Thursday, June 26, 2014

Not Repeating All of Our Mistakes

With all the frustrations and mistakes of the recent years, its easy to miss the good economic policy news, but there is some --

At Wonkblog, Lydia DePillis reports on the lack of a turn towards protectionism on the part of high-income countries during the global slump of the last few years.  The evidence she cites suggests that developing countries have raised trade barriers, but in a fairly muted fashion.

That's a huge improvement over the 1930s which saw widespread increases in trade barriers (including US' infamous Smoot-Hawley tariff).  Though the increases in tariffs and other trade barriers did not cause the depression, most of us economists regard them as a counter-productive response.

The architecture of the GATT and WTO was developed in part to prevent making the same mistake again.  However, the rules do allow for temporary increases in tariffs through "antidumping", "safeguard" and "countervailing duty" measures, but there hasn't been a large increase in the use of these measures. DePillis writes:
So, why did the United States appear to be less aggressive about protecting itself in the face of the latest economic meltdown? It's learned from experience.

"We designed the current system in response to what happened in the 1930s," says Chad Bown, a World Bank economist who maintains the database of temporary trade barriers. For one thing, the United States is able to target products more specifically rather than entire sectors. "That helps blow off some political steam and not have overall increases in protection," Bown says.
Another important factor may be that now, unlike the 1930s, the world is largely operating under a (non) system of floating currencies. In Trade Policy Disaster, Doug Irwin argues (persuasively, I think) that the motivation for the increasing trade barriers was more "mercantilist" than "protectionist" - that governments were concerned with preventing trade deficits, which would have led to deflationary gold outflows under the gold standard.  

Today's countries aren't bound the same way.  The one exception is Europe, where the economies of "peripheral" Europe are the hardest-suffering in the world - they can't adjust through depreciation, and the EU prevents Spain and Greece from raising tariffs.

Update: At VoxEU, Chad Bown discusses some findings from the Temporary Trade Barriers Database.

2 comments:

Brian Donovan said...

Are you kidding? Have you looked at the huge solar panels tariffs? All because China backs solar, while the USA backs fracking and nuclear, which still get many times the gov breaks solar gets, and have to decades.

The trade agreements we simply to prevent SMALL entities from upsetting the plans of the super rich and their giant coprations.

it's it working great.

Bill C said...

Antidumping does allow some tariffs to be imposed and that's a notable example; but we haven't seen anything like general increase in trade barriers of the 1930s.