《国际政治经济学》文献资料（Political Economy of International Trade：Domestic Politics）Trading Places. Industries for Free Trade

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TRADING PLACES: Industries for Free Trade By HELEN MILNER* INTRODUCTION e e or rom are he m tional attention several times during the 2oth century.In the Io2os,U.S. trade policy made a U-turn.Protectionism had declined from the Dingley tariff bill in 1897 until the Fordney-McCumber tariff law of 1922,as the average value of tariffs on dutiable goods fell from 45 percent to 28 percent.But this downward trend was reversed during the Igzos:be- tween 1922 and 1930,the United States closed its market dramatically, with tariffs attaining an ad valorem average of 53 percent.This level,set by the 1930 Smoot-Hawley tariff,was one of the highest ever,and the highest so far in the zoth century. Beginning in the 193os,protectionism in the U.S.once again abated. The Reciprocal Trade Agreements Act (R.T.A.A.),which was intro- duced in 1934 and served as a model for future trade acts,initiated the opening of the American market.Between 1934 and 1972,average U.S. tariff levels declined by some 7o percent.3 By 1972,tariffs averaged a mere 9.9 percent.+ In the early 1970s,the course of U.S.trade policy again became a source of heated debate.Among the questions that were raised about the future of American trade policy was what direction trade policy would take in the 197os and beyond.Many observers and scholars feared a resurgence of rapidly rising protectionism and international trade wars.5 Extrapolat- *I would like to thank David Baldwin,Jeffry Frieden,Stephen Haggard,Robert Keohane, and the participants at the Ford Foundation Conference on Blending Political and Economic Analysis of International Trade Policies for their helpful comments. 'Robert Pastor,Congress and the Politics of U.S.Foreign Economic Policy (Berkeley:Univer- sity of California Press,198o),Table 3,p.78;David Lake,"International Economic Structures and American Foreign Economic Policy,1887-1934,"World Politics 35 (July 1983),517-43, Table 2,p.534. lbid. 3 U.S.Tariff Commission,Trade Barriers:An Overview,No.665(Washington,DC:G.P.O., 1974,81-82 Pastor (fn.1),Table 6,p.119. s Harald Malmgren,"Coming Trade Wars?"Foreign Policy I (Winter 197o),115-43; C.Fred Bergsten,"The Crisis in US Trade Policy,"Foreign Affairs 49(July 1971),619-35;June

TRADING PLACES: Industries for Free Trade By HELEN MILNER" TODAY, protectionism is once again a central political issue in the United States. Pressures for protectionism have captured the national attention several times during the zoth century. In the 1920s, U.S. trade policy made a U-turn. Protectionism had declined from the Dingley tariff bill in 1897 until the Fordney-McCumber tariff law of 1922, as the average value of tariffs on dutiable goods fell from 45 percent to 28 percent.l But this downward trend was reversed during the 1920s: between 1922 and 1930, the United States closed its market dramatically, with tariffs attaining an ad valorem average of 53 per~ent.~ This level, set by the 1930 Smoot-Hawley tariff, was one of the highest ever, and the highest so far in the zoth century. Beginning in the I~~OS, protectionism in the U.S. once again abated. The Reciprocal Trade Agreements Act (R.T.A.A.), which was introduced in 1934 and served as a model for future trade acts, initiated the opening of the American market. Between 1934 and 1972, average U.S. tariff levels declined by some 70 percent.3 By 1972, tariffs averaged a mere 9.9 percent.4 In the early I~~OS, the course of U.S. trade policy again became a source of heated debate. Among the questions that were raised about the future of American trade policy was what direction trade policy would take in the 1970s and beyond. Many observers and scholars feared a resurgence of rapidly rising protectionism and international trade wars.5 Extrapolat- * I would like to thank David Baldwin, Jeffry Frieden, Stephen Haggard, Robert Keohane, and the participants at the Ford Foundation Conference on Blending Political and Economic Analysis of International Trade Policies for their helpful comments. Robert Pastor, Congress and the Politics of U.S. Foreign Economic Policy (Berkeley: University of California Press, 1980), Table 3, p. 78; David Lake, "International Economic Structures and American Foreign Economic Policy, 1887-1934," World Politics 35 (July 1983), 517-43, Table 2, p. 534. 'Ibid. 3 U.S. Tariff Commission, Trade Barriers: An Oueruiew, No. 665 (Washington, DC: G.P.O., 1974), 81-82. 4 Pastor (fn. I), Table 6, p. I 19. 5 Harald Malmgren, "Coming Trade Wars?" Foreign Policy I (Winter 1970), 115-43; C. Frrrl Bergsten, "The Crisis in US Trade Policy," Foreign Affairs 49 (July 1971)~619-35; June I

