What is trade liberalization?
Trade liberalization means to reduce or eliminate trade barriers, such as tariff, to achieve free trade (Banton). Under the circumstance of trade liberalization, the consumer cost reduces, and the trade becomes more efficient, which leads to economic growth. The 19th century saw a gradual open trade liberalization pattern until the 1870s and a revision before the first world war.
Though the two great wars damaged international integration and vastly decreased trade between countries, there was a smooth transition to trade liberalization after 1945.
Practicing economic liberalization was prevailing across the world from the Enlightenment through the 1870s; however, a reversion appeared before WWI because of protecting domestic production. Originated by John Locke and promoted by French philosophes, Liberalism economically supported laissez-faire principles—posing government interference in trade—free trade.
Though most countries practice protectionism in the world trade market after the Napoleon war, from the 1830s to the 1840s, industrialization swept western Europe, providing a pleasant environment for Liberalism to develop across the world.
The freight cost decreased enormously within the international trade because of the steam engine’s invention, leading to the development of the railroad and canal construction, increased trade efficiency. A series of liberal reforms took place in European countries, especially in Britain. British Liberals formed the Anti-Corn Law League, published the journal The Economist, and finally won the support in 1846, which gradually changed Britain’s stance to a “unilateral free trade policy” (Findlay and O’Rourke, 396).
In the 1850s, Napoleon III combined economic Liberalism with his autocratic rule, leading to a further improvement in 1860—the Cobden-Chevalier Treaty.
The treaty eliminated almost all the duties levied on goods between the trade of France and Britain. For instance, it “lowered the British tariff on wine” (Findlay and O’Rourke, 396). However, to protect domestic production, countries began to increase their tariff in the 1880s. For instance, Britain increased its tariffs in the 1880s and 1890s twice; Italy imposed a moderate tariff in 1878, followed by a severe tariff in 1877 (Findlay and O’Rourke, 397). In general, the late nineteenth century saw a gradual rise in industrial tariffs and agricultural tariffs, leading to reverse liberalization.
The transition to liberalization appeared after the second world war. The outbreak of WWII led to the breakdown of world trade and increasing protectionism within the countries.
Though the spread of communism, the Cold War, and the patterns of decolonization led to increasing protectionism and international economic disintegration, the reconstruction of the Atlantic Economy gradually liberalized the economy. The Marshall Plan provided “$13 billion” to rebuild the economy, such as the infrastructures and damaged industries in Europe (Findlay and O’Rourke, 490). The aid helped European countries rebuild their economy and provided them a chance to implement more open trade policies worldwide (Eichengreen 2007). The General
Agreement on Tariff and Trade required the trade members to treat each other equally facing the tariff and commanded against the restriction on the quantities of imports and exports. The GATT promoted international trade, strengthened world peace, and improved communication among countries.
It also created a path for establishing the WTO, which promoted free trade and reduced international trade conflict to benefit the whole global economy.
However, the increase in trade also caused the larger gap in income distribution, as rich people could gain more profit within the trade. The existence of Neo-liberalism further improved trade liberalization. The economic crisis in the Eastern Bloc in the 1980s finally led to the collapse of the Soviet Union, which promoted the idea of laissez-faire, supporting free trade. Under the direction of President Reagan and Thatcher, the US and Britain governments reinforced the idea of breaking down the trade barriers, leading to a more globalized and integrated economy.
In conclusion, the Liberalism spread across Europe and promoted trade liberalization in the 19th century, though the backlash of liberalization occurred from the 1870s. WWI and WWII increased control over trade, leading to a reduction in world trade volume. The end of WWII saw a smooth transition to trade liberalization. Because of the convergence of international trade policy at the end of the 20th century, the freer trade market existed to reduce trade barriers. World trade eventually came to a new level at the end of the century.
Bibliography: Banton, Caroline. “Trade Liberalization.” Investopedia, updated 30 September 2020. Findlay, R., & O’Rourke, K. H. (2009). Power and plenty: trade, war, and the world economy in the second millennium. Princeton University Press.
What is trade liberalization?
