Over the past three centuries, economic nationalism has ebbed and flowed: from the mercantile system that Adam Smith described in 1776 through waves of globalisation, backlash and battles for supremacy.
Adam Smith coined the term ‘mercantile system’ to describe the way that international trade was managed during much of his lifetime. As he explained in The Wealth of Nations, it was dominated by government regulation. Trade was organised by chartered businesses such as the East India Company, which operated within competing empires, and commodity production was largely based on a plantation economy dependent on slavery.
This all changed rapidly in the late 18th century. With the onset of industrialisation, Britain adopted policies of free labour and free trade, most notably repealing the protectionist Corn Laws in 1846. It abandoned centuries of imperial regulation in favour of a global free market, with competing private companies, exporting industrial goods and importing food and raw materials in a worldwide pattern of trade.
This first age of globalisation provoked its own reaction. The Long Depression of 1873-96 sparked a widespread return to tariffs and imperial expansion. At the same time, the United States, protected by its own tariff wall, emerged as the most productive power in the world economy.
For some, the rise of competing autarkic economic blocs – mirroring growing geopolitical rivalries – accelerated the drift towards war in 1914. For others, the period was a new highpoint in globalisation, bringing intensified economic and financial interdependence of nations.
The First World War fundamentally reshaped global trade. The United States replaced Britain as the most powerful trading nation. The market struggled to recover from global economic warfare and a post-war collapse in world trade. The United States resorted to high tariffs, as did most nations across the world as they gained tariff autonomy. Britain gradually abandoned free trade too in favour of reliance on imperial trade.
Figure 1: British, Spanish and Dutch shipping routes, 1677-1855
A real turning-point came with the Reciprocal Trade Agreement Act of 1934, which foreshadowed the emergence of the United States as the world’s leading liberal trading power. This was confirmed by its readiness to promote multilateral world trade after the Second World War, not least through the emergence of the General Agreement on Tariffs and Trade, the predecessor of the World Trade Organization (WTO). This ensured an important check on the resort to trade barriers seen after 1918.
The onset of the Cold War accelerated the creation of a regional trading bloc in Europe, which meant that the goal of universal free trade remained distant. At the same time, Japan emerged as a global rival in trade to Europe and the United States.
Figure 2: Global shipping routes, 2021
As decolonisation increased the number of less economically developed states, after 1964, the United Nations Conference on Trade and Development (UNCTAD) began to voice the concerns of primary commodity-producing nations that were trading on unfavourable terms with the industrialised West. Despite fears of a resurgence of mercantilist rivalry in the 1970s, the end of that decade saw a global reaction against the Keynesian post-war order of managed trade.
World trade was increasingly deregulated, with barriers removed not only on trade in goods but also the increasingly important areas of services, investment and intellectual property. The formation of the WTO in 1995 symbolised this new world of global free trade, although many feared that it was dominant multinational corporations and their shareholders who benefitted most.
More recently, widespread backlash has challenged what some call the ‘neoliberal’ vision of the free market, with the rapid emergence of China threatening US economic supremacy. There has also been a seeming return to the fragmentation of markets, exacerbated by Russia’s invasion of Ukraine. The state, not the consumer, seems to be returning as the driver of economic growth.
Where can I find out more?
- A timeline of global trade.
- Trade Policy History: Report from The British Academy.
- History of the multilateral trading system: Papers from the World Trade Organization.
Who are experts on this question?
- Kevin O'Rourke
- Douglas Irwin
- Helen Paul
- Alan Taylor, UC Davis
- Anthony Howe