INDUSTRIES FOR FREE TRADE 351 ing from previous historical periods of rising and falling protectionism, these analysts expected the 197os and 198os to look much more like the Igzos than like the period between 1934 and 1970.In fact,the 1g2os were offered frequently as the example for the decade after 1973.For many, the threat of a significant closure of the U.S.market evoked a repetition of the dismal interwar years. In this article,I challenge that view of the current period.There were sizable differences in trade policy outcomes between the 192os and the 197os;these differences are puzzling because they belie the predictions of other theories.I maintain that a primary reason for these different policy outcomes was the growth of international economic interdependence after World War II.By the 197os,the expansion of these international economic ties helped to dampen pressures for trade barriers as the pref- erences of industries turned against protectionism.Using evidence from a number of industries in the Ig2os and the 197os,I shall show how the internationalization of firms reduced their interest in protection even in difficult economic times,and thus helped the United States to resist pro- tectionism in the 1970s. THE PUZZLE Two common elements,which distinguish the 192os and the 197os from the intervening years,seem central in this comparison between their trade policies.First,both the 1gzos and the 197os were times of serious economic distress and instability.Such difficult conditions have been seen as a key precondition for rising protectionist activity.One economist noted: It is generally agreed that in a modern industrial economy the cyclical state of the economy and the country's competitive position internationally are the principal determinants of the degree of protectionist pressure.Low lev- els of economic activity,high unemployment,unused capacity,trade defi- cits,rapid increases in imports,and increases in import penetration all op- Kronholz,"Trade and Currency Wars Deepen the Depression,"Wall Street Journal,October 23,I979,P.1. Hegemonic stability theorists have also predicted such a resurgence.See Charles Kindle- berger,The World in Depression,1929-1939(Berkeley:University of California Press,1973), esp.307-8;Robert Gilpin,US Power and the Multinational Corporation (New York:Basic Books,1975),esp.258-62.For more skeptical views,see Stephen Krasner,"State Power and the Structure of International Trade,"World Politics 28(April 1976),317-47;Robert O.Kco- hane,"The Theory of Hegemonic Stability and Changes in International Economic Re- gimes,"in Ole Holsti,Randolph Siverson,and Alexander George,eds.,Change in the Inter- national System (Boulder,CO:Westview Press,1980),131-62

INDUSTRIES FOR FREE TRADE 351 ing from previous historical periods of rising and falling protectionism, these analysts expected the 1970s and 1980s to look much more like the 1920s than like the period between 1934 and 1970. In fact, the 1920s were offered frequently as the example for the decade after 1973. For many, the threat of a significant closure of the U.S. market evoked a repetition of the dismal interwar years. In this article, I challenge that view of the current period. There were sizable differences in trade policy outcomes between the 1920s and the 1970s; these differences are puzzling because they belie the predictions of other theories. I maintain that a primary reason for these different policy outcomes was the growth of international economic interdependence after World War 11. By the I~~OS, the expansion of these international economic ties helped to dampen pressures for trade barriers as the preferences of industries turned against protectionism. Using evidence from a number of industries in the 1920s and the I~~OS, I shall show how the internationalization of firms reduced their interest in protection even in difficult economic times, and thus helped the United States to resist protectionism in the 1970s. Two common elements, which distinguish the 1920s and the 1970s from the intervening years, seem central in this comparison between their trade policies. First, both the 1920s and the 1970s were times of serious economic distress and instability. Such difficult conditions have been seen as a key precondition for rising protectionist activity. One economist noted: It is generally agreed that in a modern industrial economy the cyclical state of the economy and the country's competitive position internationally are the principal determinants of the degree of protectionist pressure. Low levels of economic activity, high unemployment, unused capacity, trade deficits, rapid increases in imports, and increases in import penetration all opKronholz, "Trade and Currency Wars Deepen the Depression," Wall Street Journal, October 23, 19793 P 1. Hegemonic stability theorists have also predicted such a resurgence. See Charles Kindleberger, The World in Depression, 1929-1939 (Berkeley: University of California Press, 1973)~ esp. 307-8; Robert Gilpin, US Power and the Multinational Corporation (New York: Basic Books, 1975)~ esp 258-62. For more skeptical views, see Stephen Krasner, "State Power and the Structure of International Trade," World Politics 28 (April 1976), 317-47; Robert 0.Keohane, "The Theory of Hegemonic Stability and Changes in International Economic Regimes," in Ole Holsti, Randolph Siverson, and Alexander George, eds., Change in the International System (Boulder, CO: Westview Press, 1980), 131-62

352 WORLD POLITICS erate to increase the temptation to protect domestic industries from import competition. Economic difficulties were similar in the two periods,which were marked by relatively high unemployment rates and sizable agricultural and industrial overcapacity.In the I9zos and early 193os,the U.S.econ- omy suffered two major downturns-one in 1920-1923 and one in 1929- 1933.Price deflation,labor unrest,and international monetary problems created further economic instability.7 In the 197os,the U.S.economy ex- perienced deep recessions during 1973-1975 and 1978-1982.Sparked by the oil shocks,these recessions were aggravated by rapidly shifting trade patterns,price instability,and a confused international monetary situa- tion.These high levels of economic distress and instability that were felt in the 1g2os and 197os might be expected to generate similar widespread protection. Indeed,in view of the absolute levels of economic distress during the two periods,the 197os might have generated even greater levels of mar- ket closure than the Igzos.s The averages for three major economic in- dicators all are worse in the 197os than in the Igzos,as Table I indicates. TABLE I AVERAGES FOR THREE MAJOR ECONOMIC INDICATORS (percent) 1923-1929 1973-1979 Average annual growth in real GNP 3.1 2.3 Average mean value of unemployment rate 3.5 6.8 Average value of non-residential fixed investment to GNP 11.2 10.2 All data from Feldstein (fn.7),104-5. Wendy Takacs,"Pressures for Protectionism:An Empirical Analysis,"Economic Ingteiry 19(October 1981),687-93,at 687.In general,see Timothy McKeown,"Firms and Tariff Re- gime Change:Explaining the Demand for Protectionism,"World Politics 36 (January 1984), 215-33;Giulio Gallarotti,"Toward a Business Cycle Model of Tariffs,"International Organi- zation 39(Winter 1985),155-87;Susan Strange and Roger Tooze,eds.,The International Pol- itics of Surplus Capacity (London:Butterworths,1980). 7 W.Arthur Lewis,Economic Survey,1919-1939 (London:Allen Unwin,1949);U.S.De- partment of Commerce,Survey of Current Business,various issues,1919-1930 (Washington, DC:G.P.O.);U.S.Census Bureau,Historical Statistics of the U.S.,Colonial Times to the Present (Washington,DC:G.P.O.,1975);Kindleberger (fn.5),esp.chaps.5-8;League of Nations, Economic Fluctuations in the U.S.and U.K.,1918-1942 (Geneva:League of Nations,1942); Martin Feldstein,ed.,The American Economy in Transition(Chicago:National Bureau of Eco- nomic Research,1980),12. s Sidney Ratner,James Soltow,and Richard Sylla,The Evolution of the American Economy

