The Theory of Trade and Protection

How much does a country's commercial policy affect its economic efficiency? How would free trade change the structure of a country’s economy and foreign trade? William Penfield Travis extends the Heckscher-Ohlin trade theory and addresses it to an empirical study of these and related questions. He argues that trade flows fail to reflect relative factor endowments because protection systematically nullifies their effects, and that therefore protection must be incorporated in any positive trade theory. The author begins by developing a new concept—the equalization region—which he uses to reexamine the assumptions and the logic of the Heckscher-Ohlin theory and of its principal part, the factor-price equalization theorem. This analysis produces a fundamental reinterpretation of Leontief’s scarce-factor paradox, one which justifies Leontief’s work as an empirical test of trade theory under free trade which indicates its necessary modifications under protection. These modifications are then used to show that Leontief in fact measured the effects of American and foreign tariffs and other trade restriction on relative factor prices here and abroad. To corroborate his theoretical analysis, Travis makes a detailed study of the commercial policies of five main industrial countries; he shows the common structure of protection and its systematic relationship to relative factor endowments. He shows also that protection, by distorting their relative prices, causes considerable substitution of raw materials for labor and capital inputs in manufacturing. The author concludes this important book by indicating some of the new forms which protection is taking throughout the world and by arguing that protection, past and present, is the main force preventing the spread of high living standards to the impoverished areas of the world.