U.S. Trade Policy and the Pacific Rim, from Fordney

Transcription

This work is distributed as a Discussion Paper by the
STANFORD INSTITUTE FOR ECONOMIC POLICY RESEARCH
SIEPR Discussion Paper No. 07-01
U.S. Trade Policy and the Pacific Rim, from FordneyMcCumber to the Trade Expansion Act of 1962:
A Political-Economic Analysis
By
Lei (Sandy) Ye
Stanford University
August 2007
Stanford Institute for Economic Policy Research
Stanford University
Stanford, CA 94305
(650) 725-1874
The Stanford Institute for Economic Policy Research at Stanford University supports research bearing on
economic and public policy issues. The SIEPR Discussion Paper Series reports on research and policy
analysis conducted by researchers affiliated with the Institute. Working papers in this series reflect the views
of the authors and not necessarily those of the Stanford Institute for Economic Policy Research or Stanford
University.
U.S. Trade Policy and the Pacific Rim, from FordneyMcCumber to the Trade Expansion Act of 1962:
A Political-Economic Analysis
Lei (Sandy) Ye
Stanford University
August 2007
Abstract
From 1922 to 1962, United States trade policies changed dramatically,
marked in the beginning by the heightening of protectionism and then the
mobilization toward trade liberalization. The effect of these policies on
the Pacific Rim, however, has been little studied. This paper investigates
the extent to which U.S. trade policies during this period impacted the
Pacific Rim economies differently from the rest of the world. Empirical
analysis demonstrates that U.S. trade with the Pacific Rim had consistently
higher tariff barriers than U.S. trade with the rest of the world. This paper
then analyzes the reasons behind this phenomenon from both a political
economy and a historical perspective. On both fronts, the Pacific Rim was
at a disadvantage, and its higher barrier to trade with the U.S. was by no
means historically accidental.
I would like to thank Professor Gavin Wright for his enormous help on this project.
Table of Contents
I. INTRODUCTION ........................................................................................................ 2
II. TRENDS IN U.S. IMPORT FLOW FROM THE PACIFIC RIM ........................ 8
III. EMPIRICAL INVESTIGATION OF DIFFERENCES IN TARIFF RATES
BETWEEN THE PACIFIC RIM AND THE REST OF THE WORLD................... 18
IV. POLITICAL ECONOMY OF TRADE LEGISLATION: EVIDENCE FROM
CONGRESSIONAL ROLL-CALL VOTES ................................................................ 34
V. A HISTORICAL INTERPRETATION OF U.S.-PACIFIC RIM TRADE
BARRIERS...................................................................................................................... 72
VI. CONCLUSION ........................................................................................................ 86
REFERENCES................................................................................................................ 90
APPENDIX A: CLASSIFICATION OF CATEGORIES USED TO CALCULATE
TARIFF RATES ............................................................................................................. 96
APPENDIX B: DATA SOURCES FOR STATE PRODUCTION RANKING ...... 100
APPENDIX C: DATA SOURCES FOR REGRESSION VARIABLES ................ 102
1
I. Introduction
In modern international economics theory, the free flow of goods and services is
widely regarded as fundamental to a nation’s healthy economic development and longterm prosperity. Trade barriers not only generate welfare-reducing economic effects, but
can also undermine international political stability. However, for much of the history of
the United States, free trade was a largely neglected concept in policy-making. The great
legislator Henry Clay characterized free trade as detrimental: “Free trade? Free trade! The
call for free trade is as unavailing as the cry of a spoiled child, in its nurse's arms, for the
moon, or the stars that glitter in the firmament of heaven. It never has existed; it never
will exist” (Clay 1854, p. 23). Such sentiment had resounding echoes in the chambers of
Congress throughout the nineteenth century and into the twentieth.
Before the twentieth century, protectionist measures such as tariffs were seen as
crucial in developing the nation’s manufacturing sector. As early as 1792, Alexander
Hamilton made a case for this in his famous “Report on Manufactures.” However, the
“infant industry” argument for protectionism became obsolete in the twentieth century
when the U.S. became a leading industrial power. On economics grounds, a cutback on
tariffs seemed timely, and levels did actually fall between 1912 and 1922. However,
politics made this period short-lived, and instead trade barriers rose to all-time highs in
the 1920s and 30s. Alarmed by a sharp downward spiral in world trade, the U.S. finally
took major steps to pursue trade liberalization in 1934 through the use of bilateral trade
agreements. In 1947, the General Agreement on Tariffs and Trade (GATT) established a
multilateral framework for trade negotiations, and since then U.S. trade policy has
continued to evolve toward lower trade barriers.
2
This paper focuses on the period between 1922 and 1962, which saw the most
dramatic transformation of U.S. foreign trade policy. Most importantly, I examine the
effect of U.S. trade policies in this period on a particular region – the Pacific Rim. In this
paper, I define the Pacific Rim as the economies of East Asia, Southeast Asia, as well as
Oceania. Sharing borders with the largest ocean in the world, the Pacific Rim economies
were a diverse group of nations that, as a whole, had a long history of trade with the U.S.
After World War I, the Pacific Rim was already an important supplier of raw
materials to the United States. However, in contrast to the more developed economies of
Europe, it was still undergoing early stages of manufacturing development and
industrialization. Major U.S. import-competing goods such as textiles and wool played
important roles in Pacific Rim trade. The Pacific Rim’s exports of finished manufactures
faced heavy competition from U.S. domestic sectors. Does the unique economic position
of the Pacific Rim suggest that U.S. trade policy may have constructed higher trade
barriers with that region than with the rest of the world? If so, why was this the case?
These are the central questions that the paper seeks to address.
Many works have closely studied various aspects of U.S. trade policies during this
period. Frank Taussig (1931) wrote what is widely regarded as a classic on the history of
tariffs of the late nineteenth to early twentieth century. A strong free-trader, he studied
tariffs in terms of the nation’s progress or lack thereof toward free trade. Many works
have also studied the economics and politics of famous tariff bills. For example,
Callahan et al. (1994) and Eichengreen (1989) presented different viewpoints on the
political and economic factors explaining the votes on the Smoot-Hawley Act. Irwin and
Kroszner (1996) studied the role of log-rolling on the same bill. Hayford and Pasurka
3
(1991) calculated effective rates of protection and (1992) conducted empirical studies on
the tariff structure of both the Fordney-McCumber and Smoot-Hawley Act.
Other works also carefully studied the reciprocal trade agreements in the 1930s as
well as the GATT. Bailey et al. (1997) and Lusztig (2004) both analyzed institutional
changes in U.S. trade policy under the Reciprocal Trade Agreements Act (RTAA). Irwin
and Kroszner (1997) conducted empirical studies on the changing political interests
toward trade liberalization from 1934-1945. Bagwell and Staiger (1999) presented an
economic theory of the GATT, and Barton et al. (2006) wrote a book that focused on the
political and legal aspects of both the GATT and the World Trade Organization (WTO).
Lastly, some books are comprehensive studies of trade policies over a long
period. Goldstein (1993) focused on the ideology and political interests in American
trade policy from the antebellum years to the 1990s. Henry Tasca (1938) wrote a
comprehensive study of the reciprocal trade agreements. In addition, Kaplan and Ryley
(1994) and Kaplan (1996) wrote more general accounts of U.S. trade policy from 18901922 and 1923-1995, respectively.
These works analyze trade policies from the perspective of the U.S. vis a vis the
rest of the world, with the latter often treated as a whole entity. They give no particular
emphasis on trading relations with particular regions, and when these relations are
discussed, the primary focus is almost always on Europe. Hardly anything is written
about Pacific trade. The Institute of Pacific Relations had published some studies on U.S.
trade with the Pacific Rim in the first half of the twentieth century, the most notable of
which was by Phillip Wright (1935). Such studies provided comprehensive information
regarding Pacific Rim’s trade with the U.S., but did not focus on the difference in Pacific
4
Rim tariff barriers with the rest of the world. Some might point out that U.S. tariff rates
as a broad principle applied equally to all countries and hence should have largely the
same impact on all regions. However, in tariff bargaining and negotiation, there was
large room for discretion over which sectors to focus on, implying that tariff reduction
among sectors could be highly uneven. Hence, the absence of explicit geographic
discrimination did not preclude the possibility of implicit regional differentiation, and this
leads back to our previous two central questions.
In this paper, I address these questions through a synthesized approach that
integrates ideas from economic history, international economics, and political science. In
the second section, I begin by showing preliminary evidence on the correlation between
tariff rates and import of selected goods in addition to the divergence in protection
between raw materials and manufactured goods from the Pacific Rim. With the initial
evidence in mind, I proceed to the third section and address whether the Pacific Rim
encountered higher barriers to trade. I present a new set of estimates of average ad
valorem tariff rates of imports from the Pacific Rim, and find that they were consistently
higher than that of U.S. imports from the rest of the world. I then interpret the reason
behind this finding through two channels: a political analysis of the voting pattern behind
various trade policies (section four) and a complementary analysis on the historical
circumstances (section five). The political analysis finds that Congressional support for
protection was stronger and more persistent among domestic sectors that competed
significantly with the Pacific Rim. The historical analysis shows that U.S. trade policy in
this period reflected foreign policy priorities that disadvantaged the Pacific Rim in trade
negotiations. At the same time, the Pacific Rim’s regional instability prevented the
5
possibility of regional economic cooperation and coordination, which could have
strengthened the region’s bargaining power in international trade.
6
7
II. Trends in U.S. Import Flow from the Pacific Rim
In 1922, the Congress passed the Fordney-McCumber Act to help relieve an
agricultural depression.1 This legislation ended a prewar trend toward lower tariffs and
helped begin a serious retreat to protectionism. From 1920-23, both average tariff rates
on dutiable imports and on all imports more than doubled to 36.17% and 15.18%,
respectively (Hayford and Pasurka 1992, p. 31). Trade barriers continued to rise and
reached its peak when the infamous Smoot-Hawley Act was passed in 1930. By the
second half of that year, the average tariff rate on dutiable imports reached an all-time
high of 44.87% (Hayford and Pasurka 1992, p.32). Importation of goods from the Pacific
Rim was already quite low in the pre-Fordney-McCumber era. The protectionist
measures only further stifled possibilities for rising imports from the region.
In order to examine some initial evidence on the effect of these tariffs on the
Pacific Rim, I have assembled a dataset of annual imports of several major goods from
the Pacific Rim economies for 1900-1940. This time frame embodies the high tariff era
of 1922-1930 plus some years before and after for comparison. In this section, I present
the trend for cotton manufactures, raw silk, silk fabric, silk laces and embroideries, and
wool. The selected goods were major imports from the Pacific Rim, and were directly
competitive with the U.S. domestic textile and agricultural sectors. For each good, I
graph its inflation-adjusted import values from selected Pacific Rim countries that
primarily exported the good. On the same graph, the average ad valorem equivalent tariff
rate for the good is delineated on a secondary axis. Efforts have been made to account
for inflation by adjusting the value of imports based on an all-commodity wholesale price
1
Some measures to protect agriculture had already begun in 1921, when the Emergency Tariff Act was
passed. However, the Emergency Act was largely designed to be a temporary measure that was to be only
in effect for six months. Fordney-McCumber Act essentially was then enacted as a permanent measure.
8
index (series Cc84, Historical Statistics of the United States 2006), and hence all import
values are expressed in 1926 dollars. In the original data source for import values,
Foreign Commerce and Navigation of the United States, the exact scope of each good
varied among different years. As a result, I have also fine-tuned the data in order to make
the import values best reflect the same group of goods in each year.
Overall, the data show that the movement of tariff rates (if dutiable) on all these
goods followed the direction of overall U.S. trade barrier. The Underwood-Simmons Act
in 1913 helped temporarily bring down high tariff levels from the earlier era. This
relatively low-tariff period lasted for about eight years. In 1922, tariff rates of these
goods under the Fordney-McCumber Act jumped back to or surpassed those of pre-1913
levels, and along with that the import value of these goods also fell, especially among the
labor-intensive textile products. The Smoot-Hawley Act in 1930 brought these rates to
all time highs, and they started to subside, albeit slowly, later in the 1930s. With the
general trend in mind, we now examine each figure to analyze the depressive effects that
high tariffs imposed on imports from the Pacific Rim.
As Figure 1 shows, Chinese and Japanese imports of cotton manufactures steadily
rose from tens of thousands of dollars to nearly three to four million dollars from 1900 to
1922, but then declined for at least another decade. Similarly, silk products also showed
declining trends after 1922 (see Figures 3 and 4), the year in which tariff rates for silk
fabric jumped back to those of pre-WWI levels at slightly below 55%. Rates for silk
laces and embroideries were high to begin with (about 60%), but were further raised to a
virtually prohibitory level of almost 90%. The higher tariff rates for silk laces and
embroideries, which are more advanced manufactures than silk fabric, can be attributed
9
to China and Japan’s comparative advantage in extremely labor-intensive or hand-made
goods (Wright 1935). This trend is also consistent with Hayford and Pasurka’s finding
(1992) that both the Fordney-McCumber and Smoot-Hawley tariff rates are positively
and significantly correlated with labor intensity. Again, any increase in imports that the
two goods seemed to show in the pre-Fordney-McCumber era was phased out over the
few years after 1922. This included the extraordinarily rapid rise in import of Japanese
silk fabric during 1918-1920 and its equally rapid decline to pre-1918 levels in the four
years after 1922.
Among agricultural goods, wool was a major import from the Pacific Rim as well
as a particularly import-sensitive product. In fact, Taussig (1931) specifically pointed out
wool as a key product that the Fordney-McCumber Act aimed to protect. Figures 5 and 6
show the trend for carpet wool and clothing/combing wool, respectively. Carpet wool
was primarily imported from China. An initial glance at Figure 5 might lead one to
conclude that the depressed effects on wool imports did not emerge until a few years after
1922. However, only carpet wool that was not used for manufacturing carpets, which
composed only about 5% of all domestically consumed carpet wools, was levied a duty
(Taussig 1931). Hence, the import trend of carpet wool was more subject to the influence
of other factors such as economic conditions, industry fluctuations, etc. On the other
hand, clothing and combing wool, which show a high degree of substitutability and
almost identical tariff rates, were mainly imported from Australia and New Zealand, two
of the world’s major producers of wool. After 1922, both types of wool showed dramatic
decline in value, as tariff rates rose from virtually zero in the post-WWI era to more than
100% (Figure 6)!