352 WORLD POLITICS erate to increase the temptation to protect domestic industries from import c~mpetition.~ Economic difficulties were similar in the two periods, which were marked by relatively high unemployment rates and sizable agricultural and industrial overcapacity. In the 1920s and early I~~OS, the U.S. economy suffered two major downturns--one in 1920-1923 and one in 1929- 1933. Price deflation, labor unrest, and international monetary problems created further economic instability.? In the I97OS, the U.S. economy experienced deep recessions during 1973-1975 and 1978-1982. Sparked by the oil shocks, these recessions were aggravated by rapidly shifting trade patterns, price instability, and a confused international monetary situation. These high levels of economic distress and instability that were felt in the 1920s and 1970s might be expected to generate similar widespread protection. Indeed, in view of the absolute levels of economic distress during the two periods, the 1970s might have generated even greater levels of market closure than the 1920s.~ The averages for three major economic indicators all are worse in the 1970s than in the 192os, as Table I indicates. TABLEI AVERAGES FOR THREE MAJOR ECONOMIC INDICATORS (percent) 1923-1 929 1973-1979 Average annual growth in real GNP Average mean value of unemployment rate Average value of non-residential fixed investment to GNP All data from Feldstein (fn.7), 104-5. Wendy Takacs, "Pressures for Protectionism: An Empirical Analysis," Economic Inquiry 19 (October 1981), 687-93, at 687. In general, see Timothy McKeown, "Firms and Tariff Regime Change: Explaining the Demand for Protectionism," World Politics 36 (January 1984), 215-33; Giulio Gallarotti, "Toward a Business Cycle Model of Tariffs," International Organization 39 (Winter 1985), 155-87; Susan Strange and Roger Tooze, eds., The International Politics of Surplus Capacity (London: Butterworths, 1980). 7 W. Arthur Lewis, Economic Survey, 1919-1939 (London: Allen & Unwin, 1949); U.S. Department of Commerce, Survey of Current Business, various issues, 1919-1930 (Washington, DC: G.P.O.); U.S. Census Bureau, Historical Statistics of the U.S., Colonial Times to the Present (Washington, DC: G.P.O., 1975); Kindleberger (fn. 5), esp. chaps. 5-8; League of Nations, Economic Fluctuations in the U.S. and U.K., 1918-1942 (Geneva: League of Nations, 1942); Martin.Feldstein, ed., The American Economy in Transition (Chicago: National Bureau of Economic Research, 1980), 12. Sidney Ratner, James Soltow, and Richard Sylla, The Evolution of the American Economy

INDUSTRIES FOR FREE TRADE 353 Since the U.S.economy performed more poorly in the 197os,one might expect that,if economic difficulty were a precursor to protectionism,this period should have experienced protectionism with a vengeance. A second similarity between the 19zos and 197os that has been linked to protectionism is the declining power of the world's hegemonic state. This change in the international distribution of power has been cited as a major factor leading to the closure of the world's markets.Robert Gilpin has stated that Today,...the dominant economy is itself in relative decline and is being challenged by rising centers of economic power.With the decline of the dominant economic power,the world economy may be following the pat- tern of the late nineteenth century and of the 1g3os:it may be fragmenting into regional trading blocs,exclusive economic alliances,and economic na- tionalism. In the 1920s,Great Britain,the hegemon of the Igth century,was los- ing its status.From a peak of 24 percent in 1870,Great Britain's share of world trade had fallen to 14 percent before World War I.Furthermore, its share of the world's manufacturing output tumbled from a dominant 32 percent in 1870 to a third-rate level of 14 percent in 1913."Germany and the United States overtook it in industrial competitiveness in certain critical,advanced sectors."+In addition,Britain's control over the inter- national monetary system was declining.Its problems in returning to and maintaining the gold standard in the 1gzos and its final abandonment of that system in 193I signaled this loss of influence.3 By the Iozos,then, Britain's hegemony had seriously eroded. The situation was fairly similar in the 197os.By the early part of the decade,the global dominance that the United States had exercised in the 195os and 196os had been reduced as other nations mounted a challenge. (New York:Basic Books,1979),482,502-3.The worst economic difficulties of the Great Depression followed(rather than preceded)the tariff increases,occurring in the early 1930s: unemployment averaged 3%in 1930,the year Smoot-Hawley was passed,but rose to 25%by 1933,the year before the Reciprocal Trade Agreements Act. Gilpin (fn.5),258-59.Also see Kindleberger (fn.5),esp.307-8;Krasner (fn.5),317-47; Keohane(fn.5),131-62;David Lake,"Structure and Strategy:The International Sources of American Trade Policy,1887-1939"(Ph.D.diss.,Cornell University,1983);Charles Kindle- berger,"Dominance and Leadership in the International Economy,"International Studies Quarterly 25 (June 1981),242-54;Robert Gilpin,War and Change in World Politics (Cambridge: Cambridge University Press,1981). Lake (fn.I),Table I,p.525. "Ratner,Soltow,and Sylla (fn.8),385. Lake (fn.1);Alexander Gerschenkron,Economic Backwardness in Historical Perspective (Cambridge:Harvard University Press,1962),chaps.I and 2;Samuel Hays,The Response to Industrialism,1885-1914 (Chicago:University of Chicago Press,1957),chaps.1,7,8. Robert O.Keohanc and Joseph S.Nye,Ir.,Power and Interdependence:World Polities in Transirion (Boston:Little,Brown,1977),70;Kindleberger (fn.)63-68,146-70

