A historical moment
Post-1945, all developed countries recognized the rationale for some trade liberalization.
They had inherited from the pre-1945 era severe trade restrictions that had built up during
the 1930s as a means of combating high unemployment. Post-1945, better instruments
were available for combating unemployment ñ notably Keynesian economics. Hence, the
inherited high trade barriers were seen as dysfunctional. Trade liberalization could not,
however, be unilateral because it would generate balance of payments problems.
Coordinated trade liberalization eliminated such problems. Once the era of flexible
exchange rates arrived in the 1970s, the fear of a balance of payments crises was replaced
by the fear of inflation-inducing exchange rate depreciation: coordinated trade
liberalization continued to be preferred to unilateral action.