In March 2018, as the United States moved towards a more protectionist trade policy, White House National Board of Trade Director Peter Navarro predicted that no country would retaliate against America “for the sake of it.” simply because we are the most lucrative and largest market in the world ”. .1 Meanwhile, opponents of President Trump have called the 1930s a cautionary tale of the unintended consequences of protectionist policies. As Robert J. Samuelson put it, “the ghost of Smoot-Hawley seems to haunt President Trump.”2 The United States was also an important market in the interwar period – did this then prevent retaliation against American protectionism? And if retaliation did occur, what were the consequences?3

As it became clear that the Smoot-Hawley Act was going to be passed, foreign complaints increased. By the fall of 1929, more than 30 countries and colonies had formally protested to the US government. There is no ambiguity as to the identity of these protesters, as their complaints were read in public records while Congress debated the bill.4

On the other hand, the question of who took the next step, and who actually fought back against Smoot-Hawley, has been the subject of academic debate. As Irwin (1998: 337) points out, there were three possible responses to Smoot-Hawley. The first was not to respond at all, but in the context of the Great Depression which could have involved an increase in tariffs for purely national political reasons. The second was to take Smoot-Hawley as a signal that international cooperation had broken down and put tariffs in place accordingly. And the third was to take “direct retaliatory action against the United States.” Only the last of these possibilities in itself constituted retaliation. If a country was protecting its auto industry, was it because it wanted to retaliate against the United States or because it wanted to increase domestic auto production? It’s no surprise that researchers disagree.

At the time, however, there was little doubt in the minds of policymakers that Smoot-Hawley had provoked widespread retaliation – “the Hawley-Smoot tariff in the United States was the signal for an explosion in activity. tariff in other countries, in part to at least through retaliation. Canada, Cuba, Mexico, France, Italy and Spain proceeded almost immediately to significant increases in tariffs ”(League of Nations 1933: 193). In the same year that Smoot-Hawley was voted on, Mann (1930) listed 11 countries particularly affected by the legislation and which were considering retaliation or had already taken retaliation: Argentina, Australia, Canada, Cuba, France, Italy, Mexico , New Zealand, Spain, Switzerland and Uruguay. Affected countries have raised tariffs on particularly large U.S. exports, while calls for boycott and other measures against U.S. products have been made. Subsequent sources such as Jones (1934) argued that these countries had indeed retaliated, although Eichengreen (1989) doubted that the protectionism in which they engaged was still retaliation in itself.

It is perhaps useful to let the data on bilateral trade flows speak to this question. In a recent article (Mitchener et al. 2021), we provide the first systematic quantitative estimates of the impact of retaliation against Smoot-Hawley on US exports. We construct a new quarterly panel data set of bilateral trade flows between 1925 and 1938, for 99 countries, colonies and groupings of countries. The dataset contains 108,722 raw observations and represents the vast majority of world trade. In 1928, we captured 89% of world imports. The data was collected from national statistical sources and is, to our knowledge, the first set of bilateral trade data for the interwar period recorded at a frequency greater than the year. Having high frequency data allows us to exploit the differential timing of retaliation when estimating the impact of retaliation.

We divide our 99 territories into three groups (see appendix below). First, there are those classified by Mann and Jones as having retaliated, and which we call “retaliation.” Second, there are those who have formally protested against Smoot-Hawley, but who have not been classified by these authors as retaliation, which we refer to as “threatening.” The members of these first two groups are collectively referred to as “stakeholders”. And third, there are countries that have neither retaliated nor protested, which we call “non-responders”.

Figure 1 shows US exports to respondents and non-respondents before and after the Smoot-Hawley switchover. The figure shows that respondents made up the majority of US exports, so stocks from those countries were important to overall US trade. It also shows that American exports to respondents declined more sharply after June 1930 than exports to non-respondents, which gives a first indication that retaliation could have been at work.