INDUSTRIES FOR FREE TRADE 353 Since the U.S. economy performed more poorly in the 1970s, one might expect that, if economic difficulty were a precursor to protectionism, this period should have experienced protectionism with a vengeance. A second similarity between the 1920s and 1970s that has been linked to protectionism is the declining power of the world's hegemonic state. This change in the international distribution of power has been cited as a major factor leading to the closure of the world's markets. Robert Gilpin has stated that Today, ... the dominant economy is itself in relative decline and is being challenged by rising centers of economic power. With the decline of the dominant economic power, the world economy may be following the pattern of the late nineteenth century and of the 1930s: it may be fragmenting into regional trading blocs, exclusive economic alliances, and economic nationalism.9 In the 192os, Great Britain, the hegemon of the 19th century, was losing its status. From a peak of 24 percent in 1870, Great Britain's share of world trade had fallen to 14 percent before World War I.lo Furthermore, its share of the world's manufacturing output tumbled from a dominant 32 percent in 1870 to a third-rate level of 14 percent in 1913." Germany and the United States overtook it in industrial competitiveness in certain critical, advanced sectors.I2 In addition, Britain's control over the international monetary system was declining. Its problems in returning to and maintaining the gold standard in the 1920s and its final abandonment of that system in 1931 signaled this loss of influence.13 By the 192os, then, Britain's hegemony had seriously eroded. The situation was fairly similar in the 1970s. By the early part of the decade, the global dominance that the United States had exercised in the 1950s and 1960s had been reduced as other nations mounted a challenge. (New York: Basic Books, 1979), 482, 502-3. The worst economic difficulties of the Great Depression followed (rather than preceded) the tariff increases, occurring in the early 1930s: unemployment averaged 3% in 1930, the year Smoot-Hawley was passed, but rose to 25% by 1933, the year before the Reciprocal Trade Agreements Act. vGilpin (fn. 5), 258-59. Also see Kindleberger (fn. 5), esp. 307-8; Krasner (fn. 5), 317-47; Keohane (fn. 5), 131-62; David Lake, "Structure and Strategy: The International Sources of American Trade Policy, 1887-1939" (Ph.D. diss., Cornell University, 1983); Charles Kindleberger, "Dominance and Leadership in the International Economy," Intevzational Studies Quarterly 25 (June 1981),242-54;Robert Gilpin, War and Change in World Politics (Cambridge: Cambridge University Press, 1981). 'O Lake (fn. I), Table I, p. 525. " Ratner, Soltow, and Sylla (fn. 8), 385. "Lake (fn. I); Alexander Gerschenkron, Economic Bac&uardness in Historical Perspective (Cambridge: Harvard University Press, 1962), chaps. I and 2; Samuel Hays, The Response to Industrialism, 1885-1914(Chicago: University of Chicago Press, 1957)~chaps. I, 7, 8. '3 Robert 0.Keohane and Joseph S. Nye, Jr., Power and Interdependence: World Politics in Transition (Boston: Little, Brown, 1977)~70; Kindleberger (fn. 5),63-68, 146-70

354 WORLD POLITICS America's share of world trade dropped from 18.4 percent in 1950 to 13.4 percent in 1977.'4 More tellingly,its share of the world's manufactured exports plummeted from nearly 30 percent in 1953 to about 13 percent in the late 197os.5 Its share of the world's manufacturing output also lost ground,dropping from 62 percent in 1950 to 44 percent in 1977.6 Many U.S.industries had lost their economic advantage and faced bitter com- petition both at home and abroad.In addition,the United States was no longer as dominant in the international monetary system.By 1973,it had scuttled the monetary system it had created and found itself unable to fashion a new,stable one.American hegemony in monetary relations in the 197os,however,was not as reduced as Britain's had been in the 192os and early 1930s.7But it had declined substantially,especially in trade and production,leaving the international distribution of power in the 197os more closely resembling that of the interwar period than that of the im- mediate post-World War II period.This eclipse of hegemony might have been expected to produce widespread protectionism,as it had in the I920s. Although both periods experienced the decline of a hegemon,this may be less important to American policy than the relative position of the United States.The striking fact is how similar the relative international position of the U.S.appears to be in the late 192os and the late 197os,and how different it was in the Ig5os and Ig6os.America's share of the world's manufacturing output reached 42 percent in 1929 and had leveled off at 44 percent in 1977.In contrast,the U.S.had dominated in the 195os and 196os,with 62 percent in 195o and 51 percent in 1960.In the trade area,the United States was more dominant in the Igzos than in the 197os, but nowhere near as dominant as in the 195os.In the Igzos,it was the world's largest exporter and biggest foreign investor,and ranked second only to Britain in its imports.s By the late 197os,it had become the world's second-largest exporter of manufactures-West Germany led with almost 16 percent compared to America's 13 percent-and was being challenged for that spot by Japan(II percent).In 1953,by contrast, the U.S.had reigned supreme in trade,controlling nearly 30 percent of all manufactured exports.'9 "Lake (fn.1),Table 3,p.541;Keohane and Nye (fn.13),141. s Feldstein (fn.7),193,196. 16 Ibid.,I9I. 7U.S.hegemony in money was diminished less than in trade.Its ending of the Bretton Woods system was more an act of power than of weakness,according to many analysts.See Keohane and Nye (fn.13),141,165-86;John Odell,U.S.International Monetary Policy:Mar- kets,Power,and Ideas as Sources of Change (Princeton:Princeton University Press,1982),chap. 4,esp.p.219. 'Ratner,Soltow,and Sylla (fn.8),464;Feldstein (fn.7),191. Feldstein (fn.7),196

