Growth, Trade, and Systemic Leadership

6. Tariffs and Trade Fluctuations: Does Protectionism Matter as Much as We Think?

6. Tariffs and Trade Fluctuations: Does Protectionism Matter as Much as We Think? A respectable proportion of the theoretical and empirical concern in international political economy over the last twenty-‹ve years has revolved around questions pertaining to the relationships among power concentration and its behavioral implications (hegemony/leadership), political intervention in economic processes (for example, tariffs), and ›uctuations in economic growth, trade, and systemic openness.1 Invariably, it is assumed that political intervention makes some measurable difference in economic activity. But is this a reasonable assumption? In particular, can we really be con‹dent that increases and decreases in tariff protectionism in›uence the expansion and contraction of international trade? The principal in›uences on tariffs were found to be long waves and external shocks (chap. 5). It could be that long economic growth waves drive both trade and tariffs. If so, it may be that the in›uence of tariffs on trade volumes is only minor, with the real link being between growth and trade. Then again, it is also conceivable that tariffs have an additional impact on trade volumes that compounds the extent of ›uctuation. The question of whether tariffs impact trade may seem nonsensical to some readers. The safest assumption one might think entertainable is that tariffs are imposed to constrain the volume of imports by increasing their cost to domestic consumers. Therefore, the higher the tariff barriers, the greater the intended effect in decreasing the amount of trade—ceteris paribus. Partially as a consequence, we have arguments about whether and how the presence of hegemons or system leaders is conducive to lowering tariffs and stimulating freer trade. Alternatively, we ask, How does one go about maintaining open trading regimes in the absence of a powerful system leader?2 To a considerable extent, these debates presume that protectionism is a 143 powerful threat to the stable functioning and prosperity of the world economy . It is often assumed, for instance, that the remarkable prosperity of the post–World War II era is in part attributable to an expansion in trade linked, in turn, to the GATT-led signi‹cant lowering of tariffs. The threat of increased protectionism therefore invokes the specter of tariff wars and retaliatory spirals that would lead directly to dramatically reduced levels of trade and economic growth rates. But what if the instinctive assumptions are wrong in some respects? The argument here is not that changing tariffs are unlikely to have some shortterm effects on trade volume. It would be illogical to assume otherwise. Yet the underlying assumption regarding this short-term behavior is that political decision makers use tariffs to intervene in ongoing economic processes to protect national production from external competition when they feel that legislative barriers are necessary or appropriate. It seems equally unlikely that such political intervention occurs randomly or in a vacuum. However, from a longer-run perspective, it can be argued that protectionism tends to be as much, if not more, a political response to long-term, declining economic growth possibilities than a short-term way of gaining an advantage over the competitive field. For instance, increasing protectionism in the early 1930s may have made the Depression worse but it is not usually cited, at least by economic historians, as a primary cause of the deteriorating economic conditions.3 We have already discussed a short-term/long-term interpretation of protectionism (chap. 4) in which we suggested that the leadership-long cycle perspective serves as a common denominator unifying all the theories and models that we reviewed. The contrast drawn here between short- and long-term perspectives continues this approach. In the short term, we should expect changes in the levels of protectionism to in›uence the volume of trade, or tariffs → trade (that is, tariffs in›uence trade), just as we might expect short-term declines in economic growth due to business cycles to encourage protectionist lobbying.4 In the long term, however, we think it is declining growth and trade prospects that stimulate protectionism , or trade → tariffs. Our question is, Which way does the causal arrow point? Does trade drive protectionism, or is it the other way around? Of course, it may be that different circumstances warrant different answers to this question. That is, the systemic or aggregate answer may not be mirrored exactly in the experiences of all national subsystems—some of which will be responding to different sets of incentives. There is also ample room for reciprocal behavior—that is, trade → tariffs and tariffs...