10
Interestingly, the trends examined have led to a common observation: while the
Smoot-Hawley Act of 1930 was the most infamous tariff legislation (some say of all
legislations) in U.S. history, the Fordney-McCumber Act was more critical in triggering a
serious retreat to protectionism. For all goods analyzed, Smoot-Hawley served to
increase an already high tariff rate to an all time high, but it was Fordney-McCumber that
helped establish this high tariff base from a much lower one in the post-WWI era. This
confirms the view of Schattschneider (Engerman and Gallman 2000). Only in the case of
wool did the Smoot-Hawley rates significantly widen the gap over the FordneyMcCumber rates. Among the textiles, the Fordney-McCumber tariffs already devastated
the Pacific Rim imports, where as the Smoot-Hawley tariffs at best served to further
reinforce or exacerbate this heavy pressure on imports. In fact, Hayford and Pasurka’s
analysis (1992) show that the change in tariff structure from Fordney-McCumber to
Smoot-Hawley actually decreased tariff rates for more labor-intensive industries.
When we examine the import of the same goods after 1934, marked by the
enactment of the Reciprocal Trade Agreements Act (RTAA) and what’s widely regarded
as the beginning of the breakdown in trade barriers (Lusztig 2004, Bailey et al. 1997),
trends were more mixed. Cotton manufactures showed signs of recovery, especially with
Japan’s export of them rising phenomenally from 1934 to 1937. Silk products,
meanwhile, seemed to stagnate; with import values dropping even lower than 1900
levels. Wool also showed very little recovery. One explanation for the diverse trends is
that while tariff rates had declined significantly after 1934, for many items they remained
virtually prohibitory. When the tariff rate for silk laces and embroideries declined from
90% in 1934 to 68% in 1940, we could not expect the import for silk laces and
11
embroideries to rebound. On the other hand, the decline from a 60% to 42% tariff rate
for cotton manufactures could be expected to and did stimulate imports more.
Of course, not all imports from the Pacific Rim were subjected to duty, as the
region also supplied many duty-free raw materials that the U.S. needed. One important
item that is worth noting is raw silk. Raw silk was a crucial input in silk and rayon
manufacturing. Because there was no significant domestic production, almost all raw silk
were imported from China and Japan. Hence, consumption in the U.S. drove the demand
for imports. As Figure 2 shows, import of raw silk had increased steadily (due to rising
consumption) until 1929, the year in which it became the largest import item of the
United States. The later decline in raw silk imports was attributed to the worldwide
depression that adversely affected the raw silk market in China and Japan (Latham and
Kawakatsu 2000). Not surprisingly, raw silk had remained on the duty-free list
throughout 1900-1940. The combination of a duty-free list based on raw materials such
as raw silk and high tariff rates on manufactured goods like textiles implied even higher
rates of effective protection for the latter goods.
All the evidence so far has demonstrated a significant correlation between the
level of protection (as measured by the ad valorem equivalent tariff rate) and the total
value of imports of major products from the Pacific Rim. Reduction in imports could not
be exclusively attributed to the onset of the Fordney-McCumber Tariff, as imports could
be affected by other factors such as domestic and foreign economic conditions,
technology change, industry conditions, etc. Nonetheless, the policy levied a major
barrier to trade, as evidenced by the dramatic rise in tariff rates, and most directly
contributed to changes in import values. These import flow evidence, however, did not
12
document whether there were any differential barriers to trade between the Pacific Rim
and the rest of the world. We now know that import of goods from the Pacific Rim was
indeed depressed, but was it depressed more so than imports from the rest of the world?
Building upon our initial evidence, we attempt to shed some light on this question in the
subsequent sections.
13
Figure 1:
Figure 2:
14
Figure 3:
Figure 4:
15
Figure 5:
Figure 6:
16
17
III. Empirical Investigation of Differences in Tariff Rates Between the
Pacific Rim and the Rest of the World
The previous section highlighted some correlations between tariff rates and
import values among major imports from the Pacific Rim. These effects undoubtedly
reflected general trends in U.S. tariff rates. A key follow-up question is whether imports
from the Pacific Rim encountered a consistently higher trade barrier relative to the rest of
the world? If so, how did the U.S. tariff structure induce such a difference, and did this
difference increase or diminish for goods in different stages of manufacturing? In this
section, I attempt to address these questions by presenting a new set of tariff rates for the
Pacific Rim trade in 1926, 1928, 1931, 1935, 1940, and 1946. The first two years were
under the tariff structure of the Fordney-McCumber Act; 1931 was one year after the
Smoot-Hawley Act; 1935 was one year after the Reciprocal Trade Agreements Act
(RTAA); and 1940 and 1946 were in the decade leading up to the General Agreement on
Tariffs and Trade (GATT). While U.S. government publications publish data on tariff
rates of all U.S. imports in a given year, they do not provide any measure of the average
tariff rate on imports from particular regions or countries. Hence, calculations must be
made from available raw data on imports and duties. The average tariff rate is not a
comprehensive measure of the level of protection, but in this era it was the most direct,
visible, and accessible index available to policy makers. Hence, it is a logical first place
to begin empirical investigation.
Methodology
In calculating this new set of tariff rates, the raw data source I use are the annual
volumes of the Foreign Commerce and Navigation of the United States (FCNUS), which
18
is published by the U.S. Department of Commerce. These volumes contain relatively
complete information on import value of goods broken down by country and duties
collected broken down by items.
I have grouped the data into three categories: all goods, semi-manufactures, and
finished manufactures. Semi-manufactures and finished manufactures represent
selections of goods approximately as defined in the 1931 edition of FCNUS. Please see
Appendix A for a detailed list of goods represented in each category. For the other years,
every effort has been made to maintain the same set of goods in each category for
consistency. Some discrepancies arise due to slight changes in classification and
grouping throughout the different years. However, the tariff rates within a year should
not be affected. As for tariff rates across years, the broad trends should not be largely
affected by the discrepancies either.
To compute estimates for the average ad valorem tariff rates of imports from the
Pacific Rim in year i, denoted ti, I use the following simple form for each category:
tipacific = (∑jαjDjworld)/ ∑j∑k Ijkpacific
where Ijkpacific denotes the import value of good (or product group)2 j in country k in the
Pacific Rim,3 Djworld denotes the duties collected for good j from all countries, and αj
denotes the percentage of good j (that was dutiable) imported from Pacific Rim in year i.
In other words,
αj=(∑k Ijkpacific)/Ijworld)
2
When computing the total imports and estimated duties from the Pacific Rim, the breakdown was not by
goods, but instead the nine commodity groups as defined in FCNUS (e.g. Table No. XVI of the 1931
edition).
3
Pacific Rim countries (as named in those years) for which data were collected were China (including
Kwantung, which was recorded separately in the source), Japan, Australia, New Zealand, Hong Kong,
British Malaya, French Indochina, Netherlands Indies, Thailand, and Korea. Names of countries varied
slightly across the years, but the regions covered are the same.
19
In this estimate, I have assumed that αj is also equal to the percentage of duties
collected from the Pacific Rim4, because data on duties collected broken down by country
is not available. tipacific is then compared to tir.o.w., the tariff rate of imports from the rest of
the world excluding the Pacific Rim, which is denoted as
tir.o.w. = (∑jDjworld-∑jαjDjworld)/(∑jIjworld-∑jIjpacific)
Within each of the three broad categories of goods, both Pacific Rim and rest of
the world tariff rates are calculated over the set of good j’s that comprise only dutiable
goods as well as dutiable and free goods combined. In short, I assumed that tariffs on
any given good are constant across countries. However, I am calculating average tariff
levels for a region. Average tariff levels may differ if regions differed in the composition
of goods exported, and these estimates explore whether average tariffs were higher for
the Pacific Rim because it exported a disproportionate share of the goods that faced high
tariffs. Tables 1 to 6 show each year’s result in sets of three 2×2 matrices of values, with
one matrix for each category of goods. This set of results serves to explain the difference
in tariff barriers between the Pacific Rim and the rest of the world.
The Results
The results for the six years of data as presented in Tables 1-6 exhibit consistent
trends. First, tariff rates for both rest of the world and the Pacific Rim were significantly
4
This simplifying assumption is an estimation of the actual duties collected from the Pacific Rim. It does
not take into account that certain goods were levied specific, rather than ad valorem, duties. Because many
of the items considered are actually a broad set of items (e.g. cotton manufactures), many different specific
duties may apply. Hence, the percentage of imports of a good from the Pacific Rim is not always
equivalent to the percentage of duties collected from that region. However, this assumption is still quite
reasonable, because tariff rates on particular commodities were generally the same for all countries of
origin. Because data on duties collected broken down by country is simply not available, making this
assumption is the best option, and will not detract from the main insight of the analysis.
20
higher for finished manufactures than semi-manufactures across all years. Hence, the
positive relationship between the level of protection and the stage of manufacturing as
described by Hawke (1975) for the years 1899 and 1904 persisted through World War II.
In addition, the tariff data is broadly consistent with the trend in tariff policy-making for
this twenty-year stretch. The high tariff rates of 1926, 1928, and 1931 reflect the
protectionist policies of the Fordney-McCumber and Smoot-Hawley Act, while the lower
tariff rates of 1935, 1940, and 1946 were consistent with the argument that the RTAA
Act of 1934 marked the beginning of a downward trend in U.S. trade barriers (Bailey et
al. 1997).
When comparing the Pacific Rim and the rest of the world within each product
grouping, however, the difference is clear and quite consistent. Among all goods, the
tariff rate for Pacific Rim was consistently lower when taking into account both free and
dutiable goods. However, among only dutiable goods, the Pacific Rim had roughly the
same or only slightly lower tariff rate than the rest of the world. The two disparate trends
imply that relative to the rest of the world, the Pacific Rim economies were exporting
proportionally more goods on the duty-free list to the United States. Hence, counting
duty-free goods in the calculation of tariff rates dramatically lowers the tariff rate for the
Pacific Rim.
However, to conclude that Pacific Rim countries actually enjoyed a lower tariff
barrier is inaccurate. The above trend was fully anticipated before the calculations,
because most of the items on the duty-free list were raw materials in primitive stages of
manufacturing that the U.S. did not produce domestically anyway. Perhaps the prime
example was raw silk, which as mentioned before was almost exclusively imported from
21
China and Japan. Even during the most protectionist era of 1922-1930, raw silk had
never been levied a tariff. Compared to the European economies on the Atlantic front,
the Pacific Rim was supplying much more of these raw materials relative to
manufactures. In a way, including these free goods in the calculation distorts the picture,
because these materials were not targeted by much protectionist incentives.
Interestingly, for semi-manufactures, Pacific Rim imports actually show
consistently lower tariff rates than the rest of the world as well. With one exception, this
was true for all the years excluding free goods or not. In many ways, the story with semimanufactures is the same as above. Many goods that were included in this category in
FCNUS were also imported free of duty, including many goods that were in relatively
primitive stages of manufacturing. In fact, if we examine the cells of the semimanufacture matrices and compare them with the corresponding cells of the all-goods
matrices, the semi-manufactures have a lower tariff rate in every instance. This implies
that even though semi-manufactures excluded both raw materials such as metal ores and
finished manufactures such as silk fabric, the exclusion of the latter goods had a greater
weight. Hence, even more so in this category than the all-goods category, the lower tariff
rates of Pacific Rim imports reflected the relatively heavier import of more primitive
stage goods.
The most notable results from this panel-dataset arrive at the finished
manufactures, the group of goods that was truly targeted by U.S. tariff policy and that
was in most direct competition with domestic industries. For every one of the six years,
the tariff rates on Pacific Rim finished manufactures have been higher. This consistent
set of results is almost certainly not coincidental. The tariff differentials were much
22
greater when we include free imports, implying that the Pacific Rim imported less free
finished manufactures (of which there were not much of). However, even the differences
among just the dutiable goods were significant, ranging from 3% to 8%.
This tariff rate differential suggests an implicit bias built in U.S. tariff legislation
throughout this period. Among finished manufactures, what the Pacific Rim was
exporting in much greater proportion relative to total imports were textile products and,
to a lesser extent, manufactures of animal products and agricultural materials. At the
same time, it was precisely these goods that had received much higher levels of
protection. Items such as cotton manufactures, woolen goods, and silk products were
among some of the most heavily protected items on the U.S. import list. Hence, the
relative weighting of these goods was much higher when calculating tariff rates on
Pacific Rim imports.
In contrast, finished manufactures that were more heavy industry and technologyoriented such as machineries, chemicals, and metal manufactures were imported in
almost trivial percentages from the Pacific Rim. For example, the imports of iron and
steel advanced manufactures from the Pacific Rim had been no more than 10% of total
for any of the years considered (FCNUS various years). The manufactures of these
heavy-industrial goods had a much more established presence in the European
economies. In addition, these goods also included most of the duty-free finished
manufactures, which explains why the tariff differential widens when both free and
dutiable imports are included.
The results for finished manufactures are consistent with Hayford and Pasurka’s
finding (1992) that the Fordney-McCumber and Smoot-Hawley tariff rates were
23
positively correlated with both labor-intensive and agricultural products. The same study
finds that capital-intensive goods and those with natural resource abundance tend to have
lower rates. Thus, even though U.S. trade policy throughout this period did not officially
discriminate imports from any particular region, the higher level of protection toward
industries such as textiles implicitly imposed greater protection against Pacific Rim
imports.
As an extension of the above analysis, it is highly probable that my calculation of
Pacific Rim imports’ tariff rate underestimates the level of protection imposed on Pacific
Rim countries among finished manufactures, if not all goods. As mentioned in section II,
even within a group of goods like textiles, imports from the Pacific Rim tend to be those
that were in higher stage of refinement, such as the hand-made silk laces from China
(Wright 1935). However, while the current estimates of Pacific Rim tariff rates assign
more weights to imports of products or product groups that the region was exporting
more heavily, they do not take into account tariff level differences within a product
group. For example, if the Pacific Rim had to export about 50% of all silk products that
the U.S. imports, then the current estimate would assume 50% of duties on all silk
products were collected from the Pacific Rim. However, because the Pacific Rim
imported relatively more silk laces than silk fabric, and silk laces had a higher tariff rate,
the actual amount of duties attributed to the Pacific Rim should be higher. Hence, the
actual difference in the level of protection for Pacific Rim economies versus the rest of
the world should actually be greater than presented.