354 WORLD POLITICS America's share of world trade dropped from 18.4 percent in I950 to 13.4 percent in I977.'4 More tellingly, its share of the world's manufactured exports plummeted from nearly 30 percent in 1953 to about 13 percent in the late I~~OS.'~ Its share of the world's manufacturing output also lost ground, dropping from 62 percent in 1950 to 44 percent in 1977.1~ Many U.S. industries had lost their economic advantage and faced bitter competition both at home and abroad. In addition, the United States was no longer as dominant in the international monetary system. By 1973, it had scuttled the monetary system it had created and found itself unable to fashion a new, stable one. American hegemony in monetary relations in the I~~OS, however, was not as reduced as Britain's had been in the 1920s and early 1930s.17 But it had declined substantially, especially in trade and production, leaving the international distribution of power in the 1970s more closely resembling that of the interwar period than that of the immediate post-World War I1 period. This eclipse of hegemony might have been expected to produce widespread protectionism, as it had in the 1920s. Although both periods experienced the decline of a hegemon, this may be less important to American policy than the relative position of the United States. The striking fact is how similar the relative international position of the U.S. appears to be in the late 1920s and the late I~~OS, and how different it was in the 1950s and 1960s. America's share of the world's manufacturing output reached 42 percent in 1929 and had leveled off at 44 percent in 1977. In contrast, the U.S. had dominated in the 1950s and 1960s, with 62 percent in 1950 and 51 percent in 1960. In the trade area, the United States was more dominant in the 1920s than in the I~~OS, but nowhere near as dominant as in the 1950s. In the 192os, it was the world's largest exporter and biggest foreign investor, and ranked second only to Britain in its imports.18 By the late I~~OS, it had become the world's second-largest exporter of manufactures-West Germany led with almost 16 percent compared to America's 13 percent-and was being challenged for that spot by Japan (I I percent). In 1953, by contrast, the U.S. had reigned supreme in trade, controlling nearly 30 percent of all manufactured exports.19 '4 Lake (fn. I), Table 3, p. 541; Keohane and Nye (fn. 131, 141. '5 Feldstein (fn. 7), 193, 196. lh Ibid., 191. '7 U.S. hegemony in money was diminished less than in trade. Its ending of the Bretton Woods system was more an act of power than of weakness, according to many analysts. See Keohane and Nye (fn. 13), 141, 165-86; John Odell, U.S. International Monetaty Policy: Markets, Powel; and Ideas as Sources of Change (Princeton: Princeton University Press, 1982),chap. 4, esp. p. 219. 'Watner, Soltow, and Sylla (fn. 8), 464; Feldstein (fn. 71, 191. 'q Feldstein (fn. 7), 196

INDUSTRIES FOR FREE TRADE 355 A similar story is told by changes in relative economic size and pro- ductivity.According to Lake,who uses these two measures in his analysis of international economic structures,the position of the United States was almost identical in 1929 and 1977.This contrasts with its clear predom- inance in 1950.Moreover,in both 1929 and 1977,the U.S.appeared sim- ilarly situated relative to its nearest rivals.In 1929,it led all countries on these two indicators,barely edging out Britain while retaining a substan- tial lead over France and Germany.In 1977,its relative position was com- parable:it was almost even with West Germany,but still outdistanced apan and France. Hence,two strong similarities in the international distribution of eco- nomic power existed in the 192os and 197os.In both,a hegemon was in decline,and in both the relative position of the United States was slightly superior to all others-but,most importantly,was being challenged by several nations.These conditions in the international economic structure have been linked to rising protectionism,and thus might have been ex- pected to engender similar protectionist responses in the two periods. The argument here is not.that the 1gzos and the 197os were alike in all respects.Two important differences,at least,may attenuate the compar- ison.First,the United States was a rising hegemon in the Ig2os and a de- clining one in the 197os.Although hegemonic stability arguments pro- vide no theoretical reason to expect this difference to affect a hegemon's trade policy,the notion of a lag has been introduced to account for this." A rising hegemon may fail to appreciate its own significance,while a de- clining one may fail to understand its weakness and need for closure. This difference may account for dissimilarities between the two periods. But the reason for such a lag is obscure. Second,there was a difference in the monetary systems operating at the two times.In the Igzos,a shift occurred from the controlled flexible exchange-rate system that had been in effect before 1925,to a fixed gold- standard system which was in effect until 1931.In the 197os,the move- ment was in the opposite direction:from a fixed,dollar-gold standard to a managed flexible rate system after 1973.The consequences of these two different systems for trade policy are unclear,however;the effects of dif- ferent exchange-rate systems on trade are not well understood.It has been asserted by some that flexible rates should hinder protectionism be- 2 David Lake,"Beneath the Commerce of Nations,"International Studies Ouarterly 28 (June 1984),Figs.5 and 6,pp.143-70. "I do not agree with Lake's interpretation of these two structures and their differences; see fn.20. >Kindleberger (fn.5);Krasner (fn.5)

