The title of my paper is Evolution of Amrican Trade: Political Incentives and Policy Making. My paper asked, given the positive effects associated with free trade, why we observe the level of protection that we do over time. Long after the writings of Adam Smith were first published, high levels of trade protection persisted. It then traced why we have seen the level of trade protection fall over the course of the last 80 years.
The study began with establishing a presumption in favor of free trade. If free trade is not beneficial, then we may need to instead explain why trade barriers are as low as they are. I set the case for free trade against the argument for trade intervention. I showed that, while some theoretical arguments for trade barriers are valid, they fail once practical applications are considered. Furthermore, the theoretically valid arguments are rarely the ones actually leveled in support of protectionism.
Having established the case for free trade, I proceeded to lay out the basic foundations of the analysis. I divided the trade policy process into the interactions of three groups of actors: voters and domestic politicians, domestic politicians with one another, and domestic politicians with foreign politicians.
I began with the interactions of voters with domestic politicians. I propose that the average voter actually believes in the use of trade barriers to protect domestic industries. I then assume that politicians may signal their agreement with voters both by espousing the benefits of protection in speeches and by helping to pass protectionist legislation. Voters with an interest in establishing particular trade barriers then may lobby politicians to affect the pattern of protection.
I then move to the interactions of domestic politicians. I explain why there is bias in favor of the status quo with regard to trade policy, and how party competition can check the movement of trade barriers in either direction. I then explain how the construction and composition of congressional committees and the process of log-rolling leads to higher levels of trade barriers than would be expected from public sentiment.
Finally, I consider how the potential foreign response can affect trade policy decisions. The potential for foreign retaliation to protectionist legislation must be considered by policy makers. I conclude by showing how bilateral and multilateral negotiations change political incentives by drawing in exporting industries to lobby in favor of reducing tariffs in return for tariff reductions abroad.
The paper moves into application of the analysis to historical episodes. I begin by tracing the history of American trade policy, highlighting trends and establishing points that agree with my analysis. I follow up with a section of case studies, beginning with an analysis of the passage of Smoot-Hawley and finishing with a discussion of the transition to the current multilateral trade environment.
Smoot-Hawley was the final instance of a large-scale unilateral tariff revision. I explain how a limited revision of agricultural tariff rates turned into a general revision in congressional committees through special interest bargaining and log-rolling. I then discussed Smoot-Hawley’s economic consequences and the foreign retaliation it elicited.
Out of the cynicism with legislative tariff making created by Smoot-Hawley emerged the new multilateral trading environment. I trace its historical roots and explain how negotiation changed the political considerations associated with trade policy. I then describe the avenues available for protection that work to at least partially appease domestic interests that favor protection.
- Greg Dowd