Category Archives: Protectionism

Irwin on Smoot-Hawley

Via the WSJ, we learn that Doug Irwin is writing a book titled The Smoot-Hawley Tariff and the Great Depression. It’s due next year from Princeton University Press.

While most economists do not hold the Smoot-Hawley tariff responsible for the Great Depression itself, it contributed to a sharp decline in world trade. The tariff slashed U.S. dutiable imports by about 15%, for example. Even worse, it spawned protectionism abroad…

The damage wrought by this tariff had only one silver lining. Ever since, the ghosts of Reed Smoot and Willis Hawley (a Republican congressman from Oregon) have stood in the way of anyone arguing for higher trade barriers. They almost singlehandedly made the term “protectionist” an insult rather than a compliment.

Presumably Professor Irwin’s 1998 REStat paper provides some preview of how he’ll approach the technical portion of the book:

In the two years after the imposition of the Smoot-Hawley tariff in June 1930, the volume of U.S. imports fell over 40%. To what extent can this collapse of trade be attributed to the tariff itself versus other factors such as declining income or foreign retaliation? Partial and general equilibrium assessments indicate that the Smoot-Hawley tariff itself reduced imports by 4-8% (ceteris paribus), although the combination of specific duties and deflation further raised the effective tariff and reduced imports an additional 8-10%. A counterfactual simulation suggests that nearly a quarter of the observed 40% decline in imports can be attributed to the rise in the effective tariff (i.e., Smoot-Hawley plus deflation).

Schumer attacks international phone calls

Would a 25-cent specific tariff on importing customer service phone calls violate US WTO obligations?

Reuters: In a bid to reduce outsourcing of U.S. jobs, a Democratic senator said on Sunday he will push legislation to make companies inform customers when their calls were being transferred outside the United States and charge companies for those transferred calls…

Schumer’s bill would also impose a $0.25 excise tax on any customer service call placed inside the United States which is transferred to an agent in a foreign location. The fee would be assessed on the company that transferred the call.

Stiglitz on renminbi revaluation

Joe Stiglitz’s latest column at Project Syndicate warns the US against starting a trade war over China’s exchange rate.

On perspective:

Even in absolute value, Saudi Arabia’s multilateral merchandise surplus of $212 billion in 2008 dwarfs China’s $175 billion surplus; as a percentage of GDP, Saudi Arabia’s current-account surplus, at 11.5% of GDP, is more than twice that of China. Saudi Arabia’s surplus would be far higher were it not for US armaments exports.

In a global economy with deficient aggregate demand, current-account surpluses are a problem. But China’s current-account surplus is actually less than the combined figure for Japan and Germany; as a percentage of GDP, it is 5%, compared to Germany’s 5.2%.

On politics:

China recognizes that its currency needs to appreciate over the long run, and politicizing the speed at which it does so has been counterproductive. (Since it began revaluing its exchange rate in July 2005, the adjustment has been half or more of what most experts think is required.) Moreover, starting a bilateral confrontation is unwise.

Since China’s multilateral surplus is the economic issue and many countries are concerned about it, the US should seek a multilateral, rules-based solution. Imposing unilateral duties after unilaterally labeling China a “currency manipulator” would undermine the multilateral system, with little payoff. China might respond by imposing duties on those American products effectively directly or indirectly subsidized by America’s massive bailouts of its banks and car companies.

No one wins from a trade war. So America should be wary of igniting one in the midst of an uncertain global recovery – as popular as it might be with politicians whose constituents are justly concerned about high unemployment, and as easy as it is to look for blame elsewhere.

Brazil, U.S. Agree to Avoid Tariffs in Cotton Dispute

Bloomberg:

The Obama administration offered $147.3 million in assistance to Brazilian cotton producers and suspended an export-credit program for American farmers, in a bid to end a trade dispute with the Latin American nation.
The government will also seek to ease sanitary barriers to Brazilian imports of pork and beef, U.S. Trade Representative Ron Kirk said in a statement today on the preliminary deal. The U.S., which lost a World Trade Organization ruling in August that said its cotton subsidies violate global trade rules, will work with Brazil to reach a comprehensive agreement by June.
“We now have a clear path forward, one that is in the best interest of both the United States and Brazil,” Kirk said. “As a result of our discussions with Brazil we have avoided imposition of higher tariffs.”
The U.S. for now dodges as much as $830 million in trade sanctions on 102 goods including ketchup, cars and boats that Brazil targeted. In addition to financial assistance for Brazilian farmers, the U.S. halted the GSM-102 program that guarantees the credit foreign customers use to by American cotton, and said it will be restarted with higher fees.
Any other changes to U.S. cotton programs are pushed back until at least 2012, when the U.S. Congress will have to revisit the broader issue of farm subsidies before existing legislation governing the nation’s agriculture policies expires.