INDUSTRIES FOR FREE TRADE 355 A similar story is told by changes in relative economic size and productivity. According to Lake, who uses these two measures in his analysis of international economic structures, the position of the United States was almost identical in I929 and 1977.'" This contrasts with its clear predominance in 1950. Moreover, in both 1929 and 1977, the U.S. appeared similarly situated relative to its nearest rivals. In 1929, it led all countries on these two indicators, barely edging out Britain while retaining a substantial lead over France and Germany. In 1977, its relative position was comparable: it was almost even with West Germany, but still outdistanced Japan and France. Hence, two strong similarities in the international distribution of economic power existed in the 1920s and 1970s. In both, a hegemon was in decline, and in both the relative position of the United States was slightly superior to all others-but, most importantly, was being challenged by several nations. These conditions in the international economic structure have been linked to rising protectionism, and thus might have been expected to engender similar protectionist responses in the two periods:~ The argument here is not that the 1920s and the 1970s were alike in all respects. Two important differences, at least, may attenuate the comparison. First, the United States was a rising hegemon in the 1920s and a declining one in the 1970s. Although hegemonic stability arguments provide no theoretical reason to expect this difference to affect a hegemon's trade policy, the notion of a lag has been introduced to account for this.%% A rising hegemon may fail to appreciate its own significance, while a declining one may fail to understand its weakness and need for closure. This difference may account for dissimilarities between the two periods. But the reason for such a lag is obscure. Second, there was a difference in the monetary systems operating at the two times. In the 1920s, a shift occurred from the controlled flexible exchange-rate system that had been in effect before 1925, to a fixed goldstandard system which was in effect until 1931. In the I~~OS, the movement was in the opposite direction: from a fixed, dollar-gold standard to a managed flexible rate system after 1973. The consequences of these two different systems for trade policy are unclear, however; the effects of different exchange-rate systems on trade are not well understood. It has been asserted by some that flexible rates should hinder protectionism be- 2o David Lake, "Beneath the Commerce of Nations," International Studies Quarterly 28 (June 1984),Figs. j and 6, pp. 143-70. 'I I do not agree with Lake's interpretation of these two structures and their differences; see fn. 20. "Kindleberger (fn. 5); Krasner (fn. 5)

356 WORLD POLITICS cause such barriers are nullified by exchange-rate changes.3 Others maintain that flexible rates augment protectionist pressures by increasing risk,and that fixed rates are best for ensuring free trade."It seems fair to say that the exchange-rate systems operating in both periods did little to provide a stable environment for international trade. A related issue is whether the value of U.S.exchange rates had a dif- ferent effect on trade policy in the two periods.The argument is that the level of exchange rates was driving trade policy,especially in the 197os. Thus,the relative undervaluation of the dollar in the late 197os weakened protectionist pressures,while its overvaluation in the early 1g8os led to new pressures for barriers.5 The problem with this argument is that the Igzos look similar:after World War I,the U.S.dollar appeared to be undervalued,supposedly mitigating protectionist pressures.But later in the decade,the dollar seemed overvalued relative to the mark,lira,franc, and gold,although undervalued relative to sterling.Differences in ex- change-rate levels,then,do not seem to distinguish the two periods. Despite these differences,the similarities between the Ig2os and 197os in terms of economic difficulties and the relative economic position of the United States might lead one to expect that U.S.trade policy in the 197os would look like that of the 1gzos.The 197os,however,were not marked by the extensive closure of the U.S.market that occurred in the Igzos. American trade policy remained oriented toward a relatively open mar- ket.Although it is commonly believed that protectionism grew substan- tially in the 197os and the early 198os,U.S.trade policy actually had mixed currents.Overall,there was probably a small net increase in trade barriers relative to the 1g6os,but these new barriers never reached levels near those attained in the 1920s.Moreover,unlike in the 1930s,these bar- riers had little effect on the volume of trade:global and U.S.trade con- tinued to grow throughout the decade of the 197os,and to grow faster than production.In addition,tariffs had been reduced to their lowest lev- els,about 5 percent on average,through the GATr Tokyo Round negoti- ations.7 On the other hand,some non-tariff barriers(NTBs)were growing. 3 Herbert Grubel,International Economics (Homewood,IL:Irwin,1977),chap.22;Charles Kindleberger and Peter Lindert,International Economics,6th ed.(Homewood,IL:Irwin, 1978),chap.21;Robert Baldwin and J.David Richardson,International Trade and Finance, 3rd ed.(Boston:Little,Brown,1986),chap.21. 3C.Fred Bergsten and William Cline,"Overview,"in William Cline,ed.,Trade Policy in the 198os(Washington,DC:Institute for International Economics,1983). Kindleberger and Lindert (fn.23),chap.21,esp.Fig.21.5. Ibid.,chap.21,Fig.21.3.Note how all other currencies rise in value against the dollar after the change in 1931. 27 U.S.Tariff Commission (fn.3),81-82

- - 356 WORLD POLITICS cause such barriers are nullified by exchange-rate Others maintain that flexible rates augment protectionist pressures by increasing risk, and that fixed rates are best for ensuring free trade.24 It seems fair to say that the exchange-rate systems operating in both periods did little to provide a stable environment for international trade. A related issue is whether the value of U.S. exchange rates had a different effect on trade policy in the two periods. The argument is that the level of exchange rates was driving trade policy, especially in the 1970s. Thus, the relative undervaluation of the dollar in the late 1970s weakened protectionist pressures, while its overvaluation in the early 1980s led to new pressures for barriers.>s The problem with this argument is that the 1920s look similar: after World War I, the U.S. dollar appeared to be . . undervalued, supposedly mitigating protectionist pressures. But later in the decade, the dollar seemed overvalued relative to the mark, lira, franc, and gold, although undervalued relative to sterling.26 Differences in exchange-rate levels, then, do not seem to distinguish the two periods. ~es~ite these differences, the similarities between the 1~20s and 1970s in terms of economic difficulties and the relative economic position of the United States might lead one to expect that U.S. trade policy in the 1970s would look like that of the 1920s. The I~~OS, however, were not marked by the extensive closure of the U.S. market that occurred in the 1920s. American trade policy remained oriented toward a relatively open market. Although it is commonly believed that protectionism grew substantially in the 1970s and the early 1980s, U.S. trade policy actually had mixed currents. Overall, there was probably a small net increase in trade barriers relative to the 1960s, but these new barriers never reached levels near those attained in the 1920s. Moreover, unlike in the I~~OS, these barriers had little effect on the volume of trade: global and U.S. trade continued to grow throughout the decade of the I~~OS, and to grow faster than production. In addition, tariffs had been reduced to their lowest levels, about 5 percent on average, through the GATT Tokyo Round negotiation~.~' On the other hand, some non-tariff barriers (NTBs) were growing. '3 Herbert Grubel, International Economics (Homewood, IL: Irwin, 1977), chap. 22; Charles Kindleberger and Peter Lindert, International Economics, 6th ed. (Homewood, IL: Irwin, 1978), chap. 21; Robert Baldwin and J. David Richardson, International Trade and Finance, 3rd ed. (Boston: Little, Brown, 1986), chap. 21. '4 C. Fred Bergsten and William Cline, "Overview," in William Cline, ed., Trade Policy in the 1980s (Washington, DC: Institute for International Economics, 1983). "5 Kindleberger and Lindert (fn. 23), chap 21, esp. Fig. 21.5. 26 Ibid., chap. 21, Fig. 21.3. Note how all other currencies rise in value against the dollar after the change in 1931. '7 US. Tariff Commission (fn. 3), 81-82

