The invisible Smoot-Hawley?


This Vox column makes the surprising claim that trade costs have risen significantly during the crisis, so much that they match the rise of trade costs in 1929:

The measured trade-cost rise is estimated to be similar in the two events, yet tariffs have not risen in today’s crisis in anywhere near the extent to which they did in the 1930s. This seems to indicate that a good fraction of today’s trade drop is due to non-tariff trade policy and other trade frictions – e.g. evaporating trade credit, credit constraints in the market for consumer durables, and other reported changes in policy have been of equal magnitude (see Ferrantino 2009 on the latter).

The best evidence we have on new trade barriers, the Global Trade Alert initiative, does not suggest a rise in measured protectionism anywhere near that observed in the 1930s. There must be something else driving the rise in trade frictions. Perhaps the protection is so murky that even GTA cannot document it? Perhaps the trade credit problem is the culprit and thus more important than many argue (Chauffour and Farole 2009)?

I’ll have to take a look at the underlying methodology that disaggregates the trade collapse into demand-driven and trade-cost-driven elements before I comment further.