May 08, 2005

"I Heart Hawley-Smoot" Returns!

I noticed a comment or two from yesterday defending tariffs and protectionism, and, rather than offer a tepid rehash of neoliberal talking points in response, I thought I'd try to dig up the best pro-protectionism arguments I could find on the internet. Anyway, it wasn't exactly what I was looking for, but "Kicking Away the Ladder: The 'Real' History of Free Trade" (pdf), by Cambridge's Ha-Joon Chang, is pretty convincing.

Short argument: All of the first world countries used heavy interventionist trade and industrial protection measures to get a leg up during their infant stages. Especially the U.S. and Britain, who are often lauded for their laissez-faire approaches early on. Sadly, no. The United States slapped down, on average, a 40 percent tariff rate on manufacturing imports from 1820 up until World War II. Combined with its "natural" transportation barriers, Chang says "U.S. industries were literally the most protected in the world until 1945." In fact, he adds, the now-reviled Smoot-Hawley Act barely made a dent in overall levels of protection. (Though he also touches on the "Civil War was fought over tariffs, not slavery" argument, which has never been all that convincing to me.)

Ditto Britain, which did slash tariffs after the repeal of the Corn Laws in 1860, but still had a manufacturing tariff rate of 45-55 percent during its early growth spurt. (For a long while, Britain was far more protectionist than even France, which has a reputation for being excessively barrier-happy prior to World War II. 'Twas not so. In fact, the only time France was truly barrier-happy, under Napoleon III, was the one period of pre-WWII economic dynamism.)

There are other examples too, and we all know about Japan and the other East Asian "tigers" using interventionist measures during their miracle years. Blah blah. But what's interesting is Chang's claim that, when you correct for various factors, tariffs among less-developed countries are lower today than they were for First World countries way back when. As in:
For example, when the United States accorded over 40% average tariff protection to its industries in the late nineteenth century, its per capita income in PPP terms was already about three-fourths that of Britain...

Compared to this, the 71% trade-weighted average tariff rate that India used to have just before the WTO agreement, despite the fact that its per capita income in PPP terms is only about one-fifteenth that of the United States, makes the country look like a champion of free trade. Following the WTO agreement, India cut its trade-weighted average tariff to 32%, bringing it down to the level below which the U.S. average tariff rate never sank between the end of the Civil War and World War II.
Well, assuming all of Chang's numbers, etc., are correct, this seems like a serious argument, no? And presumably helps explain why developing countries have been growing so sluggishly over the past two decades. Seems the only way you could argue that developing countries don't deserve the same protections that the U.S., Britain, France, etc. got during their infancy is to say that times have changed in relevant ways. But how? In what relevant ways? Otherwise, seems time to rewrite WTO rules and World Bank policy to allow these sorts of industry-promotion tools.
-- Brad Plumer 7:46 PM || ||