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Trading Places: Industries for Free Trade Author(s): Helen Milner Reviewed work(s): Source: World Politics, Vol. 40, No. 3 (Apr., 1988), pp. 350-376 Published by: Cambridge University Press Stable URL: http://www.jstor.org/stable/2010217 . Accessed: 19/01/2012 01:17
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TRADING PLACES:
for Industries Free Trade
By HELEN MILNER*

INTRODUCTION

United States. Pressures for protectionism have captured the national attentionseveral timesduring the 20thcentury. the I920S, U.S. In tradepolicymade a U-turn.Protectionism declinedfromthe Dingley had tariffbill in i897 until the Fordney-McCumbertariff law of I922, as on the average value of tariffs dutiable goods fell from45 percentto 28 percent.' But this downward trend was reversedduring the I92oS: between I922 and I930, the United States closed its marketdramatically, with tariffs This level, set attainingan ad valoremaverage of 53 percent.2 was one of the highestever, and the by the I930 Smoot-Hawley tariff, highestso farin the 20th century. in Beginning in the I930s, protectionism the U.S. once again abated. Act (R.T.A.A.), which was introThe Reciprocal Trade Agreements duced in I934 and served as a model forfuturetrade acts, initiatedthe opening of the American market.Between I934 and I972, average U.S. tariff levels declined by some 70 percent.3 I972, tariffs By averageda mere 9.9 percent.4 In theearly I970s, thecourseof U.S. tradepolicyagain became a source of heated debate. Among the questionsthatwere raised about the future of American trade policy was what directiontrade policywould take in the I970S and beyond. Many observersand scholarsfeareda resurgence and international of rapidlyrisingprotectionism tradewars.5Extrapolat* I would like to thankDavid Baldwin,Jeffry Frieden,StephenHaggard, RobertKeohane, on at and the participants the Ford FoundationConference BlendingPoliticaland Economic Trade Policies fortheirhelpfulcomments. Analysisof International EconomicPolicy(Berkeley:Univerof and RobertPastor,Congress thePolitics U.S. Foreign EconomicStructures of sity CaliforniaPress,i980), Table 3, p. 78; David Lake, "International and American Foreign Economic Policy, i887-I934," WorldPolitics35 (Julyi983), 5I7-43, Table 2, p. 5342Ibid. DC: G.P.O., No. An Overview, 665 (Washington, 3 U.S. TariffCommission,TradeBarriers:

is TODAY, protectionism once again a central political issuein the

4Pastor (fn. i), Table 6, p. I I 9. 5Harald Malmgren, "Coming Trade Wars?" ForeignPolicy I (Winter I970), 115-43; 6I9-35; June I97i), 49 "The Crisisin US Trade Policy,"Foreign Affairs (July C. Fred Bergsten,

I 974), 8I-82.

INDUSTRIES FOR FREE TRADE

351

ing fromprevious historicalperiods of risingand fallingprotectionism, these analystsexpected the I970S and I98os to look much more like the the I920S were I920S than like the period between I934 and I970. In fact, offeredfrequently the example forthe decade afterI973. For many, as the threatof a significant closure of the U.S. marketevoked a repetition of the dismal interwaryears. In thisarticle,I challenge thatview of the current period. There were in sizable differences trade policy outcomes between the I920S and the are of I970S; thesedifferences puzzling because theybelie thepredictions reason forthesedifferent policy othertheories.I maintainthata primary outcomes was the growth of internationaleconomic interdependence afterWorld War II. By the I970s, the expansion of these international economic ties helped to dampen pressuresfortrade barriersas the preferences of industriesturnedagainst protectionism. Using evidence from a number of industriesin the I920S and the I970s, I shall show how the in of even in internationalization firmsreduced theirinterest protection economic times,and thus helped the United Statesto resistprodifficult in tectionism the I970s.

THE PUZZLE

Two common elements,which distinguishthe I920S and the I970S fromtheintervening years,seem centralin thiscomparisonbetweentheir trade policies. First,both the I920S and the I970S were times of serious Such difficult and instability. conditionshave been seen economic distress as a key precondition for rising protectionist activity.One economist noted: industrial the state It is generally economy cyclical agreedthatin a modern and thecountry's are of theeconomy position internationally competitive of Low levdeterminants thedegree protectionist of theprincipal pressure. unusedcapacity, tradedefiels ofeconomic activity, unemployment, high in all in and penetration opcits, rapidincreases imports, increases import
Kronholz, "Trade and CurrencyWars Deepen theDepression,"Wall Street Journal, October Hegemonic stability theorists have also predictedsuch a resurgence. Charles KindleSee berger,The Worldin Depression, of I929-I939 (Berkeley:University CaliforniaPress, I973), esp. 307-8; Robert Gilpin, US Power and the Multinational Corporation (New York: Basic Books, I975), esp. 258-62. For more skepticalviews,see StephenKrasner,"State Power and the Structure International of Trade," World Politics28 (April I976), 3I7-47; Robert0. Keohane, "The Theory of Hegemonic Stabilityand Changes in International Economic Regimes," in Ole Holsti, Randolph Siverson,and AlexanderGeorge,eds., Changein theInternationalSystem (Boulder,CO: WestviewPress,i980), I3i-62.
23, I979, p. I-

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erate to increase the temptation to protect domestic industries from import competition.6

were similar in the two periods, which were Economic difficulties rates and sizable agricultural marked by relativelyhigh unemployment In and industrialovercapacity. the I920S and early I930s, the U.S. econand one in I929two major downturns-one in I920-I923 omy suffered monetary problems labor unrest,and international I933. Price deflation, In economic instability.7 the I970s, the U.S. economyexcreated further and I978-I982. Sparked by perienced deep recessionsduring I973-I975 trade the oil shocks,theserecessionswere aggravatedby rapidlyshifting monetarysituaand a confusedinternational patterns,price instability, thatwere felt tion. These high levels of economic distressand instability in the I920S and I970S mightbe expectedto generatesimilarwidespread
protection.

