Trade Policy and National Identity: Why Keynes Was Opposed to Protectionist Policies?

The views of Keynes on Trade policy are clear: Protectionism as well as hoarding a surplus in the balance of payment are wrong. This paper analyzes the optimality of protectionist policies and having a surplus in the context of the international political system.
I show that in the situation of a hegemonic country, all classes – the working class as well as the elite – opt for free trade. But, in a balance of power context, wherein no single actor on the international scene possesses hegemonic status, the working class will choose protectionism, having a surplus, asking for harsh reparations, while the transnational elite and Keynes will not.

Keywords: Balance of Power, Carthaginian Peace, Hegemony, Reparations, National Sovereignty, Trade Policy

JEL Classification: B17, B27, E12, F30