In order to obtain a sense of the magnitude of underestimation as well as to extend
the analysis into 1960, I construct a similar set of estimates from a different data source.
24
The Annual Report of the Secretary of the Treasury on the State of the Finances presents
duties collected on dutiable imports for consumption for various years. This source lacks
the details on import value of goods broken down by country that FCNUS provides.
However, its greatest advantage is that the amount of duties collected is recorded
according to region. Recognizing this feature, I compute the ad valorem equivalent tariff
rates for all dutiable imports for consumption from 1938-1960 (Table 7).5
The results are even more striking. In every year except for 1951, the tariff rate
for the Pacific Rim is higher than that of Europe and the rest of the world including
Europe. Hence, this table shows that higher tariff rates for the Pacific Rim persisted after
1946. Furthermore, comparing these rates for 1940 and 1946 to my previous estimates of
the same measures, the latter significantly underestimated the gap in tariff rates. In 1940,
the Treasury figures show a 10% higher rate for the Pacific Rim than the rest of the
world, while my own estimates suggest they were about the same. In 1946, the Treasury
figures show a 30% difference, compared to my own of 12%. Hence, we expect the gap
in tariff rates among manufactured goods to be even higher than what my estimates show,
even though the Treasury reports did not record the duties broken down by
manufacturing stage such that precise calculations could be made.
It should be noted that the average ad valorem tariff rate as computed in this
section is not the only possible measure of the level of trade barrier. In fact, there is no
“true” measure of the correct tariff rate in economic terms. Using unweighted averages
could be misleading, giving high weight to items whose importance for trade was minor.
Weighted averages such as my estimates are an improvement on this account. Tradeshare weights, however, are nevertheless partly endogenous to the effects of tariff rates
5
Similar data for 1922-1938 and 1958 were not available.
25
on trade flows. The most commonly used alternative is the “effective” tariff rate [such as
those computed in Hayford and Pasurka (1991) and Archibald et al. (2000)], which takes
account of tariff rates on inputs. However, existing studies such as Hawke (1975)
suggest that American effective tariff rates were highly correlated with average tariff
rates during the historical period we are considering. If this is so, then the additional
investment involved in calculating effective tariff rates may not have contributed
substantial new insights for the purpose of this paper.
Overall, the data show that Pacific Rim countries faced consistently higher
barriers to trade, primarily on finished goods. Their exports of raw materials or primitive
stage manufactures enjoyed low or no tariffs. These goods, however, were not under
import competition with the U.S. It was among the finished manufactures that the Pacific
Rim faced implicit discrimination. It is as if U.S. trade policy were designed to
discourage Pacific Rim economies from moving into production of finished
manufactures. Was this a bias built into the design of U.S. trade policy for reasons of
international diplomacy? Or was it instead merely an incidental outcome of the domestic
political processes? In the next section, with a special focus on Congress, we analyze
some political economy issues that may explain this difference in level of protection.
26
Table 1: Tariff Rates (in Percentages), 1926
All Goods:
free and dutiable
dutiable only
Rest of the World
16.4
39.5
Pacific Rim
4.7
37.3
Rest of the World
8.6
26.0
Pacific Rim
3.5
21.0
Semi-Manufactures:
free and dutiable
dutiable only
Finished Manufactures:
free and dutiable
dutiable only
Rest of the World
25.5
39.6
Pacific Rim
44.4
48.0
27
All Goods:
free and dutiable
dutiable only
Rest of the World
15.5
38.9
Pacific Rim
5.4
37.2
Rest of the World
8.4
26.0
Pacific Rim
2.8
18.5
Semi-Manufactures:
free and dutiable
dutiable only
free and dutiable
dutiable only
Rest of the World
25.0
40.9
Pacific Rim
44.3
48.6
28
All Goods:
free and dutiable
dutiable only
Rest of the World
20.2
53.8
Pacific Rim
7.8
48.0
Rest of the World
5.8
23.3
Pacific Rim
6.9
18.7
Semi-Manufactures:
free and dutiable
dutiable only
free and dutiable
dutiable only
Rest of the World
23.9
46.6
Pacific Rim
42.6
49.0
29
All Goods:
free and dutiable
dutiable only
Rest of the World
20.3
43.1
Pacific Rim
7.5
40.8
Rest of the World
9.6
25.1
Pacific Rim
2.4
20.0
Semi-Manufactures:
free and dutiable
dutiable only
free and dutiable
dutiable only
Rest of the World
22.6
40.6
Pacific Rim
43.7
47.7
30
All Goods:
free and dutiable
dutiable only
Rest of the World
15.6
35.7
Pacific Rim
4.8
34.9
Rest of the World
7.3
16.5
Pacific Rim
2.9
10.6
Semi-Manufactures:
free and dutiable
dutiable only
free and dutiable
dutiable only
Rest of the World
15.9
31.9
Pacific Rim
35.7
40.2
31
All Goods:
free and dutiable
dutiable only
Rest of the World
9.7
24.2
Pacific Rim
11.2
36.7
Rest of the World
5.7
9.7
Pacific Rim
3.9
7.2
Semi-Manufactures:
free and dutiable
dutiable only
free and dutiable
dutiable only
Rest of the World
13.5
25.1
Pacific Rim
23.8
29.8
32
Table 7: Tariff Rates of Dutiable Imports for Consumption (in Percentages)
Year
Pacific Rim6
Europe
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1959
1960
47.6
48.5
47.0
48.1
55.6
61.0
54.8
61.3
58.5
46.9
28.9
21.2
23.2
17.8
18.8
21.6
20.4
22.2
21.0
20.5
19.5
18.8
38.2
36.4
36.9
40.1
39.5
41.2
40.5
34.8
28.2
28.0
24.4
20.8
21.0
18.0
17.3
17.2
17.0
17.3
16.8
15.9
14.5
14.3
Rest of the World
(including Europe)
37.2
37.1
35.9
36.6
30.4
28.9
31.5
26.2
23.9
20.3
15.2
12.6
12.6
11.9
11.6
11.7
11.0
11.1
10.7
10.1
10.1
10.7
Source: Annual Report of the Secretary of the Treasury on the State of the Finances.
Department of Treasury, various years.
6
The original source did not record value of duties in a given year from all countries in the Pacific Rim as
defined in my previous estimate. Hence, the Pacific Rim’s scope varied some throughout different years.
However, the tariff rates should not be affected greatly, because the source suggests that the countries that
weren’t recorded had low value of duties.
33
IV. Political Economy of Trade Legislation: Evidence from Congressional
Roll-Call Votes
From 1922 to 1962, Congress was an influential, if not central, institution in guiding
U.S. trade policy. Before the 1934 Reciprocal Trade Agreements Act, Congress held the
power of setting tariff rates on U.S. imports on an item-by-item basis. Even though trade
agreements existed before 1934, they played a relatively minor role, and were subject to
two-thirds approval from Congress. While the executive branch began to play a
prominent role in making trade policy after the RTAA Act, many aspects of which will
be examined in the next section, Congress was still a major player in the subsequent
years. Most importantly, studies have emphasized that Congress could have severely
impeded or destroyed the trend toward lower trade barriers after 1934, and its support for
trade liberalization was by no means a sudden enlightenment of its members’ knowledge
of international trade (see Bailey et al. 1997 and Lusztig 2004).
For these reasons, this section studies Congressional roll-call votes as the main
framework of analysis. Were members of Congress responsive to economic interests that
competed relatively more heavily with the Pacific Rim? If so, how important were these
interests compared to other factors such as party affiliation? And lastly, how did these
trends change from 1922 to 1962? To address these questions, two complementary sets
of data are presented. The first is a set of tables on Congressional votes, by parties as
well as economic interests, namely cotton manufacturing, silk manufacturing, and wool.
These three items were selected not only because they were major import-competing
industries in the United States, but also because they were significant for the economic
development of the Pacific Rim. All voting records are obtained from InterUniversity
Consortium for Political and Social Research (ICPSR). Table Set 1 presented the vote
34
breakdown among Congress members of the top five states of production for each item,
as well as among all members. Please see Appendix B for a detailed description of the
data sources used to determine the top five states of production for each good and each
vote. Tables were separated for the House and Senate, and were constructed for votes on
the following bills: 1922 Fordney-McCumber Act; 1930 Smoot-Hawley Act; 1934
RTAA Act; 1945, 1949, and 1955 RTAA renewals; and the Trade Expansion Act of
1962.
As already discussed in Section II, the Fordney-McCumber and Smoot-Hawley Act
were two of the most protectionist bills in U.S. trade history. Both bills were initially
designed to help the agriculture sector. The Fordney-McCumber Act was passed because
farmers in western United States faced severe price declines in their products after World
War I. Hence, the Western agricultural interests were identified as the primary coalition
in supporting the bill (Taussig 1931). The Smoot-Hawley Act originated from a special
session called on by President Hoover to aid the farmers, as Midwestern and other
regions’ farming interests had been advocating higher duties since Hoover’s election in
1928. President Hoover did not intend to significantly alter the duties on manufactures,
calling for “limited revision” when necessary, but the domestic political process in
Congress put that far from reality. When the bill was passed, both agricultural and
manufacturing duties were raised dramatically.
The Smoot-Hawley Tariff not only failed to achieve its aim of aiding the farmers, but
also helped spur retaliatory trade measures from other nations (Kaplan 1996).
Increasingly higher trade barriers were levied among countries, and world trade sank
rapidly. Recognizing the international instability that trade barriers helped contribute to
35
as well as recovering from the effects of the Great Depression, the United States finally
took a direction toward trade liberalization in 1934, when the Reciprocal Trade
Agreements Act was passed. This measure was a product of the newly elected Roosevelt
Administration, and was designed by free-trade advocates such as Secretary of State
Cordell Hull. The RTAA Act was technically an amendment to the Smoot-Hawley Act,
but gave the President the authority to reduce (or raise) tariffs up to 50% in exchange for
reciprocal reductions on American exports with other nations. The bill was passed
relatively quickly with the help of a Democrat-majority Congress, and was subject to
renewal in three years.
The RTAA was renewed eleven times over the next thirty years or so. In this section,
the analysis included the 1945, 1949, and 1955 renewals. The 1945 renewal was chosen
because it was the last renewal before the creation of the General Agreement on Tariffs
and Trade (GATT). The GATT was initiated by the United States as a framework for
multilateral trade negotiations for the first time. However, the GATT was not technically
an organization, and hence bypassed the approval of Congress, to the dismay of many
Congress members (Kaplan 1996). The 1949 renewal of RTAA came one year after the
GATT talks in Geneva were concluded. Hence, votes on these two renewals allow us to
compare changes in voting patterns in the pre and post-GATT years. Furthermore, these
two years were also the first instances in which the Republican Party was split on, instead
of overwhelmingly against, voting for free-trade legislation.
The 1955 renewal was chosen to reflect voting patterns in the 1950s. Irwin
(unpublished manuscript 2006) described the 1950s renewals as reluctant, often
containing exception clauses and peril points. In addition, there were more shifts in
36
attitudes on international trade within parties. For example, unlike the previous years, the
Republicans now had a group of internationalists in favor of free trade, and the Southern
Democrats had begun to turn away from free trade.
The last bill that this section will analyze is the Trade Expansion Act of 1962, which
was passed during the Kennedy Administration. By then, both the executive and
legislative branch were again under the control of Democrats. The purpose of this Act
was to strengthen Atlantic unity (Irwin, unpublished manuscript, 2006), and it did away
with the item and country-specific approach in tariff reduction used in earlier years. The
Kennedy administration successfully tied this bill to business interests, and the bill easily
passed in Congress. The Trade Expansion Act set the scene for modern U.S. trade policy
making. Overall, the seven bills studied were major trade bills that altogether represented
a sequential roadmap of U.S. trade policy trends during those five decades.
The second piece of empirical work assembled is a complementary set of regression
tables on the same votes and years. The regression method is probit voting analysis, in
which the dependent variable is a binary (0,1) variable where 0=vote against free trade
and 1=vote in favor of free trade. Voting in favor of free trade means a “no” vote on the
1922 and 1930 bills, and a “yes” vote on all the other bills. All Congressional voting
records and members’ party affiliations are obtained from data available at
InterUniversity Consortium for Political and Social Research (ICPSR). The independent
variables are a binary party affiliation variable (0=Democrat, 1=Republican), variables of
several economic interests – cotton and silk manufacturing, wool, sugar, wheat, cotton;
and an agriculture production variable. These variables are values of state-level per
capita production or value added, or per capita land and farm value for the agriculture
37
variable in some years.7 Data for each variable is calculated from the nearest years’
Census of Manufactures or Census of Agriculture. Please see Appendix C for a more
detailed description of the source data used for each year. For each Chamber of Congress
for a particular vote, the regressions are conducted according to the following basic
model for 1922 and 1930:
(1) Vi = a1+a2Party+u1
(2) Vi= b1+b2CottonManuf.+b3SilkManuf.+u2
(3) Vi= c1+c2CottonManuf.+c3SilkManuf.+c4Wool+c5Cotton+c6Sugar+c7Wheat+u3
(4) Vi= d1+d2CottonManuf.+d3SilkManuf.+d4Wool+d5Cotton+d6Sugar+d7Wheat+d8Agric+u4
(5) Vi= f1+f2Party+f3CottonManuf.+f4SilkManuf.+f5Wool+f6Cotton+f7Sugar+f8Wheat+f9Agric+u5
The model is essentially the same for the other years, except that variables for
cotton manufacturing and silk manufacturing are combined into one variable for 1945
and 1949, and a broad variable for all textile products are used for the years 1955 and
1962. These changes are made due to the lack of detailed available data on cotton and
silk manufacturing production as separate industries. The results are shown in Table Set
2, and each equation denotes a column in each regression table. Minor deviations to this
model occurred in a few instances for reasons that will be explained later on. This model
builds on the tables of roll-call votes and attempts to confirm the same trends as well as
offer additional insights on the degree to which Congress members were responsive to
economic interests and party affiliation. Hence, I will discuss the results of these
regressions in conjunction with the results from the vote tables.
