggle for free trade in the broadest sense of absence of governmental restraint upon the freedom of traders to move and to transact business within a country and between countries. Freedom of movement and trade was deduced from .the philosophic principle of natural liberty. Adam Smith applied the principle to economic activity and particulary to trade. The economic case for free trade is still based on his argument that division of labor leads to specialization, efficiency and greater production. Each country will specialize in the production of those goods for which ithas natural advantages and can produce at lower cost than other countries. The free-trade movement, however, was soon to be defeated by a new constellation of attitudes and circumstances. In Germany Bismarck had abolished the tariff on iron and announced that tariff on iron products would end in 1877. But Germany brought forward a new tariff affording substantial protection to industry and agriculture. This new turn toward higher tariffs was defended by invoking the infant industry argument. That argument, indeed, was givenits most elaborate formulation by a German, Friedrich List, who had lived in the United States. List conceded that free trade was best from a cosmoplitan standpoint, but drew a sharp contrast between the allocative arguments and the national interest. No nation, he said, could afford to heed the cosmopolitan appeal until it had developed its own industries