Commercial Policy

Commercial policy has a dual motivation. Its creators pursue, or believe they pursue, the economic welfare of their countries by influencing the direction and flow of trade. There are few aspects of international economic affairs so mystifying, so traditional. While economic theory demonstrates the welfare-superiority of free trade, only Britain, in the late nineteenth century, has tried it. From the dawn of the nation state it has been the area in which power politics and economics have mingled to the detriment of both. In the century of liberal experiment free trade was the declared objective of the great countries while each manipulated trade impediments as bargaining counters in the game of the balance of power. As the world shrank in size in the twentieth century realisation grew that the classical economic optimum of free trade could only be achieved at costs in domestic economic adjustment which few countries would accept. At the same time the traditional commercial policy weapon of the tariff was augmented by a formidable battery of direct and monetary controls, often more potent and flexible for trade manipulation. From the high tide of trade liberalism marked by the Cobden Treaty of 1860, under the influence of industrial rivalry and competition in the 1930s for declining markets, protectionism and trade and payments control became an accepted fact of economic life in which the great powers differed only in the degree to which they made use of protective devices.