7
Data on value-added are used for production of textiles in the 1955 and 1962 votes. Data on total value of
farms (land and buildings) are used for votes starting in 1934.
38
The Results
One of the most prominent features of the results is the powerful effect of party
affiliation in predicting a Congress member’s vote. A brief glance at the voting tables
shows that in almost all instances, votes were strongly partisan – Democrats more likely
to vote in favor of free trade and Republicans in favor of protectionism. The regression
tables showed these effects more precisely. For House votes, the party variables in both
equations (1) and (5) are significant at least in the five percent level for all the years
studied. The same result is true for Senate votes except for 1922 and 1955, in which the
significance, if any, is weaker. In addition, the Pseudo-R2 values indicate that party
affiliation had by far the strongest predictive power compared to any other variables. Just
by regressing vote on party itself, the Pseudo-R2 can be as high as 0.75 (in 1934’s House
vote on the RTAA Act). Since 1945, party’s predictive power was still high but
weakened significantly. This trend is consistent with the Republican’s conversion to
trade liberalization in the 1940s as argued by Irwin and Kroszner (1997). In fact, they
have conducted the same regression on party alone for Senate votes on the 1934 RTAA
Act and 1945 renewal, and the Pseudo-R2 they have estimated are almost identical to my
estimates. Irwin and Kroszner did not study votes in the House, but my estimates show
that party effect on House votes are even stronger in both cases.
When all the economic interest variables are taken into account, party still adds
significant prediction power. This effect can be seen from the increase in Pseudo-R2
from equation (4) to (5) for each vote. This increase averaged 0.42 for votes from 1922
to 1934, and 0.21 for 1945 to 1962. Because coefficients in a probit regression can only
be interpreted for the significance of the direction of voting, not the magnitude, I attempt
39
to make a more precise estimate of the coefficients by calculating the predicted
probabilities of voting in favor of free trade given a certain party. To do so, I utilized a
Stata© command, prtab, written by Long (package spost9_ado from
http://www.indiana.edu/~jslsoc/stata, 2007). prtab calculates the predicted probability of
a variable as defined in Long and Reese (2001, p.120) with all other variables held at the
mean.8
Table Set 3 indicates the predicted probability of a Democrat or Republican
voting in favor of free trade for a particular year, holding all variables at the mean. As
this table shows, the Fordney-McCumber, Smoot-Hawley, as well as the RTAA Acts
were strictly partisan. The Senate showed breakdown in partisanship in 1945 and 1949,
in which Republicans were much more likely to vote in favor of free trade, and in 1955
their predicted probability of voting in favor of free trade was actually more than 0.9.
The same breakdown in the House was slower and weaker, as it was not until 1949 that
House Republicans’ likelihood to vote in favor of free trade took a major jump.
Interestingly, there seems to be a retreat to stronger partisanship in 1962 as the predicted
probability for Republicans to vote for free trade decreased significantly. Despite the
breakdown in partisanship, party remains the most reliable single variable to predict a
Congress member’s vote throughout this period.
While party affiliation was an important predictor of voting patterns, economic
interests also played important roles at various points. The signs of silk manufacturing’s
coefficients for 1922, 30, and 34 were negative, indicating states with heavier production
of silk manufactures were more likely to vote in favor of protectionism. Without
8
The predicted probability as defined by Long and Reese (2001, p.120) for Probit models is
Pˆr(y=1|x)=Φ(xβ^), where Φ is the c.d.f. of the normal distribution where variance equals 1.
40
including the party variables, these coefficients are significant at the one percent level in
the House votes on all three years. Once party is added in equation (5), the coefficients
became less significant or insignificant. To explain this, we can refer back to the voting
tables. In these three years, the Republican Party was the majority party in the top silk
manufacturing states, which were heavily concentrated in the Northeastern states of
Pennsylvania, New York, and New Jersey. Hence, once taking into account this
Republican Party effect, the coefficients are not as significant. The same coefficients for
the Senate votes are significant in column (2) of each table, but not the other columns.
The weaker significance of silk manufacturing is expected in the Senate since a Senator is
representing a much broader set of interests.
Interestingly, for the same three years, coefficients on cotton manufacturing
showed very little, if any significance. In fact, their signs were often slightly positive,
though some became negative once party is controlled for. This can be explained by the
shift of cotton manufacturing toward the South since the 1920s. In fact, Massachusetts
was the only Northeastern state that was still on the top-five list of cotton manufacturing
production for these years. Again referring back to the vote tables, the cotton
manufacturing states were more heavily Democratic, and hence they were more likely to
vote in favor of free trade. These regressions suggest that their response to party
affiliation had outweighed their response to economic interests in these cases.
Unfortunately, data limitations do not allow us to see strictly comparable
coefficients on cotton and silk manufacturing for the years since 1945. Nevertheless, we
can gain insights by examining the combined variable of cotton, rayon, and silk
manufacturing or textile products in general. For the 1945 and 1949 renewals, cotton and
41
rayon manufactures (which included silk production) had mostly positive coefficients.
They were significant in the House votes for equation (2), but not so for the other
instances. Because cotton manufacturing is likely weighted heavily in this variable, the
coefficients’ trend resembled closely to those of cotton manufacturing in the previous
years. But turning to 1955 and 1962, textile groups showed significant resistance to free
trade, as the coefficient in (5) were negative and significant in the 1955 House votes and
1962 House and Senate votes. Even though this period is well into the steady course of
trade liberalization in the U.S., there seems to be a resurgence of resistance to free trade
by textile groups.
This resurgence of resistance had critical importance for the Pacific Rim, and may
very well have contributed to the higher trade barrier with the Pacific Rim as studied in
the previous section. Even though these free-trade bills were passed, resistance by textile
states can and did create many exception clauses and special provisions that stifled
imports from Pacific Rim. Furthermore, the Pacific Rim, in particular textile-producing
countries like Japan, was on the minds of Congress members. Douglas Irwin has also
made this point by describing 1955 as a turning point,
The 1955 vote was the first in which members of Congress from textile-producing regions in New
England and the South insisted on the strengthening of the peril points and escape clause
provisions for the express purpose of protecting the textile industry from Japanese imports
(unpublished manuscript, 2006, p.47).
The regression results confirm this new orientation in political interest, although if more
detailed data were available, an even more precise statement can be made.
42
In addition to textile products, we also include several major agricultural products
in the analysis. Wool is included because it was a major import from the Pacific Rim,
especially Australia and New Zealand. To give a comparative perspective between
different agricultural interests, cotton, sugar, wheat, and a general agriculture variable are
also included. All these agricultural items were important for the economic development
of the U.S. For wool, almost all coefficients for all votes were negative and thus
associated with greater likelihood to vote for protection. The coefficients were
significant, however, in the beginning and end of the time period. Looking at the House
votes on the Fordney-McCumber tariff, wool coefficients are significant at the one
percent level for equations (3) and at the five percent level for equations (4) and (5). This
strong push for protectionism from the wool-producing states was not surprising, because
the Fordney-McCumber Act was designed to provide relief for an agricultural depression
for which wool producers was a major interest (Taussig 1931). The coefficient is also
significant for the Senate vote on the Smoot-Hawley Act for equation (5) at the five
percent level, as the bill is also designed to support agriculture, though less specifically
for wool as the Fordney-McCumber Act.
The support of wool states for protectionism was statistically insignificant for the
subsequent years until 1955, when it seemed to resurface as an interest in favor of
protectionism. The 1955 Senate vote was significant at the one percent level for
equations (3), (4), and (5), and the 1962 House and Senate votes were significant at the
five percent level in equation (5). Again, this phenomenon was similar to the case of the
textile interests. The wool states’ support for protectionism during a late stage of
liberalization implied greater harm for Pacific Rim imports. In fact, as early as GATT’s
43
Geneva negotiations in 1947, wool was brought up as a major issue. Congress attempted
to impose trade restrictions on wool in order to support domestic prices, and import fees
as well as quotas were passed. President Harry Truman counteracted this highly
protectionist move by vetoing the bill, and made an active move of his own by giving
Undersecretary of State William Clayton the authority to cut wool tariff by 25 percent
(Irwin, unpublished manuscript, 2006).
Among the other variables, cotton-producing states show mostly positive
coefficients for all the years. These coefficients are often significant for equations (3)
and (4), but generally not so for equation (5). Cotton was mainly produced in
Democratic states in the South, and the crop itself has always been a significant export
item. Thus, it is expected to find cotton states voting in favor of free trade. One odd
exception to this is the high significance of cotton in the direction of protectionism for the
1962 House vote. It is not clear why this is the case. One possible reason is its
collinearity with the party variable. In fact, column (4) shows that by removing the party
variable and including all other independent variables, the cotton coefficient becomes
positive. In any case, this outlier would not detract from cotton states’ general trend in
favor of free trade.
The sugar variable shows significant coefficients toward protectionism for the
years 1922, 1930, and 1934, though this variable was dropped in the 1930 Senate vote
due to collinearity problems. Sugar production was primarily concentrated in Louisiana,
and there were strong sentiments in favor of protecting domestic production. But sugar’s
coefficients were generally not significant for the later years. This, however, could be
due to the increasing importance of the sugar quota system after 1934. The sugar quota
44
was revised downward in 1948, 1951, and 1956 (Dye and Sicotte 2004), suggesting that
support for protectionism shifted away from tariffs to quotas in this sector. The wheat
variables were also very weakly significant, if at all. Their mostly negative signs suggest
weak correlation with voting for protectionism.
Lastly, the variable for agriculture in general also did not show strong consistent
trend. Most of its coefficients are close to 0, suggesting a relatively neutral attitude from
agriculture as a whole. For the 1922 and 1934 Senate votes, agriculture is significant in
favor of free trade at the ten percent level. Interestingly, agriculture is also significant at
the one percent level for the Smoot-Hawley votes in both the House and the Senate. This
is somewhat paradoxical given that President Hoover signed this bill intending to help
agriculture -- yet overall agriculture seemed to have been against the bill. On another
level, this is not all surprising, because the agricultural interests during that time had
conflicted attitudes toward protection.
The push for higher protectionism in agriculture was sector-specific and regionspecific. Those who produced export-oriented crops did not need protection, as it could
do them more harm than good. In fact, Eichengreen (1989) cites inland agriculture as a
coalition against the Smoot-Hawley tariff, and analysis from Callahan et al. (1994) shows
that even border agricultural interests were more likely to vote against the bill once
controlled for party. In addition, evidence from Kaplan (1996) has shown that some
farming groups resisted the Smoot-Hawley tariff for another reason – the higher tariffs on
manufacturing would impose higher prices on agricultural implements and inputs.
Agriculture variable’s coefficients were generally not significant after 1934, perhaps
45
because agriculture was no longer the dominating focus of tariff legislation or because
legislators no longer set tariff rates on specific items.
Overall, the prediction power that all the per-capita production variables could
add to the party effect is sizable. For all fourteen regressions, these economic interest
variables increased the Pseudo-R2 from column (1) to column (5) by 15 percentage points
on average. Overall, votes on all the trade legislations have clearly been responsive to
economic interests in addition to party affiliation. However, the extent of the ability of
economic interests to lobby for protection varied. As this period progressed, some
interests clearly weakened in their support for protectionism, which allowed the U.S. to
internalize a large part of domestic opposition to trade liberalization. The results broadly
suggest that constant adjustment and realignment of economic interests were taking place
in Congress, and there were considerable movement for negotiations and trade-offs in
supporting freer trade. However, this movement happened in a way that disadvantaged
the Pacific Rim, as domestic economic interests that had stronger ability to maintain
protection were often competitive with Pacific Rim imports.
Based on the above analysis, we attempted to explain the higher barrier to trade
with the Pacific Rim from a political economy perspective. This task was challenging in
that each Congress member’s vote on a trade policy was not a binary decision to impose
higher tariff barriers on the Pacific Rim or not. It was a binary decision on a bill that in
principle applied to all countries. In addition, tariff rates are only one measure of
protection, and in some sectors alternative measures such as quotas were even more
protectionist. These embedded measures in trade bills may not be reflected easily in a
46
yea or no vote. However, from examining voting patterns, we are able to draw some
insights on how the Pacific Rim was affected.
First, we see that economic interests were important contributors to predicting a
vote, but altogether not nearly as important as a Congress member’s party affiliation. In
the years before 1945, many economic interests, especially those that were exportoriented, were much more likely to be correlated with voting pattern. But overall, the
votes’ sensitivity to many economic interests were not strongly significant as the U.S.
began to pass a series of measures toward free trade.
However, despite this breakdown in the protectionist coalition, there remained
specific interests in which Congress members who represented these interests
significantly voted in favor of protectionism. In this section, textile and wool served as
the representatives. And it is precisely these goods that had important trading
relationships with the Pacific Rim. In 1955 and 1962, when neither sugar, wheat, cotton,
or agriculture production were strongly associated with a vote in favor of protectionism,
wool and textiles remained significant economic interests in that direction. This evidence
suggests that imports that competed with the Pacific Rim were often subject to more
political support for protection than those of other agricultural products. However, was
the higher barrier only a byproduct of Congress’s relative weighting of domestic
economic interests? Could there have been a more international and diplomatic aspect
that also contributed to the higher barriers to trade with the Pacific Rim? To extend this
question, in the next section we examine historical and diplomatic evidence on U.S. trade
policy-making, now incorporating the important role played by the executive branch.
47
Table Set 1: Congressional Roll-Call Votes on Various Trade Bills.*
Votes on 1922 Fordney-McCumber Act, 67th House.
Silk States
Party
Democrats
Republicans
All
Cotton States
Democrats
Republicans
All
Wool States
Democrats
Republicans
All
All States
Democrats
Republicans
All
Yea
0
62
62
(82.67%)
0
11
11
(45.83%)
0
26
26
(96.3%)
4
205
210
(69.77%)
Nay
8
5
13
Total
8
67
75
12
1
13
12
12
24
0
1
1
0
27
27
76
13
91
80
218
301
Votes on 1922 Fordney-McCumber Act, 67th Senate.
