The New Protectionism and the Nature of World Trade (The Quaid-i-Azam Lecture)

Despite multilateral efforts since World War II to lower barriers to trade among countries, there is ample evidence that protectionism is still a powerful force serving to inhibit the exchange of goods and services. It is the case that tariff levels have been drastically reduced-for industrial countries from an average of 40 percent in 1947 to less than 5 percent today.! However, in recent decades a variety of non-tariff barriers to trade has mushroomed in popularity and the tendency to favour regional trading areas implies discrimination among countries in trading relationships, counter to the basic multilateral approach and most-favoured-nation treatment sponsored by the various GAIT negotiating sessions. The increased pressures for protectionism have in recent years been fueled by the world recession, on occasion utilising the rhetoric of the “new trade theory”, with its emphasis on the existence of imperfectly competitive markets. It is a common observation that the volume of world trade has expanded rapidly in the past half century-even relative to world output? This could be taken as primajacie evidence that protectionism is fighting a losing battle. Such a conclusion would not be supportable if there are forces in the world tending naturally to lead to more open trade, in which case protectionism may only be slowing this trend. This is indeed the case, and I wish to argue that the nature of world trade is systematically changing: The fraction of trade represented by fmal consumer goods is becoming smaller, replaced by increased trading activity in goods-in-process, raw materials, and capital goods.