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Globalization in an Age of CrisisMultilateral Economic Cooperation in the Twenty-First Century$
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Robert C. Feenstra and Alan M. Taylor

Print publication date: 2014

Print ISBN-13: 9780226030753

Published to Chicago Scholarship Online: September 2014

DOI: 10.7208/chicago/9780226030890.001.0001

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Coping with Shocks and Shifts: The Multilateral Trading System in Historical Perspective

Coping with Shocks and Shifts: The Multilateral Trading System in Historical Perspective

(p.11) 1 Coping with Shocks and Shifts: The Multilateral Trading System in Historical Perspective
Globalization in an Age of Crisis

Douglas A. Irwin

Kevin H. O’Rourke

University of Chicago Press

This chapter describes the multilateral trading system over the last two centuries. At catastrophic moments (“shocks”) when the system has lacked shock absorbers, political economy forces have then tended to emerge intent on using protectionist devices as an alternative tool to offset, or at least cushion, such shocks. Also, lower frequency perturbations (“shifts”) have strained the commitment to free trade, as when more gradual trends in comparative advantage (whether for technological or geopolitical or other reasons) have forced dramatic changes in trade patterns, industry structure, and factor rewards, creating a political backlash. Thus, institutions matter: even if unilateral policymaking could in theory deliver a free trading system with adequate shock absorbers, historical observation of such regimes expose the perils of beggar-they-neighbor actions and a Prisoner's Dilemma outcome. The parallels with the present are clear, and the paper draws attention to the important but often neglected linkages between the sustainable success of free trade regimes and the political and technocratic ability of countries to manage the pressures that openness exposes.

Keywords:   multilateral trading system, beggar thy neighbour, prisoner's dilemma, free trade

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