Silk States
Party
Democrats
Republicans
All
Cotton States
Democrats
Republicans
All
Wool States
Democrats
Republicans
All
All States
Democrats
Republicans
All
Yea
0
6
6
(75%)
0
1
1
(16.67%)
0
4
4
(66.67%)
2
41
43
(60.56%)
Nay
2
0
2
Total
2
6
8
5
0
5
5
1
6
1
1
2
1
5
6
23
5
28
25
46
71
*Note: 1. Percentage values in parentheses denote the percentage of votes in favor of the bill. 2. In the last
row, the total number of votes includes Congressional members who voted but were neither in the
Democratic or Republican Party.
48
Votes on 1930 Smoot-Hawley Act, 71st House
Silk States
Party
Democrats
Republicans
All
Cotton States
Democrats
Republicans
All
Wool States
Democrats
Republicans
All
All States
Democrats
Republicans
All
Yea
1
68
69
(70.41%)
1
12
13
(26.53%)
2
12
14
(46.67%)
14
208
222
(59.2%)
Nay
27
2
29
Total
28
70
98
36
0
36
37
12
49
15
1
16
17
13
30
132
20
153
146
228
375
Nay
3
0
3
Total
3
7
10
7
0
7
7
1
8
4
0
4
5
4
9
30
9
42
35
48
86
Votes on 1930 Smoot-Hawley Act, 71st Senate
Silk States
Party
Democrats
Republicans
All
Cotton States
Democrats
Republicans
All
Wool States
Democrats
Republicans
All
All States
Democrats
Republicans
All
Yea
0
7
7
(70%)
0
1
1
(12.5%)
1
4
5
(55.56%)
5
39
44
(51.16%)
49
Votes on 1934 RTAA Act, 73rd House
Silk States
Party
Democrats
Republicans
All
Cotton States
Democrats
Republicans
All
Wool States
Democrats
Republicans
All
All States
Democrats
Republicans
All
Yea
47
0
47
(47.96%)
29
0
29
(72.5%)
33
1
34
(75.56%)
269
2
274
(71.17%)
Nay
1
50
51
Total
48
50
98
1
10
11
30
10
40
1
10
11
34
11
45
11
99
111
280
101
385
Nay
0
5
5
Total
2
5
7
0
0
0
9
0
9
0
4
4
4
4
8
5
25
30
51
29
82
Votes on 1934 RTAA Act, 73rd Senate
Silk States
Party
Democrats
Republicans
All
Cotton States
Democrats
Republicans
All
Wool States
Democrats
Republicans
All
All States
Democrats
Republicans
All
Yea
2
0
2
(28.57%)
9
0
9
(100%)
4
0
4
(50.00%)
46
4
52
(63.41%)
50
Votes on 1945 RTTA renewal, 79th House
Silk States
Party
Democrats
Republicans
All
Cotton States
Democrats
Republicans
All
Wool States
Democrats
Republicans
All
All States
Democrats
Republicans
All
Yea
47
16
63
(59.43%)
36
1
37
(77.08%)
31
2
33
(76.74%)
205
34
239
(60.97%)
Nay
2
41
43
Total
49
57
106
2
9
11
38
10
48
4
6
10
35
8
43
12
140
153
217
174
392
Nay
1
1
2
Total
6
3
9
1
0
1
6
1
7
2
1
3
5
1
6
5
16
21
44
31
75
Votes on 1945 RTTA renewal, 79th Senate
Silk States
Party
Democrats
Republicans
All
Cotton States
Democrats
Republicans
All
Wool States
Democrats
Republicans
All
All States
Democrats
Republicans
All
Yea
5
2
7
(77.78%)
5
1
6
(85.71%)
3
0
3
(50%)
39
15
54
(72%)
51
Votes on 1949 RTAA renewal, 81st House
Silk States
Party
Democrats
Republicans
All
Cotton States
Democrats
Republicans
All
Wool States
Democrats
Republicans
All
All States
Democrats
Republicans
All
Yea
55
31
86
(81.90%)
37
4
41
(87.23%)
30
7
37
(84.09%)
234
84
319
(82.22%)
Nay
2
17
19
Total
57
48
105
2
4
6
39
8
47
1
6
7
31
13
44
6
63
69
240
147
388
Nay
0
1
1
Total
3
4
7
0
0
0
8
1
9
0
2
2
6
2
8
1
18
19
48
33
81
Votes on 1949 RTAA renewal, 81st Senate
Silk States
Party
Democrats
Republicans
All
Cotton States
Democrats
Republicans
All
Wool States
Democrats
Republicans
All
All States
Democrats
Republicans
All
Yea
3
3
6
(85.71%)
8
1
9
(100%)
6
0
6
(75%)
47
15
62
(76.54%)
52
Votes on 1955 RTAA renewal, 84th House
Silk States
Party
Democrats
Republicans
All
Cotton States
Democrats
Republicans
All
Wool States
Democrats
Republicans
All
All States
Democrats
Republicans
All
Yea
36
9
45
(68.18%)
28
5
33
(66%)
29
17
46
(83.64%)
186
109
295
(72.84%)
Nay
11
10
21
Total
47
19
66
14
3
17
42
8
50
4
5
9
33
22
55
35
75
110
221
184
405
Nay
1
0
1
Total
7
2
9
1
0
1
7
1
8
1
1
2
3
5
8
6
7
13
42
46
88
Votes on 1955 RTAA renewal, 84th Senate
Silk States
Party
Democrats
Republicans
All
Cotton States
Democrats
Republicans
All
Wool States
Democrats
Republicans
All
All States
Democrats
Republicans
All
Yea
6
2
8
(88.89%)
6
1
7
(87.5%)
2
4
6
(75%)
36
39
75
(85.23%)
53
Votes on 1962 Trade Expansion Act, 87th House
Silk States
Party
Democrats
Republicans
All
Cotton States
Democrats
Republicans
All
Wool States
Democrats
Republicans
All
All States
Democrats
Republicans
All
Yea
39
10
49
(75.38%)
35
2
37
(82.22%)
29
6
35
(63.64%)
218
80
298
(70.45%)
Nay
7
9
16
Total
46
19
65
7
1
8
42
3
45
7
13
20
36
19
55
35
90
125
253
170
423
Nay
1
0
1
Total
9
1
10
1
0
1
9
0
9
0
1
1
6
2
8
1
7
8
57
29
86
Votes on 1962 Trade Expansion Act, 87th Senate
Silk States
Party
Democrats
Republicans
All
Cotton States
Democrats
Republicans
All
Wool States
Democrats
Republicans
All
All States
Democrats
Republicans
All
Yea
8
1
9
(90%)
8
0
8
(88.89%)
6
1
7
(87.5%)
56
22
78
(90.7%)
54
Table Set 2: Probit Analysis of Various Trade Bills
Probit Analysis of Vote on 1922 Fordney-McCumber Act, 67th House
Variable
(1)
(2)
(3)
(4)
(5)
Constant
1.64**
(6.96)
-0.443**
(-5.06)
-0.420*
(-2.32)
-0.272
(-1.06)
7.20*
(2.23)
Party
-3.20**
(-11.76)
--
--
--
-8.00*
(-2.54)
Cotton Manuf.
--
0.008*
(2.58)
0.000
(-0.04)
0.000
(-0.20)
-0.004
(-0.54)
Silk Manuf.
--
-0.043**
(-4.07)
-0.032**
(-2.86)
-0.035**
(-2.92)
-0.047+
(-1.73)
Wool
--
--
-0.373**
(-2.67)
-0.356*
(-2.52)
-0.748*
(-2.19)
Cotton
--
--
0.026**
(6.44)
0.026**
(6.44)
-0.033
(-1.45)
Sugar
--
--
-0.010
(-0.34)
-0.012
(-0.43)
-0.316*
(-2.37)
Wheat
--
--
-0.005+
(-1.67)
-0.003
(-0.84)
-0.002
(-0.46)
Agriculture
--
--
--
-0.001
(-0.82)
0.001
(0.36)
Observations
298
301
301
301
298
Pseudo-R2
0.64
0.07
0.40
0.40
0.71
+
=significant at the 10 percent level
*=significant at the 5 percent level
**=significant at the 1 percent level
Party=binary independent variable where 0=Democrats and 1=Republicans
Vote=binary dependent variable where 0=protectionist and 1=free trade.
All production variables are on a per-capita basis.
55
Probit Analysis of Vote on 1922 Fordney-McCumber Act, 67th Senate
Variable
(1)
(2)
(3)
(4)
(5)
Constant
1.405**
(3.85)
-0.298+
(-1.77)
-0.227
(-0.82)
-0.646
(-1.50)
56.3
(0.30)
Party
-2.639**
(-5.99)
--
--
--
-58.1
(-0.31)
Cotton
Manuf.
--
0.013*
(2.24)
0.008
(1.22)
0.008
(1.31)
-0.224
(-0.48)
Silk Manuf.
--
-0.048*
(-2.15)
-0.035+
(-1.65)
-0.028
(-1.29)
-0.203
(-0.06)
Wool
--
--
-0.005
(-0.26)
-0.009
(-0.42)
-0.004
(-0.17)
Sugar
--
--
-0.076
(-1.23)
-0.067
(-1.10)
-3.17
(-0.32)
Wheat
--
--
-0.009
(-1.57)
-0.016+
(-1.86)
-0.019+
(-1.72)
Cotton
--
--
0.019**
(2.64)
0.019*
(2.55)
0.014
(1.17)
Agriculture
--
--
--
0.002
(1.28)
0.004+
(1.79)
Observations
71
71
71
71
71
Pseudo-R2
0.52
0.08
0.27
0.29
0.76
56
Probit Analysis of Vote on 1930 Smoot Hawley Act, 71st House.
Variable
(1)
(2)
(3)
(4)
(5)
Constant
1.31**
(9.2)
-0.200*
(-2.54)
-0.372**
(-3.51)
-0.369*
(-2.14)
1.11**
(3.88)
Party
-2.66**
(-14.36)
--
--
--
-3.13**
(-11.68)
Cotton
Manuf.
--
0.12**
(4.52)
0.005
(1.56)
0.005
(1.55)
0.001
(0.19)
Silk Manuf.
--
-0.042**
(-4.77)
-0.030**
(-3.35)
-0.030**
(-3.13)
-0.011
(-0.71)
Wool
--
--
-0.060
(-1.38)
-0.060
(-1.38)
-0.088
(-1.22)
Sugar
--
--
-0.306**
(-3.17)
-0.306**
(-3.16)
-0.543**
(-4.86)
Wheat
--
--
-0.005
(-0.98)
-0.005
(-0.82)
-0.019+
(-1.89)
Cotton
--
--
0.034**
(6.43)
0.034**
(6.39)
0.009
(1.18)
Agriculture
--
--
--
0.00
(-0.02)
0.007**
(3.87)
Observations
374
375
375
375
374
Pseudo-R2
0.55
0.10
0.25
0.25
0.67
57
Probit Analysis of Vote on 1930 Smoot-Hawley Act, 71st Senate.
Variable
(1)
(2)
(3)
(4)
(5)
Constant
1.07**
(4.07)
0.030
(0.20)
-0.445+
(-1.86)
-1.25**
(-2.80)
-1.12
(-1.60)
Party
-1.95**
(-5.83)
--
--
--
-3.44**
(-4.53)
Cotton
Manuf.
--
0.011+
(1.72)
0.001
(0.07)
0.004
(0.41)
0.013
(0.88)
Silk Manuf.
--
-0.060*
(-2.46)
-0.032
(-1.30)
-0.016
(-0.66)
0.023
(0.51)
Wool
--
--
-0.014
(-0.57)
-0.025
(-1.01)
-0.109*
(-2.58)
Sugar
--
--
-2.22
(-1.04)
-2.17
(-0.86)
dropped
Wheat
--
--
0.012+
(1.75)
-0.002
(-0.17)
-0.012
(-0.96)
Cotton
--
--
0.123*
(2.23)
0.122*
(2.13)
0.008
(0.57)
Agriculture
--
--
--
0.007*
(2.13)
0.024**
(3.15)
Observations 83
86
86
86
83
Pseudo-R2
0.09
0.36
0.41
0.64
0.35
Note: sugar dropped due to high number of 0 value cases.
58
Probit Analysis of Vote on 1934 RTAA Act, 73rd House
Variable
(1)
(2)
(3)
(4)
(5)
Constant
1.76**
(12.87)
0.657**
(8.33)
0.464**
(4.55)
0.483**
(3.54)
1.82**
(7.03)
Party
-3.82**
(-11.95)
--
--
--
-3.82**
(-11.37)
Cotton
Manuf.
--
0.015*
(2.50)
0.004
(0.54)
0.004
(0.53)
-0.009
(-0.82)
Silk Manuf.
--
-0.073**
(-4.83)
-0.050**
(-3.08)
-0.051**
(-3.02)
-0.010
(-0.36)
Wool
--
--
-0.015
(-0.52)
-0.014
(-0.47)
-0.080
(-1.42)
Sugar
--
--
-0.227
(-1.24)
-0.229
(-1.25)
-0.473*
(-2.04)
Wheat
--
--
0.008
(0.77)
0.009
(0.79)
0.011
(0.51)
Cotton
--
--
0.069**
(3.94)
0.069**
(3.95)
0.045+
(1.75)
Agriculture
--
--
--
0.000
(-0.21)
0.000
(-0.19)
Observations 381
385
385
385
381
Pseudo-R2
0.05
0.12
0.12
0.77
0.75
59
Probit Analysis of Vote on 1934 RTAA Act, 73rd Senate
Variable
(1)
(2)
(3)
(4)
(5)
Constant
1.29**
(5.37)
0.337*
(2.13)
0.179
(0.77)
0.038
(0.11)
0.913+
(1.93)
Party
-2.38**
(-6.31)
--
--
--
-2.845**
(-5.64)
Cotton
Manuf.
--
0.014
(1.52)
0.007
(0.61)
0.008
(0.69)
0.010
(0.54)
Silk Manuf.
