Free Trade under Fire. .

• Author: Maneschi, Andrea
• Position: Book Review

By Douglas A. Irwin.

Princeton, NJ: Princeton University Press, 2002. Pp. xiii, 257. $27.95.

The concept of free trade has attracted acclaim and censure throughout the ages and continues to stir emotions, as the title of Douglas Irwin's book suggests. The nature of the opposition to free trade, however, has changed over the centuries, and this book provides a timely opportunity to reflect on how the debate has taken shape in the United States in recent years and is likely to evolve in the new millennium.

Chapter 1 sets the United States in the context of the restored global economy that emerged after the Great Depression and World War II, and it documents the increasing international integration of the United States in the past three decades as expressed, for example, by trade as a percentage of Gross Domestic Product (GDP). This integration occurred despite the concomitant growth of the nontraded goods sector, represented mainly by services and the government, as a share of GDP. Irwin points out the flaws in measures of openness based on trade alone, given the economic activity of foreign affiliates of U.S. companies and of American affiliates of foreign companies and the fact that intermediate goods (a large component of trade) often cross borders several times during the production process. He offers reasons for today's greater commercial integration, such as income growth in the OECD countries and worldwide reductions in tariffs and transportation costs.

Opinion polls have shown that the American public is ambiguous toward increasing globalization, being willing to support international trade that is spurred by technological forces but not by specific government policy initiatives. Chapter 2, the longest chapter in the book, makes a convincing case for free trade, starting with the classic theories of Adam Smith and David Ricardo. These theories, as well as those of their predecessors in the mercantilist period and of their successors, were superbly elaborated in Irwin's book of 1996, Against the Tide: An Intellectual History of Free Trade, to which the present book is a fitting complement. Using productivity data for the United States and Japan, Chapter 2 illustrates the important distinction between absolute and comparative advantage. The gains from trade stretch beyond the traditional one of greater welfare through specialization to include a greater variety of goods consumed and higher productivity achieved through the transfer of foreign technology and t hrough the stimulus to greater efficiency induced by trade. Greater openness to trade is shown to have led to higher...