Douglas A. Irwin

Trade blocs, currency blocs and the reorientation of world trade in the 1930s

We analyze the impact of commercial and financial policies on the reorientation of trade in the 1930s. We report evidence that commercial policies attenuated prior connections between income growth and trade, and that exchange rate instability marginally discouraged international trade. In contrast, the tendency toward regionalization commonly ascribed to the formation of trade and currency blocs was already evident to a considerable extent prior to the regional policy initiatives of the 1930s. This reorientation is more properly attributed to ongoing historical forces such as commercial and financial links between countries forged over many years.

Mercantilism as strategic trade policy: the Anglo-Dutch rivalry for the East India trade

This paper interprets seventeenth-century mercantilism in light of recent theories of strategic trade policy. Long-distance international commerce during the mercantilist period was undertaken chiefly by state-chartered monopoly trading companies and was therefore conducted under conditions of imperfect competition. The economic structure of the Anglo-Dutch rivalry for the East India trade provides an excellent illustration of an environment in which the profit-sharting motive for strategic trade policies exists. Dutch supremacy in the early East India trade was facilitated by a managerial incentive scheme in the monopoly charter that enabled it to achieve a Stackelberg leadership position against the English. Using data from the East India trade around 1620 in a Cournot duopoly model, I find that the managerial incentives yielded greater Dutch profits than would have been obtained from a standard profit-maximizing objective and that the scope for other strategic trade policies was clearly present.

Welfare Effects of British Free Trade: Debate and Evidence from the 1840s

The classical economists engaged in a vigorous debate over whether Britains tariff reductions in the 1840s should be made contingent on tariff liberalization abroad. Some, notably Robert Torrens, believed that a unilateral tariff reduction would so deteriorate British terms of trade as to outweigh efficiency gains and make the country worse off. In this paper, Britains foreign trade elasticities are estimated for this period in a simultaneous equation model. They are used in a simple general equilibrium model that explicitly takes the terms of trade into account to assess the welfare impact of tariff reductions. The results indicate that Britain would have been made worse off from a unilateral tariff reduction. However, foreign tariff reductions mitigated the terms of trade deterioration and could easily have made Britain better off.

Long-run trends in world trade and income

This paper examines the statistical relationship between world trade and world income (GDP) over three different epochs: the pre-World War I era (1870–1913), the interwar era (1920–1938), and the post-World War II era (1950–2000). The results indicate that trade grew slightly more rapidly than income in the late nineteenth century, with little structural change in the trade–income relationship. In the interwar and post-war periods, the trade–income relationship can be divided into different periods due to structural breaks, but since the mid 1980s trade has been more responsive to income than in any other period under consideration. The trade policy regime differed in each period, from the bilateral treaty network in the late nineteenth century to interwar protectionism to post-war GATT/WTO liberalization. The commodity composition of trade has also shifted from primary commodities to manufactured goods over the past century, but the results cannot directly determine the reasons for the increased sensitivity of trade to income.

Log-rolling and economic interests in the passage of the Smoot-Hawley tariff

We analyze Senate roll-call votes concerning tariffs on specific goods in order to understand the economic and political factors influencing the passage of the Smoot-Hawley Tariff Act of 1930. Contrary to recent studies emphasizing the partisan nature of the Congressional votes, our reading of the debates in the Congressional Record suggests that the final, party-line voting masks a rich vote- trading dynamic. We estimate a logit model of specific tariff votes that permits us to identify (a) important influences of specific producer beneficiaries in each Senators constituency and (b) log- rolling coalitions among Senators with otherwise unrelated constituency interests which succeeded in raising tariff rates.

Did Late-Nineteenth-Century U.S. Tariffs Promote Infant Industries? Evidence from the Tinplate Industry

This paper examines the role of late nineteenth century U.S. tariffs in promoting infant industries by focusing on the much heralded example of the tinplate industry. After earlier failures, the tinplate industry became established and flourished after receiving protection in the McKinley tariff of 1890. Treating the entry and exit decisions of producers as endogenous, a probability model is estimated to determine the conditions under which domestic tinplate production will take place. Counterfactual simulations indicate that, in the absence of the McKinley duties, domestic tinplate production would have arisen about a decade later as U.S. iron and steel prices (comprising three-quarters of production costs) converged with those in Britain. While the tariff accelerated the industrys development, welfare calculations suggest that protection does not pass a cost-benefit test.

The optimal tax on antebellum US cotton exports

Abstract The US produced about 80% of the world’s cotton in the decades prior to the Civil War. How much monopoly power did the US possess in the world cotton market and what would have been the effect of an optimal export tax? This paper estimates the elasticity of foreign demand for US cotton exports and uses the elasticity in a simple partial equilibrium model to calculate the optimal export tax and its effect on prices, trade, and welfare. The results indicate that the export demand elasticity for US cotton was about −1.7 and that the optimal export tax of about 50% would have raised US welfare by about

Explaining America's Surge in Manufactured Exports, 1880–1913

10 million, about 0.3% of US GDP or about 1% of the South’s GDP.

The Gatt's Contribution to Economic Recovery in Post-War Western Europe

The United States became a net exporter of manufactured goods around 1910 after a dramatic surge in iron and steel exports began in the mid-1890s. This paper argues that natural-resource abundance fueled the expansion of iron and steel exports in part by enabling a sharp reduction in the price of U.S. exports relative to other competitors. The commercial exploitation of the Mesabi iron ore range, for example, reduced domestic ore prices by 50 in the mid-1890s and was equivalent to over a decades worth of industry productivity improvement in its effect on iron and steel export prices. The nontradability of American ore resulted in its distinctive impact on the pattern of U.S. trade. The results are consistent with Wrights (1990) finding that U.S. manufactured exports were natural-resource-intensive at this time.

Causing problems? The WTO review of causation and injury attribution in US Section 201 cases

This paper examines the role of trade liberalization under the auspices of the General Agreement on Tarrifs and Trade (GATT) in promoting economic recovery and growth in Europe in the decade after World War II. The formation of the GATT does not appear to have stimulated a particularly rapid liberalization of world trade in the decade after 1947. It is therefore difficult to attribute much of a role to the GATT in the dramatic economic recovery during the immediate post-war period beyond that of an effective supporting actor. The principal contribution of the GATT during its first decade of operation rests more in securing binding agreements on early tariff reductions, thereby preventing countries from instituting higher tariffs as import quotas and foreign exchange controls were being phased out during the 1950s under the guidance of other international institutions.