--
-0.066*
(-1.97)
-0.052
(-1.48)
-0.049
(-1.38)
-0.024
(-0.39)
Wool
--
--
0.009
(0.35)
0.005
(0.20)
-0.021
(-0.50)
Sugar
--
--
-0.658*
(-2.39)
-0.646*
(-2.35)
-0.724*
(-2.19)
Wheat
--
--
0.002
(0.11)
-0.003
(-0.17)
-0.010
(-0.42)
Cotton
--
--
0.059*
(2.47)
0.060*
(2.51)
0.030
(0.97)
Agriculture
--
--
--
0.000
(0.61)
0.002+
(1.82)
Observations 80
82
82
82
80
Pseudo-R2
0.06
0.14
0.14
0.60
0.47
60
Probit Analysis of Vote on 1945 RTAA Renewal, 79th House
Variable
(1)
(2)
(3)
(4)
(5)
Constant
1.59**
(11.49)
0.138+
(1.95)
0.025
(0.30)
0.306*
(2.40)
1.77**
(8.01)
Party
-2.45**
(-13.9)
--
--
--
-2.38**
(-11.64)
Cotton and
Silk Manuf.
--
0.006**
(3.62)
0.004*
(2.07)
0.003
(1.49)
0.000
(0.24)
Wool
--
--
-0.032
(-0.98)
-0.011
(-0.35)
-0.077
(-1.43)
Sugar
--
--
-0.002
(-0.04)
-0.018
(-0.32)
-0.093
(-1.64)
Wheat
--
--
-0.004
(-1.44)
0.000
(-0.09)
0.004
(1.21)
Cotton
--
--
0.034**
(4.56)
0.036**
(4.80)
0.012
(1.42)
Agriculture
--
--
--
-0.001**
(-2.83)
-0.001+
(-1.73)
Observations 391
392
392
392
391
Pseudo-R2
0.05
0.15
0.16
0.52
0.49
61
Probit Analysis of Vote on 1945 RTAA Renewal, 79th Senate
Variable
(1)
(2)
(3)
(4)
(5)
Constant
1.21**
(4.86)
0.510**
(3.09)
0.712**
(3.16)
0.787*
(2.39)
1.47**
(3.30)
Party
-1.25**
(-3.72)
--
--
--
-1.16**
(-2.71)
Cotton and
Silk Manuf.
--
0.003
(1.08)
0.000
(0.15)
0.000
(0.07)
-0.001
(-0.47)
Wool
--
--
-0.054
(-1.55)
-0.050
(-1.40)
-0.078
(-1.53)
Sugar
--
--
1.26
(0.52)
1.26
(0.52)
1.09
(0.40)
Wheat
--
--
-0.008+
(-1.74)
-0.007
(-1.35)
-0.005
(-1.03)
Cotton
--
--
0.014
(1.16)
0.014
(1.16)
0.004
(0.29)
Agriculture
--
--
--
0.000
(-0.31)
0.000
(-0.08)
Observations 75
75
75
75
75
Pseudo-R2
0.02
0.20
0.20
0.29
0.17
62
Probit Analysis of Vote on 1949 RTAA Renewal, 81st House
Variable
(1)
(2)
(3)
(4)
(5)
Constant
1.96**
(11.37)
0.833**
(10.34)
0.732**
(7.62)
0.857**
(6.75)
1.89**
(8.36)
Party
-1.78**
(-8.84)
--
--
--
-1.69**
(-7.41)
Cotton and
Silk Manuf.
--
0.005*
(2.18)
0.004
(1.51)
0.003
(1.36)
0.002
(0.70)
Wool
--
--
-0.027
(-0.63)
-0.010
(-0.23)
-0.029
(-0.56)
Sugar
--
--
0.760
(0.52)
0.780
(0.55)
-0.695
(-0.55)
Wheat
--
--
-0.001
(-0.68)
0.001
(0.27)
0.001
(0.37)
Cotton
--
--
0.014**
(2.81)
0.015**
(2.92)
0.004
(0.86)
Agriculture
--
--
--
0.000
(-1.51)
0.000
(-0.36)
Observations 387
388
388
388
387
Pseudo-R2
0.02
0.08
0.09
0.30
0.29
63
Probit Analysis of Vote on 1949 RTAA Renewal, 81st Senate
Variable
(1)
(2)
(3)
(4)
(5)
Constant
2.04**
(4.95)
0.51**
(3.02)
0.396+
(1.64)
0.599+
(1.73)
2.17**
(3.22)
Party
-2.15**
(-4.62)
--
--
--
-2.23**
(-3.67)
Cotton and
Silk Manuf.
--
0.033
(1.37)
0.035
(1.41)
0.030
(1.26)
0.038
(1.27)
Wool
--
--
0.009
(0.19)
0.022
(0.43)
-0.058
(-0.97)
Sugar
--
--
--
--
--
Wheat
--
--
-0.003
(-1.27)
-0.002
(-0.52)
0.000
(-0.13)
Cotton
--
--
0.026
(1.45)
0.025
(1.44)
0.008
(0.44)
Agriculture
--
--
--
0.000
(-0.83)
0.000
(-0.46)
Observations 81
81
81
81
81
Pseudo-R2
0.11
0.23
0.24
0.48
0.37
Note: sugar dropped in column (5) because it predicts success perfectly.
64
Probit Analysis of Vote on 1955 RTAA Renewal, 84th House
Variable
(1)
(2)
(3)
(4)
(5)
Constant
1.00**
(9.85)
0.719**
(8.98)
0.612**
(6.34)
0.519**
(4.04)
0.994**
(6.00)
Party
-0.767**
(-5.56)
--
--
--
-0.791**
(-4.95)
Textile
--
-0.003*
(-2.58)
-0.004**
(-3.15)
-0.004**
(-2.79)
-0.005**
(-3.47)
Wool
--
--
-0.022
(-0.71)
-0.032
(-1.00)
-0.036
(-1.13)
Sugar
--
--
1.78
(1.59)
1.83
(1.64)
0.790
(0.71)
Wheat
--
--
-0.001
(-0.41)
-0.002
(-0.97)
-0.003
(-1.00)
Cotton
--
--
0.010**
(2.71)
0.009*
(2.35)
0.004
(1.22)
Agriculture
--
--
--
0.000
(1.08)
0.000
(1.61)
Observations 405
405
405
405
405
Pseudo-R2
0.01
0.06
0.06
0.12
0.07
65
Probit Analysis of Vote on 1955 RTAA Renewal, 84th Senate
Variable
(1)
(2)
(3)
(4)
(5)
Constant
1.07**
(4.46)
0.980**
(5.38)
1.75**
(5.14)
1.35**
(3.13)
0.947+
(1.93)
Party
-0.040
(-0.12)
--
--
--
0.993+
(1.79)
Textile
--
0.002
(0.79)
-0.003
(-1.02)
-0.002
(-0.66)
-0.002
(-0.52)
Wool
--
--
-0.163*
(-2.56)
-0.240**
(-2.71)
-0.263**
(-2.76)
Sugar
--
--
3.24
(0.51)
3.23
(0.55)
5.33
(0.75)
Wheat
--
--
-0.007*
(-2.11)
-0.015*
(-2.12)
-0.016*
(-2.16)
Cotton
--
--
0.003
(0.36)
-0.001
(-0.13)
0.004
(0.40)
Agriculture
--
--
--
0.001
(1.29)
0.001
(1.05)
Observations 88
88
88
88
88
Pseudo-R2
0.01
0.34
0.37
0.42
0.0002
66
Probit Analysis of Vote on 1962 Trade Expansion Act, 87th House
Variable
(1)
(2)
(3)
(4)
(5)
Constant
1.09**
(11.06)
0.508**
(7.09)
0.601**
(6.85)
0.712**
(6.14)
1.62**
(9.37)
Party
-1.16**
(-8.44)
--
--
--
-1.50**
(-8.93)
Textile
--
0.001
(0.78)
0.000
(0.30)
0.00
(0.09)
-0.002*
(-2.03)
Wool
--
--
-0.131*
(-2.17)
-0.083
(-1.34)
-0.188*
(-2.28)
Sugar
--
--
-0.017
(-0.59)
-0.0152
(-0.53)
-0.074*
(-2.46)
Wheat
--
--
0.001
(0.50)
0.004
(1.17)
0.005
(1.63)
Cotton
--
--
0.000
(-0.21)
0.001
(0.27)
-0.008**
(-2.93)
Agriculture
--
--
--
0.000
(-1.48)
0.000
(-0.79)
Observations
423
421
421
421
421
Pseudo-R2
0.15
0.001
0.02
0.02
0.20
67
Probit Analysis of Vote on 1962 Trade Expansion Act, 87th Senate
Variable
(1)
(2)
(3)
(4)
(5)
Constant
2.11**
(5.25)
1.39**
(6.43)
1.58**
(5.24)
2.00**
(4.84)
18.3*
(2.41)
Party
-1.41**
(-2.96)
--
--
--
-15.0*
(-2.26)
Textile
--
-0.002
(-0.96)
-0.003
(-1.31)
-0.004+
(-1.66)
-0.040*
(-2.37)
Wool
--
--
-0.029
(-0.78)
0.014
(0.31)
-0.513*
(-2.08)
Sugar
--
--
21.8
(0.79)
19.3
(0.63)
-0.795
(-0.26)
Wheat
--
--
-0.002
(-0.62)
0.005
(0.78)
-0.005
(-0.40)
Cotton
--
--
-0.009
(-1.05)
-0.006
(-0.63)
-0.055
(-0.73)
Agriculture
--
--
--
0.000+
(-1.71)
0.000
(-1.20)
Observation
86
83
83
83
83
Pseudo-R2
0.21
0.02
0.09
0.14
0.66
68
Table Set 3: Predicted Effect of Party on Vote
*Each cell indicates the probability that Democratic or Republican members will vote in
favor of free trade for each year’s legislation (i.e. voting “no” for 1922 and 1930, and
“yes” for all other years). All variables are held at the mean.
House Votes:
1922
Democrat: 1.000
Republican: .003
Party=.732 ; CottonManuf.=11.471; SilkManuf.=5.597; Wool=1.286; Wheat=21.385; Cotton=18.598;
Sugar=.583; Agric=207.634
1930
Democrat: .943
Republican: .060
Party=.610 ; CottonManfuc.=12.554; SilkManuf.=5.358; Wool=.804 ; Wheat=7.028; Cotton=12.700;
1934
Democrat: .968
Republican: .024
Party=.265; CottonManuf.=6.073; SilkManuf.=2.222; Wool=.699; Wheat=3.851; Cotton=4.989;
1945
Democrat: .945
Republican: .216
Party=.445, CotSilkManuf.=34.666; Wool=.885; Wheat=10.687; Cotton=11.515; Sugar=.301;
Agric=351.037
69
1949
Democrat: .975
Republican: .601
Party=.380; CotSilManuf.=29.812; Wool=.615; Wheat=13.487; Cotton=17.401; Sugar=.051;
Agric=510.733
1955
Democrat: .857
Republican: .608
Party=.454; Textile=32.636; Wool=.775; Wheat=13.416; Cotton=16.743; Sugar=.038; Agric=651.498
1962
Democrat: .896
Republican: .407
Party=.404; Textile=35.998; Wool=.599; Wheat=10.198; Cotton=13.238; Sugar=.410; Agric=908.947
Senate Votes:
1922
Democrat: 1.000
Republican: .000
Party=.648; CottonManuf=15.866; SilkManuf=4.727; Wool=3.657; Wheat=27.702; Cotton=19.785;
1930
Democrat: 1.000
Republican: .000
Party=.578; CottonManuf.=12.493; SilkManuf=4.275; Wool=2.888; Wheat=13.638; Cotton=12.669;
70
1934
Democrat: .942
Republican: .100
Party=.363; CottonManuf.=9.820; SilkManuf.=1.883; Wool=2.446; Wheat=5.581; Cotton=6.585;
1945
Democrat: .942
Republican: .657
Party=.413; CotSilkManuf=32.292; Wool=2.380; Wheat=21.963; Cotton=13.071; Sugar=.387;
Agric=441.802
1949*
Democrat: 1.000
Republican: .885
Party=.407; CotSilManuf=35.828; Wool=1.499; Wheat=28.322; Cotton=19.180; Agric=700.983
1955
Democrat: .823
Republican: .973
Party=.523; Textile=34.233; Wool=2.152; Wheat=24.037; Cotton=20.192; Sugar=0.042;
Agric=899.142
1962
Democrat: 1.000
Republican: .119
Party=.337; Textile=40.797; Wool=1.817; Wheat=19.840; Cotton=13.279; Sugar=.610; Agric=1209.415
*: sugar variable was dropped due to perfect prediction error.
71
V. A Historical Interpretation of U.S.-Pacific Rim Trade Barriers
1922 to 1962 was a transformative period in U.S. foreign trade history,
encompassing the height of protectionism, the move toward bilateral trade negotiations,
and eventually the creation of a multinational framework in the name of GATT. Yet, the
large swings in policy direction did not prevent consistently higher barriers to U.S. trade
with the Pacific Rim than with the rest of the world. As shown in the previous sections,
U.S. trade policy was more likely to protect goods that were more heavily imported from
the Pacific Rim in relative terms, and Congressional politics throughout this period have
supported this bias. However, as this section will show, the consistency of this bias
cannot be explained solely by the role played by domestic economic interests.
The transformation of U.S. trade policy during this period was based on a broader
set of principles and goals in U.S. foreign policy and international relations, and was
intimately tied to the influential role that the executive branch began to play after 1934.
To begin a course of trade liberalization, the executive branch had to resort to an
incremental approach. As a result, it had to carefully assess trade relations with different
regions. In this process, the U.S. pursued a policy that prioritized freer trade with certain
regions over others, and as a result the liberalization of trade with the Pacific Rim
occurred much more slowly. In this section, I examine the historical circumstances that
contributed to this trend by focusing on three themes: the reciprocal trade agreements, the
GATT framework, and the Pacific Rim’s historical development.
72
The Use of Reciprocal Trade Agreements
Shortly after the Smoot-Hawley Act in 1930 and the subsequent downward spiral
of world trade, the United States began to reconsider its position in international trade.
The newly elected Roosevelt administration decided to pursue trade liberalization based
on bilateral reciprocity. In 1934, the Reciprocal Trade Agreements Act (RTAA) shifted
trade policy making from Congress to the executive branch, and the President was given
power to reduce tariffs by as much as 50% of Smoot-Hawley levels. The administration
pursued reciprocal trade agreements for two reasons. First, a unilateral tariff reduction
was not politically feasible, as protectionist sentiments had by no means disappeared;
such an action would have faced strong resistance from Congress. Second, reciprocal
trade agreements closely tied export-oriented coalitions into the policy-making process,
and increased the political cost of lobbying for import-competing groups (Brenner 1977).