Figure 1 US exports before and after the Smoot-Hawley crossing

Source: Mitchener et al. (2021)

To explore this possibility more rigorously, we estimate a theoretically sound gravity model that examines the impact of threats and retaliation. Threats and retaliation are captured by dummy variables that are equal to one if the exporter is the United States, and the importer falls into either of these two categories. Dummy variables light up in the quarter when the country or colony concerned has lodged a protest or retaliated. As usual, we include time-exporter, time-importer and bilateral pair fixed effects, and we control a variety of potential confounders, including joint membership of various blocs (the sterling block, the Reichsmark block , the gold block or the British imperial). System of preference; see Jacks and Novy 2019), the Anglo-Irish trade war, the trade treaties with the United States signed as a result of the Reciprocal Trade Agreements and Simultaneous Financial Crises Act of 1934. In particular, by including the importer time fixed effects, we control the overall decline in imports from threat countries and retaliatory countries – any response impact we find out will capture the differential decline experienced by U.S. exporters versus to stakeholders.

We estimate our severity models using both OLS and PPML and find that the impact of retaliation has been significant. Ceteris paribus, US exports to countries Mann and Jones considered to have retaliated fell from 28% to 33%. More surprisingly, perhaps, U.S. exports to the menacing fell from 15% to 22%, suggesting that de facto retaliation may have overtaken countries traditionally considered to have retaliated.

In order to delve deeper into the mechanisms involved, we compiled a second panel data set comprising 27,840 quarterly observations of US exports in 104 product categories from 59 trading partners between 1926Q3 and 1932Q2. The dataset captures 35.6% of all US exports in 1928. Using product-level data allows us to see which products have been particularly affected by retaliation abroad. We identified the top 10 US exports in our dataset to each destination and found that, including overall US exports to the affected economy, exports of these top 10 products to retaliation fell a further 33%. (exports to the menacing fell another 20%). The evidence agrees with stakeholders targeting particularly large US exports. A recent exercise found that auto exports were particularly affected, which is consistent with historical evidence that auto exports were in many cases targeted by retaliation.

Peter Navarro got it wrong in 2018, and economic history suggests it shouldn’t have come as a surprise. Trade data suggests that the United States has faced widespread retaliation against Smoot-Hawley and that the impact has been significant. While the reprisals were indeed costly for the countries concerned, this did not deter them. No matter how profitable your market is, if you behave badly, you risk being punished.

The references

Bond, E, M Crucini, T Potter and J Rodrigue (2018), “Three Lessons from US Interwar History”, VoxEU.org, September 27.

Eichengreen, B (1989), “The Political Economy of the Smoot-Hawley Tariff”, in RL Ransom and PH Lindert (eds), Research in economic history.

Irwin, DA (1998), “From Smoot-Hawley to Reciprocal Trade Agreements: Changing the Course of US Trade Policy in the 1930s”, in MD Bordo, C Goldin and EN White (eds), The Decisive Moment: The Great Depression and the American Economy in the 20th Century, University of Chicago Press.

Jacks, D and Novy, D (2019), “Trade Wars may ‘Bloc up’ World Trade,” VoxEU.org, July 23.

Jones, JM (1934) or Tariff retaliation; Implications of the Hawley-Smoot Bill, University of Pennsylvania Press.

Kottman, RN (1975), “Herbert Hoover and the Smoot-Hawley Tariff: Canada, A Case Study”, The Journal of American History 62 (3): 609-35.

League of Nations (1933), Study of the World Economy 1932-33.

Mann, LB (1930), “Foreign Reactions to the American Tariff Act”, Information Service of the Foreign Policy Association 6 (15): 261-78.

Mitchener, KJ, KH O’Rourke and K Wandschneider (2021), “The Smoot-Hawley Trade War”, CEPR Working Document 15952.

Annex: List of territories used in the analysis

To note: Trade flows to or from Uruguay and Paraguay were reported jointly by several countries, so we were forced to treat them as a single entity when building our gravity dataset.

End Notes

1 See @MorningsMaria on Twitter, March 2, 2018.

2 Smoot-Hawley’s ghost seems to haunt Trump, ”Robert J. Samuelson, Washington Post, June 27, 2018 (accessed March 11, 2019).

3 See Bond et al. (2018) for a recent study of the macroeconomic impact of tariffs during the 1930s.

Canada is an exception, as it appealed directly to President Hoover rather than filing a formal complaint with the US State Department (Kottman 1975).





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