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By Root 545 0

from the Arctic, fruit and wine from southern Europe, spices from the Orient and of course their own manufactures to whoever wanted them. Through efficient ship construction (not least a new division of labour within the shipyard, as observed by a curious William Petty) they undercut all other shipping costs by more than one-third. It did not last long. Within a century Louis XIV and others had ended the Dutch golden age with a mixture of war, mercantilist retaliation and high taxes, imposed to fight wars. Yet another attempt to use free trade to lift living standards bit the dust. But because this was not monolithic China, the baton was picked up by others, especially the British.

Victorian Britain’s great good fortune was that at the moment of industrial take-off Robert Peel embraced free trade, whereas Yong-Le had banned it. Between 1846 and 1860, Britain unilaterally adopted a string of measures to open its markets to free trade to a degree unprecedented in history. It abolished the corn laws, terminated the navigation acts, removed all tariffs and agreed trade treaties with France and others incorporating the ‘most favoured nation’ principle – that any liberalisation applied to all trading parties. This spread tariff reduction like a virus through the countries of the world and genuine global free trade arrived at last – a planetary Phoenician experiment. So at the crucial moment America could specialise in providing food and fibre to Britain and Europe, which could further specialise in providing manufactures for the consumers of the world. Both sides benefited. By 1920, for example, 80 per cent of all beef eaten in London was imported, mostly from Argentina, which was one of the richest countries in the world as a consequence. Both sides of the estuary of the River Plate became a vast slaughterhouse where beef was canned, salted and dried for export, the name of the Uruguayan town of Fray Bentos turning into a synonym for canned meat in Britain.

The message from history is so blatantly obvious – that free trade causes mutual prosperity while protectionism causes poverty – that it seems incredible that anybody ever thinks otherwise. There is not a single example of a country opening its borders to trade and ending up poorer (coerced trade in slaves or drugs may be a different matter). Free trade works for countries even if they do it and their neighbours do not. Imagine a situation in which your street is prepared to accept produce from other streets but they are only allowed what they produce: who loses? Yet in the aftermath of the First World War, one by one countries tried beggaring their neighbours in the twentieth century. As currencies devalued and unemployment rose in the 1930s, government after government sought self-sufficiency and import substitution: Greece under Ioannis Metaxas, Spain under Francisco Franco, America under Smoot-Hawley. Global trade fell by two-thirds between 1929 and 1934. In India in the 1930s, the British government imposed tariffs to protect wheat farmers, cotton manufacturers and sugar producers against cheap imports from Australia, Japan and Java respectively. These protectionist measures exacerbated the economic collapse. In five years from 1929, Japanese silk exports collapsed from 36 per cent of the total to 13 per cent. Little wonder that with a rapidly growing population but a shrinking opportunity to export both goods and people, the Japanese regime began seeking imperial space instead.

Then after the Second World War, the entire continent of Latin America broke with free trade under the influence of an Argentinian economist named Raul Prebisch, who thought he had found the flaw in Ricardo’s logic, and achieved decades of stagnation. India, under Jawaharlal Nehru, went for autarky too, closing its borders to trade in the hope of sparking a boom in import substitution. It too found stagnation. Still they tried: North Korea under Kim Il Sung, Albania under Enver Hoxha, China under Mao Zedong, Cuba under Fidel Castro – every country that tried protectionism suffered. Countries