However, the U.S. had to select which nations to negotiate trade agreements with,
and in this process the Pacific Rim was largely neglected. In fact, among all the nations
that signed trade agreements with the United States between 1934 and 1947, none were
Pacific Rim nations (see Table 8). The United States was much more interested in
opening up trade with nations in Europe or the Western Hemisphere. This is not
surprising, since the bulk of U.S. foreign trade was with these two regions. Even more
importantly, the main priority of the U.S. in negotiating agreements was the opening of
its export market, and the Pacific Rim was not seen as an important partner for this
purpose. Through reciprocal trade agreements, import liberalization of certain products
could only be achieved by simultaneously tying them to export expansion of similar
scope for U.S. products. The export-oriented coalition that advocated trade liberalization
73
in the U.S. was led by large industry groups (Lusztig 2004), which often represented
heavy industry and technology-based goods such as automobiles. U.S. export of these
goods to the Pacific Rim was relatively low, since many Pacific Rim economies lacked
the purchasing power of many more developed economies of Europe at the time.
Special agencies and committees were set up in the State Department to make
decisions on negotiation partners and strategy. For example, in 1934 Assistant Secretary
of State Sayre submitted to Congress a list of 29 countries that were chief suppliers of
certain products, sometimes know as the “Sayre’s List” (Tasca 1938, p.137). Only three
of these countries were Pacific Rim economies – China, Japan, and Australia.
Eventually, the U.S. only negotiated agreements with eight of these nations, and none
included the three Pacific Rim countries. The Pacific Rim was effectively screened out
through the decision-making process in the State Department.
In addition to the selection of countries, the State Department also had to carefully
craft its negotiations by choosing an appropriate range of products. This process also
placed the Pacific Rim at a disadvantage. In order to maintain its newly delegated
powers in trade negotiations, the executive branch was careful to minimize the domestic
political costs of reciprocal trade agreements. In doing so, it tended to choose tariff
reduction in products that avoided stiff domestic resistance. In fact, evidence by Henry
Tasca (1939) showed that duty reductions were most substantial among five schedules –
earths, earthenware, and glassware; agricultural products; metals and manufactures;
chemicals, oils and paint; and sundries. The Pacific Rim exported little of these goods.
Of the 447 reductions achieved by the negotiated trade agreements, a total 356 of them
were in these five schedules. In contrast, among the five textile schedules in which the
74
Pacific Rim did have substantial specialization, only 56 reductions were negotiated
(Tasca 1938). The textile industries were strong domestic interests in favor of
protectionism, and by focusing tariff reductions on less sensitive industries, the executive
branch tried to divert these interests from influencing the general direction of trade
liberalization.
Some might point out that these discriminatory effects were mitigated by the
unconditional most-favored-nation (MFN) principle of the reciprocal agreements, under
which trade reductions negotiated with one country would apply to all other countries as
well. Thus, the Pacific Rim could have benefited as external participants. However,
evidence suggests that the extent of the benefit was limited. First, even though the
unconditional MFN principle applied, the executive branch negotiated agreements by
adhering to the “chief-supplier principle”: reciprocal trade agreement on a certain product
was negotiated with the country that was the chief supplier of that product (Lusztig
2004). Thus, the external benefits to third parties were minimized. Secondly, a
reclassification of products occurred after the RTAA was passed (Tasca 1938). As a
result, products defined in the Smoot-Hawley legislation were classified into finer
categories, providing a second channel to minimize third-party benefits. Take an
example given by Tasca (1938, p.143): in U.S. negotiations with Belgium, tariff
reductions were included on “woven green billiard fabrics.” In this case, even though the
reduction was in a textile product, the East Asian economies could not expect to reap
much benefit because the defined product was very specific. In fact, Brenner (1977)
noted that the reclassification had helped U.S. negotiate textile reduction with Great
Britain without affecting the more competitive textiles from Japan.
75
To be sure, the implementation of the reciprocal trade agreements was a
groundbreaking step in moving the U.S. toward trade liberalization. By 1934, the U.S.
had recognized the unstable international political situation, a large part of which was
contributed by the zealous drive among countries to erect trade barriers. The Roosevelt
administration wanted to take a leadership role in reversing this trend, and found its
answer in the form of bilateral reciprocity. In many ways, this was an ingenious idea,
and perhaps the most politically feasible approach in achieving trade liberalization.
However, the flexibility of reciprocal agreements also induced differential priority of
treatments toward different regions.
Within the international context, it was natural that the U.S. targeted its
negotiations with European and South American countries. The former represented a
long-standing partnership, as well as a major market for the expansion of U.S. exports of
heavy-industry goods. The latter are nearby neighbors of the United States in the
Western Hemisphere, and maintaining stability in the region with sound trade relations
was equally important. The Pacific Rim, far and beyond, was given relatively little
attention. The U.S. saw little opportunity in export expansion there, and it was
constrained in freely negotiating import-sensitive goods that could have benefited the
Pacific Rim. Indeed, evidence by Henry Tasca (1938) has suggested that trade barrier
reductions were higher for agreement countries than non-agreement countries, consistent
with the empirical estimates in this paper. Because the Pacific Rim also benefited little
from external effects of the unconditional MFN clause, it can be said that the RTAA Act
affected the Pacific Rim very little, despite its large success in helping the U.S. jump
toward a course of trade liberalization.
76
Multilateral Agreements Under the GATT
In 1947, the United States moved toward a new stage in trade liberalization. For
the first time, the General Agreement on Tariffs and Trade (GATT) established a
multilateral trade negotiation framework. Further improvements were made over the
previous bilateral framework, as more participants were brought in to achieve more
substantial trade liberalization. In addition, the GATT further reduced the influence of
import-competing domestic interests and simultaneously expanded the participation of
exporters. According to Barton et al. (2006), the GATT was also created to helped solve
a credible commitment problem – small countries were reluctant to negotiate with the
United States after World War II, because if the U.S. failed to commit to the agreements,
the small nation faced large potential losses in the form of non-salvageable investments
in export industries. With a multilateral framework, large nations have smaller incentives
to renege, because agreements are linked for multiple countries and a deviation faced
greater economic losses. If a “small” nation is taken as a nation with relatively low
economic bargaining power, then this mechanism should help the Pacific Rim achieve
deepened trade liberalization. But evidence suggests the contrary, at least from 1947 to
1962. Why did the incorporation of a multilateral framework once again neglect the
Pacific Rim? The answer is reflected in the creation and design of the GATT.
By origin, the GATT was not initiated to include developing nations. The United
States wanted a small forum of nations to discuss the reduction of trade barriers. In fact,
the GATT extended many principles that the U.S. was already pursuing under the
bilateral agreements, such as unconditional MFN clause. Among the original twentythree members of the GATT, only China was from the Pacific Rim. Essentially, the
77
exclusion of the Pacific Rim reflected many of the same problems as under the bilateral
agreements. To the U.S., incorporating a developing nation in the Pacific Rim to the
GATT yielded little benefit in the form of export expansion. Bargaining power once
again played an important role. Reducing trade barriers with large nations with greater
bargaining power was more urgent than with small nations with little bargaining power.
Often, the latter group consisted of nations that were very dependent on foreign trade. In
the Pacific Rim, only China could be characterized as a large nation that had a large
internal trade and could be self-sufficient without trade. Many other nations, such as
Singapore, Indonesia, Thailand, etc. were all small nations with which the early GATT
did not have concern. These smaller nations could not effectively threaten the large
nations with closing off its exports, as that would be detrimental to their own economic
growth. Instead, in creating the GATT in the post-war era, the U.S. was more concerned
about recovery of major European economies.
The structure and rules of the GATT also fostered the lack of participation among
Pacific Rim economies. As the primary initiators of the GATT, the United Kingdom and
especially the United States held dominating influence. In 1948, the U.S. alone
accounted for 65% of GDP of all GATT members and never dropped below 50% before
1962 (Barton et al. 2006, p.11-13). In fact, until the Doha rounds of this century, every
round of trade negotiation was initiated by the Congressional delegation of negotiation
power to the President (Barton el al. 2006, p.44). The U.S. preferred a multilateral
framework that was small in membership and relatively flexible in structure, perhaps
believing it was more conducive to achieving deeper trade liberalization. Originally, this
framework was intended as a stepping-stone to the International Trade Organization
78
(ITO), which would have created a bigger and more centralized international
organization. It would have resembled the International Monetary Fund, for example.
But this organization never became a reality, partly because the Truman administration
did not believe Congress would ratify it and hence did not even submit it for a vote.
The GATT continued to operate in a decentralized way, and this dampened the
influence that the Pacific Rim could have had in international trade negotiation. For
example, if the ITO were implemented, the Pacific Rim would have more representation
and total voting power. In fact, evidence from Barton et al. (2006, p. 36) had shown that
the U.S. tried to mitigate this potential effect by proposing to allocate votes in the ITO by
share of world trade as well as to create a permanent committee of a few nations.
Furthermore, while the unconditional MFN principle continued to apply in the GATT,
they were often subject to exceptions. For example, existing members of the GATT can
choose not to apply MFN to newly admitted members (Barton et al. 2006). In any case,
the informal structure of the GATT remained, and it allowed the executive branch of the
U.S. to maintain its ability to conduct trade policy largely free of obstacles from
Congress. Thus, the institutional mechanisms of the GATT was effective in helping the
U.S. reduce trade barriers with its main trading partners in the GATT, but was not the
best design from the perspective of the Pacific Rim. But this might have been avoided if
the Pacific Rim could consolidate bargaining power as a regional bloc.
The Lack of Regional Cooperation
As the above discussion has shown, asymmetry in economic bargaining power
worked to the disadvantage of the Pacific Rim, and contributed to the region’s higher
79
trade barriers with the United States. However, this result may have turned directions if
the Pacific Rim had worked together as an economic bloc and formulated a coordinated
foreign trade policy direction. For example, the Pacific Rim could have attempted
collective negotiation with the United States. Such unified regional efforts would more
closely coordinate common interests, and thereby increase the bargaining strength of the
Pacific Rim. Was such a possibility feasible, and if so, why did it never come to reality?
The Western European nations were already quite active in this regard, especially
in the post-WWII era. Various forms of economic unions and cooperation, such as the
Benelux Union between Belgium, Luxembourg, and later the Netherlands, were pursued
as early as the 1920s (Barton et al. 2006). These efforts eventually fostered the European
Economic Community (ECC) and later the European Union (EU). The evolution of the
EU was closely related to GATT/WTO. For example, the U.S. advocated European
integration in 1957 by using the customs union exception in Article XXVIIII of the
GATT (see Barton et al. 2006, p.35).
The Pacific Rim possessed some ideal characteristics to forge similar kinds of
economic cooperation. Many countries were main suppliers of raw materials: raw silk in
China and Japan, wool in Australia and New Zealand, rubber and tin in Southeast Asia.
The region was also relatively less developed in advanced manufacturing industries,
partly contributed by high trade barriers. Furthermore, with the exception of China, most
other nations in the region were relatively small or sparse in population, and were hence
particularly dependent on foreign trade. All these reasons suggest a real possibility for
these nations to recognize their common interests and create institutions to promote these
interests. But historical circumstances during this period prevented such cooperation.
80
In order to formulate a long-lasting economic cooperation, a region needs to show
some degree of political unity. But the decades leading up to World War II were filled
with regional conflicts. Perhaps the most notable was the one between China and Japan
during World War II, when Japan extended its economic interests and later military
invasion into China and other regions in East Asia starting in the 1920s. Research by
Peter Petri (Frankel and Kahler 1993) has shown that Japan’s military expansion led to
greater economic interdependence in the Pacific Rim. Japan’s desire for raw goods to
fuel its industrialization resulted in numerous trade disputes, and severely disrupted the
region’s trade with the United States. Yet China and Japan would be the biggest two
potential candidates to take a leading role in forming a coordinated effort in negotiating
lower trade barriers with the United States. Regional conflicts excluded this possibility.
In addition, there were no natural alliances between nations that could help initiate or
expand cooperation. Australia and New Zealand could have been important players, but
culturally they did not share a common identity with East Asia, and economically they
were members of the British Commonwealth. Hence they had no particular interest in
East Asian trade policy.
In addition to minimal regional conflicts, regional cooperation also requires that
the participating nations have stable internal governments. The Pacific Rim nations often
did not meet this requirement. China had only recently become a republic in 1912,
ending a five thousand year history of imperial rule. The newly formed republic was
filled with internal conflicts, as warlords often claimed large powers in different regions
of the country. After the war with the Japanese, a civil war ensued until the Communists
established the People’s Republic of China in 1949. The civil war severely restrained
81
China’s foreign trade, and the new People’s Republic of China virtually stopped its trade
with the United States until the economic reforms of the 1970s.
In Southeast Asia, domestic conflicts were also widespread. First, in the early
1920s, many parts of this area were still domains of European colonial powers. These
included British Malaya, Netherlands Indies, French Indo-China, etc. After World War
II, many of these areas became independent, but domestic political conflicts hardly
stopped. Japan needs no further elaboration, as it also underwent a change in government
after its defeat in World War II. Not surprisingly, trade flows in the Pacific Rim declined
sharply (Frankel and Kahler 1993). Domestic political instability in the Pacific Rim was
detrimental to the region’s conduct of foreign trade policy. Nations could not even adopt
consistent foreign trade policy for themselves, much less forge a broad cooperation
among each other.
Incidentally, the period when American foreign trade policy was undergoing its
most dramatic transformation was also one in which the Pacific Rim faced immense
changes. What would have been an opportune time for the Pacific Rim to engage in trade
negotiations with the United States and pursue bilateral or multilateral tariff reductions
instead was taken over by wars and conflicts. This resulted in a weak bargaining power
position for the region, and U.S. foreign policy also recognized this point. When
considering these broad international trends, the consistency of a higher trade barrier with
the Pacific Rim was perhaps no surprise after all. The Pacific Rim lacked the features
that would have been effective for trade liberalization with the United States, and while
its trade barriers with the U.S. have declined in this period, it happened at a much slower
pace than the rest of the world. The extent to which high trade barriers with the United
82
States negatively impacted the economic development of the Pacific Rim is unfortunately
beyond the scope of this paper. The answer to that question would require a much
broader study, looking at factors such as the region’s terms of access to markets in other
parts of the world. Although the regional discrimination implicit in U.S. policies was to
some extent a function of Asia’s economic backwardness at that time, what we can say is
that U.S. policies were not helpful in improving the situation.