INDUSTRIES FOR FREE TRADE 357 These are difficult to measure(and were generally not measured while tariffs remained high),but their relative importance increased in the late 197os.By that time,nearly 30 percent of all categories(not values)of American manufactured imports were affected by them.*8 One empirical study concludes,however,that these new NTBs have had only limited protectionist effects;as the authors point out,"on average over a full range of manufactured products,the protection given by NTBs that may limit or reduce imports...is not nearly as large as the protection afforded by tariffs...or natural barriers to trade...."They project that,"if the United States continues on its present policy course,the U.S.economy will be considerably more open in 1985 than it was in 1976."3 Thus the erection of NTBs in the 197os and 198os may have produced a small net increase in protection.But this increase did not approach the levels of the 19zos even though two key preconditions-serious economic distress and declining hegemony-characterized both periods.Given the fertile ground of the late 197os,protectionism could have grown rampantly,as it did in the Igzos.For some reason,it did not. OTHER EXPLANATIONS The question,then,is why trade policy was different in the igzos and 197os even though key pressures influencing it were similar.This puzzle has been addressed by a number of studies.Three answers,all of which focus on aspects of the international or domestic system that are different from the one central to this study,require examination.They should be seen less as competing than as being pitched at different levels of analysis. I maintain that the argument developed in this study has been neglected and that it is more basic than these others. One type of explanation looks at the international distribution of power,usually in terms of economic capabilities.It involves modifications of the hegemonic stability thesis,which,as has been shown,cannot in its original form explain the differences in policy outcomes between the 192os and the 197os.s Three modified arguments have been presented. First,it has been asserted that American hegemony has not declined enough to set off the expected protectionist response.3 Even though other *Robert Reich,"Beyond Free Trade,"Foreign Affairs 61 (Spring 1983),773-804,at 786. Peter Morici and Laura Megna,U.S.Economic Policies Affecting Industrial Trade:A Ouan- titative Assessment (Washington,DC:National Planning Association,1983),11. Ibid.,103. s'Krasner (tn.5). 3Bruce Russett,"The Mysterious Case of Vanishing Hegemony;or,Is Mark Twain Really Dead?"International Organization 39(Spring 1985),207-32;Susan Strange,"Still An Extraor- dinary Power,"in Raymond Lombra and Willard Witte,Political Economy of International and Domestic Monetary Relations(Ames:lowa State University,1982)

INDUSTRIES FOR FREE TRADE 357 These are difficult to measure (and were generally not measured while tariffs remained high), but their relative importance increased in the late 1970s. By that time, nearly 30 percent of all categories (not values) of American manufactured imports were affected by them.28 One empirical study concludes, however, that these new NTBs have had only limited protectionist effects; as the authors point out, "on average over a full range of manufactured products, the protection given by NTBs that may limit or reduce imports. . . is not nearly as large as the protection afforded by tariffs . . . or natural barriers to trade. . . .''Z9 They project that, "if the United States continues on its present policy course, the U.S. economy will be considerably more open in 1985 than it was in 1976.30 Thus the erection of NTBs in the 1970s and 1980s may have produced a small net increase in protection. But this increase did not approach the levels of the 1920s even though two key preconditions-serious economic distress and declining hegemony-characterized both periods. Given the fertile ground of the late I~~OS, protectionism could have grown rampantly, as it did in the 1920s. For some reason, it did not. The question, then, is why trade policy was different in the 1920s and 1970s even though key pressures influencing it were similar. This puzzle has been addressed by a number of studies. Three answers, all of which focus on aspects of the international or domestic system that are different from the one central to this study, require examination. They should be seen less as competing than as being pitched at different levels of analysis. I maintain that the argument developed in this study has been neglected and that it is more basic than these others. One type of explanation looks at the international distribution of power, usually in terms of economic capabilities. It involves modifications of the hegemonic stability thesis, which, as has been shown, cannot in its original form explain the differences in policy outcomes between the 1920s and the 1970s.~' Three modified arguments have been presented. First, it has been asserted that American hegemony has not declined enough to set off the expected protectionist resp0nse.3~ Even though other 28 Robert Reich, "Beyond Free Trade," Foreign Affairs 61 (Spring 1983), 773-804, at 786. 'v Peter Morici and Laura Megna, U.S. Economic Policies Affecting Indwtrial Trade: A Quantitative Assessment (Washington, DC: National Planning Association, 1g83), I I. I" Ibid., 103. 3' Krasner (fn. 5). Bruce Russett, "The Mysterious Case of Vanishing Hegemony; or, Is Mark Twain Really Dead.?"International Organization 39 (Spring 1985), 207-32; Susan Strange, "Still An Extraordinary Power," in Raymond Lombra and Willard Witte, Political Economy of International and Domestic Monetary Relations (Ames: Iowa State University, 1982). 3