Censorship as a trade barrier

Gilbert Kaplan says that if Chinese censorship forces out US content companies like Google, the US should retaliate by erecting trade barriers to Chinese computer hardware exports. Nate Anderson at Ars Technica reports:

Dealing with censorship as a trade violation isn’t a new idea. Computer industry lobbying group CCIA was talking up trade complaints as a way to handle Chinese censorship back in January. CEO Ed Black said at the time, “It is increasingly apparent that censorship is a barrier to trade, and that China cannot limit the free flow of information and still comply with its international trade obligations. The Chinese government has said it is gathering more information before deciding how to proceed and we would urge that they look at the issue holistically with government, economic and trade officials involved in the decision.”

Of course, lobbyists aren’t the best source to describe trade law. I’d prefer to consult the folks at IELP, for example.

Banning the consumption of tradable goods and services isn’t a WTO violation per se; international trade law emphasizes non-discrimination in the treatment of foreign and domestic products. Consider Antigua’s online gambling case against the US at the WTO. The basis for its claims was not that the US was obliged to allow online gambling, but that if it allowed domestic online gambling (such as allowed by the Interstate Horseracing Act), it was obliged by its GATS commitments to also allow online gambling provided by foreign suppliers. Similarly, I suspect that censorship only constitutes a trade barrier if foreign sources of information are censored more heavily than domestic providers, i.e. a difference in national treatment.

If China censors both domestic and foreign internet sites, then it is unlikely that its WTO commitments oblige it to liberalize both. Thus, the line of thinking from folks like Dan Drezner and Simon Lester (1, 2) is that WTO law isn’t much of a tool to wield against Chinese censorship.

Discriminatory MFN tariffs: Specific tariffs in agriculture

Sohini Chowdhury, on the job market this year from Purdue University, on the “The Discriminatory Nature of Specific Tariffs“:

This paper evaluates the distortions from specific tariffs levied on agricultural imports by rich countries. Through their non-MFN ad valorem equivalents (AVEs), specific tariffs discriminate against exports from poor countries because of the lower price of their exports. So the MFN specific tariffs levied by rich WTO member countries essentially translate into higher tariff barriers for the exporters of low price goods, suggesting that the benefits of preferential tariffs that poor countries enjoy might be offset by the specific tariffs they face. Our results show that specific tariffs levied by rich countries on their agricultural imports wash away 80% of the welfare benefits and 73% of the market access benefits enjoyed by poor countries from preferential tariffs. A policy implication of this paper is that the WTO should intensify efforts to eliminate specific tariffs.

Bill Watterson on steel protectionism

Bill Watterson, creator of the beloved Calvin and Hobbes comic strip, also did some editorial cartoons for Sun Newspapers in the early 1980s. This appeared in the Brunswick Sun Times on 2 Feb 1984:

watterson

Economists frequently compare trade to technology to explain how trade expands a country’s consumption possibility set (David Friedman’s The Iowa Car Crop, Greg Mankiw’s Isoland inventer) and argue that tariffs are akin to taxes on using a more efficient production technology. Perhaps Bill Watterson’s comic will appear in textbooks soon.

From the Cleveland Sun (via Radley Balko).

Measuring protectionist actions during the crisis: What’s the counterfactual?

Dani Rodrik:

The GTA’s latest report identifies no fewer than 192 separate protectionist actions since November 2008, with China as the most common target. This number has been widely quoted in the financial press. Taken at face value, it seems to suggest that governments have all but abandoned their commitments to the World Trade Organization and the multilateral trade regime.

But look more closely at those numbers and you will find much less cause for alarm. Few of those 192 measures are in fact more than a nuisance. The most common among them are the indirect (and often unintended) consequences of the bailouts that governments mounted as a consequence of the crisis. The most frequently affected sector is the financial industry.

Moreover, we do not even know whether these numbers are unusually high when compared to pre-crisis trends. The GTA report tells us how many measures have been imposed since November 2008, but says nothing about the analogous numbers prior to that date. In the absence of a benchmark for comparative assessment, we do not really know whether 192 “protectionist” measures is a big or small number.