83
Table 8: Countries that Signed Reciprocal Trade Agreements with the U.S.,
1934-1947.
Argentina
Belgium and Luxembourg
Brazil
Canada
Colombia
Costa Rica
Cuba
Czechoslovakia
Ecuador
El Salvador
Iceland
Finland
France
Guatemala
Haiti
Honduras
Iran
Mexico
Netherlands
Nicaragua
Peru
Sweden
Switzerland
Turkey
United Kingdom
Uruguay
Venezuela
Source: Lusztig 2004.
84
85
VI. Conclusion
This paper makes a contribution by addressing several closely related questions
regarding U.S. trade with the Pacific Rim from 1922-1962. I begun the discussion by
looking at the depressive effects that U.S. protectionist policies imposed on Pacific Rim
trade. Extremely high if not prohibitory tariff rates of the Fordney-McCumber Act of
1922 and Smoot-Hawley Act of 1930 severely restrained the exports of Pacific Rim
products, especially those in the textile and agricultural sector.
I then expand upon this evidence into the central question of the study – were
U.S. trade barriers with the Pacific Rim higher than those with the rest of the world?
Two sets of empirical estimates of average tariff rates of Pacific Rim imports have shown
that this has been consistently the case during the period studied. More importantly, this
effect was the strongest for products in import-competing industries. These were often
high-stage manufactured goods (e.g. textiles) in which the Pacific Rim had comparative
advantage but faced heavy protection by U.S. trade policy.
The natural follow-up question to my main empirical estimates was what caused
U.S. trade policies to impose heavier trade barriers onto the Pacific Rim? I approached
this question through two sides. The first approach analyzed the underlying nature of the
political process to constructing trade policies. The main focus was Congressional
interest-group politics. By analyzing roll-call votes as well as presenting regressions on
variables of state-level production of several important products and party affiliation, we
find that throughout 1922-1962, there is consistent correlation between state production
of goods that competed significantly with the Pacific Rim and that state’s Congress
members’ likelihood to vote in favor of protectionism. This seems to suggest that these
86
domestic interests were quite successful in maintaining a certain degree of protection
despite the movement to freer trade after 1934.
To further explore why the Pacific Rim could not escape disproportionately
higher level of trade barriers even until the multilateral agreements of the GATT, I also
interpret the phenomenon from a historical and international relations perspective. The
main focus here is the executive branch and the influential role it had played in U.S. trade
policy since 1934. After 1934, the executive branch was clearly serious about trade
liberalization, and it had successfully pursued a strategy that successfully internalized
much domestic opposition to free trade and closely tied the interests of exporters. As
successful as the strategy was, however, its incremental nature as well as U.S. foreign
policy goals put the Pacific Rim on the low end of the priority list. While the Pacific Rim
could have strengthened its bargaining power through forms of economic cooperation,
this only became an unachieved possibility due to regional conflicts and instability.
Hence, even though the U.S. achieved a successful breakdown in trade barrier after 1934,
the Pacific Rim did not benefit as much as trading partners that had more bargaining
power and closer relations to the U.S. It appeared that all circumstances worked against
the Pacific Rim.
Several broad observations can be extracted from the results of this paper. First,
the effect of trade policy is not one-dimensional. Even with a rules-based trade policy
rigorously applying the principles of reciprocity and nondiscrimination, which the U.S.
largely achieved by 1962, trade barriers to different regions can vary greatly. If a trading
system that treats all partners equally is the goal, whether to maximize economic benefits
87
or to avoid regional isolation or antagonism, then trade policy needs to properly take into
account any embedded regional bias.
Secondly, political feasibility has been and will remain a top priority in trade
liberalization efforts. It was difficult to say if the U.S. could have actually achieved its
trade liberalization without designing a policy that effectively marginalized the Pacific
Rim. Had the U.S. actually revised the policy so that the trade barriers to Europe and the
Pacific Rim were equal, domestic resistance would have been higher, perhaps high
enough to undermine the efforts toward freer trade.
Last but not least, bargaining power is crucial to a successful trading relationship.
In this paper, the story was largely about U.S. policies. However, U.S. policies were not
formulated by treating the Pacific Rim as exogenous. Had the Pacific Rim economies
been shaped differently, or had their political developments took a different direction
during this period, U.S. trade policy would have dynamically adjusted in response.
Today, the trading relationship between the same Pacific Rim and the United
States is vastly different from that of the first half of the twentieth century. Economies
like China, Japan, and South Korea are among the largest trading partners of the U.S.
Contributed by the rapid economic growth of these nations, many factors that previously
restrained free flow of goods and services between the two regions are now diminished.
Furthermore, U.S. trade policy has become more aligned with global trading frameworks
like the WTO, and the economic bargaining power of Pacific Rim economies has
substantially increased. However, history reminds us that maintaining a free and stable
international trading system is no easy task. Future policies must build on insights from
past failures as well as successes in reducing barriers to international trade.
88
89
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94
95
Appendix A: Classification of Categories Used to Calculate Tariff Rates
Note: This appendix presents the goods and group of goods that are classified as semimanufactures and finished manufactures in constructing the dataset on ad valroem
equivalent tariff rates in section III. The classification attempts to closely match the one
given by The Foreign Commerce and Navigation of the United States in 1931 (see p.S68S69), and modifications were made in other years to best keep the groupings consistent.
Parentheses next to certain item groups provide more details regarding items within the
group.
Semi-Manufactures
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Leather
Furs, semi-manufactures (dressed furs; silk or black fox, dressed or undressed)
Cod and cod-liver oil
Whale and fish oil
Stearic acid
Beeswax and other animal wax (bleached beeswax, crude beeswax, manufactures of
beeswax, animal wax, n.s.p.f.)
Rubber, reclaimed and scrap
Bristles, sorted or bunched
Shellac
Gelatin, inedible, and manufactures of
Glue and glue size
Casein or lactarene
Gums and reins, n.e.s. (dutiable only)
Vegetable oils, expressed, inedible, n.e.s.
Tar, pitch, and turpentine.
Extracts for dyeing and tanning
Gambier
Cotton semi-manufactures (cotton yarn, cotton waste)
Jute yarns
Yarns of flax, hemp and ramie
Silk waste
Spun silk
Silk yarns
Hat materials
Wool, semi-manufactures
Rayon waste, yarns, and thread
Cork waste
Wood, unmanufactured (exclude logs)
Sawmill products, except laths and shingles
Boards, planks, etc., n.e.s.; and clapboards
Veneer and ply woods
Marble, onyx, and breccia (in block, rough, square, or tiles)
Cement and lime
96
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Paper base stock
Coke, charcoal, briquettes, etc.
Petroleum: topped oils and tops
Paraffin and paraffin wax
Abrasives, crude and artificial
Asbestos (all fibers, suco, asbestos)
Precious stones (dutiable only, diamond cut, pearl and sets)
Gypsum (exclude crude gypsum and plaster)
Mica, cut, split, and manufactures of
Talcum, steatite, soapstone, and French chalk (exclude crude)
Magnesite (dead, burned, grain and periclase)
Other nonmetallic minerals and manufactures of (only dutiable ones listed after salt)
Iron and steel semi-manufactures (listings from granular or sponge iron to tin plates,
terneplates)
Copper (refined in ingots, plates, or bars) and brass (old brass and clippings)
Ferro-Alloys (dutiable only)
Nickel oxide
Tin in bars, blocks, etc
Cobalt ore and metal
Platinum and platinum metals (ores excluded)
Aluminum metal scrap and alloys
Lead (pigs, reclaimed scrap, dross, Babbitt, type metal)
Nickel alloys, in pigs, n.e.s.
Antimony (exclude ore)
Zinc in pigs, blocks, etc.
Quicksilver or mercury
Other metals, alloys, etc. (dutiable only)
Coal-tar products
Industrial chemicals
Pigments
Fertilizer materials
Perfume materials
Finished Manufactures
•
•
•
•
•
•
•
•
•
•
•
Leather manufactures
Fur manufactures
Bone and horn manufactures
Feathers, artificial, etc., and advanced (dressed feathers, feather, n.s.p.f)
Sponges and manufactures of
Other inedible animal products (listing after tankage)
Camphor, refined and synthetic
Licorice extract
Essential and distilled oils
Tobacco manufactures (cigars and cigarettes, and manufactures n.s.p.f.)
Starch
97
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Cotton manufactures (excluding waste and yarn)
Jute manufactures (excluding yarns)
Manufactures of flax, hemp and ramie (exclude yarn)
Hats, bonnets, and hoods of straw, etc.
Hair manufactures
Silk manufactures (exclude spun silk and yarn)
Rayon manufactures (exclude yarn, waste, and threads)
Miscellaneous textiles (all textiles listed after rayon manufactures)
Wood manufactures
Cork manufactures
Refined petroleum oils
Marble, breccia, and onyx manufactures
Glass and glass products
Pottery and other clay products (pottery, tiles, bricks)
Chalk manufactures (cubes, blocks, sticks, etc.)
Earthy and mineral substances (exclude crude and unmanufactured material)
Abrasives (dutiable only)
Asbestos manufactures (shingles, other manufactures)
Salt
Steel-mill products (listing from structural steel to iron to autoclaves, parts, etc.)
Iron and steel advanced manufactures
Aluminum manufactures (plates, sheets, bars, etc., manufactures n.s.p.f.)
Copper manufactures (composition metal, manufactures n.s.p.f.)
Brass and bronze manufactures (exclude old brass and clippings)
Lead, nickel, and zinc manufactures (bars, rods, plates of Nickel, sheets of zinc, dust
of zinc, pipes, sheet of lead, and manufactures n.s.p.f.)
Other metal manufactures, n.s.p.f.
Jewelry and manufactures of precious metals
Machinery and vehicle
Coal-tar finished products (coal-tar medicinal, other coal-tar)
Medicinal products (listings from alkaloids to medicinal preparations containing
alcohol)
Paint, stains, enamels, and varnishes
Fertilizer manufactures
Explosives, fireworks, ammunition
Soap and toilet preparations
98
99
Appendix B: Data Sources for State Production Ranking
Note: This appendix presents the sources of data used to define the top five states of
production for each product in each vote in Table Set 1 (Section IV).
1922 Fordney-McCumber Act
Silk States: value of broad silks from 1921 Biennial Census of Manufactures.
Cotton States: value of cotton manufactures from 1921 Biennial Census of
Manufactures.
Wool States: quantity of wool in 1920 Census of Agriculture.
1930 Smoot-Hawley Act
Silk States: leading states in total silk manufacturing (by percent distribution of value) in
1929 Census of Manufactures.
Cotton States: value of cotton goods in 1929 Census of Manufactures.
Wool States: quantity of wool in 1930 Census of Agriculture.
1934 Reciprocal Trade Agreements Act
Silk States: value of silk and rayon goods from 1933 Biennial Census of Manufactures.
Cotton States: value of cotton goods from 1933 Biennial Census of Manufactures.
Wool States: quantity of wool from 1934 Statistical Abstract of the United States.
1945 RTAA Renewal
Silk States: value of nylon, silk, and other fabrics from 1947 Census of Manufactures.
Cotton States: number of cotton spindles from 1947 Statistical Abstract of the United
States.
1949 RTAA Renewal
Silk States: value of nylon, silk, and other fabrics from 1947 Census of Manufactures.
States.
1955 RTAA Renewal
Silk States: value-added of silk and man-made fiber fabrics from 1954 Census of
Manufactures.
States.
Wool States: value of wool production from 1959 Census of Agriculture (1954 values).
100
1962 Trade Expansion Act
Silk States: value of shipments of silk products (weaving mill and synthetic) from 1963
Census of Manufactures.
Cotton States: number of cotton system spindles from 1963 Census of Manufactures.
Wool States: value of wool from 1964 Census of Agriculture
101
Appendix C: Data Sources for Regression Variables
Note: This appendix presents the sources of data used on production variables for each
vote in the regressions of Table Set 2 (Section IV). All data are by value of production
(or for the total agriculture variable starting in 1934, value of farms) unless otherwise
noted.
1922 Fordney-McCumber Act
Cotton manufactures: 1921 Biennial Census of Manufactures.
Silk manufactures: 1921 Biennial Census of Manufactures.
All agricultural variables: 1920 Census of Agriculture.
Population: 1920 Fourteenth Census of the United States.
1930 Smoot-Hawley Act
Cotton manufactures: 1929 Census of Manufactures.
Silk manufactures: 1929 Census of Manufactures.
All agriculture variables: 1930 Census of Agriculture.
Population: 1930 Fifteenth Census of the United States.
1934 Reciprocal Trade Agreements Act
Cotton manufacturing: 1933 Biennial Census of Manufactures.
Silk manufacturing: 1933 Biennial Census of Manufactures.
All agriculture variables: 1935 Census of Agriculture (1934 values for cotton, wheat,
wool; 1929 values for sugar; 1935 values for total agriculture).
Population: 1930 Fifteenth Census of the United States.
1945 RTAA Renewal
Cotton and rayon manufacturing (including silk manufactures): 1947 Census of
Manufactures.
All agriculture variables: 1945 Census of Agriculture (1945 values for total agriculture,
1944 values for other variables).
Population: 1940 Sixteenth Census of the United States.
1949 RTAA Renewal
Cotton and rayon manufacturing (including silk manufactures): 1947 Census of
Manufactures.
All agriculture variables: 1950 Census of Agriculture (1949 values for cotton, sugar, and
wheat; 1944 values for sugar; 1950 values for total agriculture).
Population: 1950 Census of the Population.
102
1955 RTAA Renewal
Textiles: 1954 Census of Manufactures (by value-added of textile mill products).
All agriculture variables: 1954 Census of Agriculture (1949 values for wheat, 1954
values for other variables).
1962 Trade Expansion Act
Textiles: 1963 Census of Manufactures (by value-added of textile mill products).
All agriculture variables: 1964 Census of Agriculture.
103

U.S. Trade Policy and the Pacific Rim, from Fordney

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