358 WORLD POLITICS countries have caught up with the United States,it still remains the strongest,especially when its military might is considered.Thus,this ar- gument depends on military capabilities being an important factor in trade policy considerations.However,the fungibility of these power re- sources is questionable.3s In fact,the second type of hegemonic stability argument denies this fungibility.Considering only trade-related power resources,it suggests that U.S.hegemony has not declined enough to evoke extensive protectionism.34 But in comparison to its trade position in the 1g2os,the U.S.held a similar,or even less dominant,position in the 1970s.One explanation for this disparity is the lag phenomenon discussed earlier.A third argument modifying the thesis of hegemonic stability holds that different configurations of states in terms of their relative eco- nomic power lead to different outcomes in trade policy.But this argu- ment is not able to explain the differences between the 192os and 197os, since the configuration of states at those two points(1929 and 1977)was very similar.35 A second type of explanation focuses on the existence of an interna- tional regime in trade.In this view,the creation of the cATr system after World War II and its continued functioning have been partially respon- sible for the maintenance of a relatively open international economy.In the Igzos,the lack of any such regime helped to spread protectionism. GATr is seen as working against protectionism in numerous ways.Some analysts argue that it operates through the externalization of a norm- i.e.,"embedded liberalism"-which promotes trade but also minimizes its domestic costs and,with it,protectionist demands.6 Others suggest that the regime and its norms are embodied in domestic policies and prac- tices and that it is effective through constraining and shaping domestic behavior.37 Still others see the regime as encouraging international com- s David Baldwin,"Power Analysis and World Politics:New Trends Versus Old Politics," World Politics 31 (January 1979),161-94;Keohane and Nye (fn.13),chap.2. Ibid.,chap.3;Robert O.Kcohane,After Hegemony:Cooperation and Discord in the World Political Economy (Princeton:Princeton University Press,1984),chaps.4,9;Vinod Aggarwal, Liberal Protectionism:The International Politics of Organized Textile Trade (Berkeley:Univer- sity of California Press,1985),chaps.2,7. Lake (fns.1,9,and 20).To overcome this difficulty,Lake makes two points:first,that due to the disruption caused by World War I,much greater uncertainty existed in the 19z0s, which prompted more protectionist activity.Second,he implies that the height of protection- ism globally was in the 1930s,not the Igzos,when the structure was somewhat different.Pro- tectionism,however,was rising world-wide throughout the 192os;it hit its peak in the U.S by 1930 and elsewhere by 1933 or 1934.This explanation of trade policy outcomes is more sophisticated and perhaps more accurate than other hegemonic stability arguments,but it still has difficulty accounting for the differences between the 19zos and the 1970s. John Ruggie,"International Regimes,Transactions,and Change,"International Organi- sation 36 (Spring 1982),379-415. s7 Charles Lipson,"The Transformation of Trade,"International Organization 36(Spring

358 WORLD POLITICS countries have caught up with the United States, it still remains the strongest, especially when its military might is considered. Thus, this argument depends on military capabilities being an important factor in trade policy considerations. However, the fungibility of these power resources is questionable.33 In fact, the second type of hegemonic stability argument denies this fungibility. Considering only trade-related power resources, it suggests that U.S. hegemony has not declined enough to evoke extensive protectionism.34 But in comparison to its trade position in the 1920s, the U.S. held a similar, or even less dominant, position in the 1970s. One explanation for this disparity is the lag phenomenon discussed earlier. A third argument modifying the thesis of hegemonic stability holds that different configurations of states in terms of their relative economic power lead to different outcomes in trade policy. But this argument is not able to explain the differences between the 1920s and I~~OS, since the configuration of states at those two points (1929 and 1977) was very similar.35 A second type of explanation focuses on the existence of an international regime in trade. In this view, the creation of the GATT system after World War I1 and its continued functioning have been partially responsible for the maintenance of a relatively open international economy. In the 192os, the lack of any such regime helped to spread protectionism. GATT is seen as working against protectionism in numerous ways. Some analysts argue that it operates through the externalization of a normi.e., "embedded liberalismH-which promotes trade but also minimizes its domestic costs and, with it, protectionist demands3 Others suggest that the regime and its norms are embodied in domestic policies and practices and that it is effective through constraining and shaping domestic behavior.37 Still others see the regime as encouraging international com- 33 David Baldwin, "Power Analysis and World Politics: New Trends Versus Old Politics," World Politics 31 (January 1979), 161-94; Keohane and Nye (fn. 13), chap 2. 34 Ibid., chap. 3; Robert 0. Keohane, After Hegemony: Cooperation and Discord in the World Political Economy (Princeton: Princeton University Press, 1984), chaps. 4,9; Vinod Aggarwal, Liberal Protectionism: The International Politics of Organized Textile Trade (Berkeley: University of California Press, 1985), chaps. 2, 7. 35 Lake (fns. I, 9, and 20). To overcome this difficulty, Lake makes two points: first, that due to the disruption caused by World War I, much greater uncertainty existed in the 1920s, which prompted more protectionist activity. Second, he implies that the height of protectionism globally was in the 193os, not the 1920s, when the structure was somewhat different. Protectionism, however, was rising world-wide throughout the 1920s; it hit its peak in the U.S. by 1930 and elsewhere by 1933 or 1934. This explanation of trade policy outcomes is more sophisticated and perhaps more accurate than other hegemonic stability arguments, but it still has difficulty accounting for the differences between the 1920s and the 1970s. 36 John Ruggie, "International Regimes, Transactions, and Change," lnternational Organization 36 (Spring 1982), 379-415. 37 Charles Lipson, "The Transformation of Trade," lnternational Organization 36 (Spring

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