Indeed, in view of the absolute levels of economic distressduring the two periods,the I970S mighthave generatedeven greaterlevels of market closure than the I920S.8 The averages for threemajor economic indicatorsall are worse in the I970S than in the I920S, as Table I indicates.
TABLE I
AVERAGES FOR THREE MAJOR ECONOMIC INDICATORS

(percent)
1923-1929 1973-1979

in Averageannualgrowth realGNP Averagemeanvalueof rate unemployment Averagevalueofnon-residential to fixed investment GNP

3.1 3.5 11.2

2.3 6.8 10.2

An EconomicInquiry Wendy Takacs, "PressuresforProtectionism: EmpiricalAnalysis," (October i98i), 687-93,at 687. In general,see TimothyMcKeown, "Firms and TariffReWorld Politics36 (January gime Change: Explaining the Demand forProtectionism," i984), International Organi"Toward a BusinessCycle Model of Tariffs," 2I5-33; Giulio Gallarotti, Polzation39 (Winter i985), I55-87; Susan Strangeand Roger Tooze, eds., The International i980). itics SurplusCapacity(London: Butterworths, of 7 W. ArthurLewis, EconomicSurvey, i9i9-i939 (London: Allen & Unwin, I949); U.S. Devarious issues, i9I9-I930 (Washington, Business, partment Commerce,Surveyof Current of Statistics theU.S., ColonialTimestothePresent of DC: G.P.O.); U.S. Census Bureau,Historical (Washington,DC: G.P.O., I975); Kindleberger(fn. 5), esp. chaps. 5-8; League of Nations, in EconomicFluctuations the U.S. and U.K., i9i8-I942 (Geneva: League of Nations, I942); in (Chicago: National Bureau ofEcoEconomy Transition ed., TheAmerican MartinFeldstein, nomic Research,i980), I2. 8 Sidney Ratner, Economy of JamesSoltow,and RichardSylla,The Evolution theAmerican
i9

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more poorlyin the I970s, one might Since the U.S. economy performed were a precursor protectionism, to this expect that,ifeconomic difficulty with a vengeance. period should have experiencedprotectionism A second similarity between the I920S and I970s thathas been linked is to protectionism the declining power of the world's hegemonicstate. of This change in the international distribution power has been citedas a major factorleading to the closureof the world's markets.RobertGilpin has statedthat is in declineand is being Today,... thedominant economy itself relative challenged rising by centers economic of power.Withthedeclineof the dominant economic power, worldeconomy the maybe following patthe tern thelatenineteenth of century ofthe1930s: itmaybe fragmenting and economic and intoregional trading blocs, exclusive alliances, economic nationalism.9

In the I 920S, Great Britain,the hegemon of the i9th century, was losing its status.From a peak of 24 percentin i 870, Great Britain'sshare of world trade had fallento I4 percentbeforeWorld War 1.10 Furthermore, its share of the world's manufacturing outputtumbledfroma dominant level of I4 percentin I9I3.11 Germany 32 percentin i870 to a third-rate in and the United Statesovertookit in industrialcompetitiveness certain advanced sectors.'2In addition, Britain'scontrolover the intercritical, was declining.Its problemsin returning and to nationalmonetary system maintainingthe gold standardin the I920S and itsfinalabandonmentof that systemin I93I signaled this loss of influence.'3 the I920S, then, By Britain'shegemonyhad seriouslyeroded. The situationwas fairlysimilar in the I970s. By the early part of the decade, the global dominance thatthe United Stateshad exercisedin the I950S and i96os had been reduced as othernationsmounteda challenge.
(New York: Basic Books, 1979), 482, 502-3. The worsteconomic difficulties the Great of Depression followed(ratherthan preceded)the tariff increases, occurring theearly I930s: in unemployment averaged 3% in I930, theyearSmoot-Hawleywas passed,but roseto 25% by I933, the yearbefore the ReciprocalTrade Agreements Act. 9 Gilpin (fn. 5), 258-59. Also see Kindleberger(fn. 5), esp. 307-8; Krasner (fn. 5), 3I7-47; Keohane (fn. 5), I3i-62; David Lake, "Structure and Strategy: The International Sources of AmericanTrade Policy,i887-I939" (Ph.D. diss.,Cornell University, i983); Charles Kindleberger,"Dominance and Leadership in the International Economy," International Studies Quarterly (June1981), 242-54; RobertGilpin,Warand Changein World 25 Politics (Cambridge: Cambridge University Press,i98i). Lake (fn. i), Table I, p. 525. Ratner,Soltow,and Sylla (fn.8), 385. 12 Lake (fn. i); Alexander Gerschenkron, EconomicBackwardness Historical in Perspective (Cambridge: Harvard University Press, i962), chaps. i and 2; Samuel Hays, The Response to Industrialism, i885-I9I4 (Chicago: University Chicago Press,I957), chaps. i, 7, 8. of i Robert0. Keohane and JosephS. Nye, Jr., Powerand Interdependence: WorldPolitics in Transition (Boston: Little,Brown, I977), 70; Kindleberger (fn.5), 63-68,I46-70.

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America's share of world tradedropped fromi8.4 percentin I950 to I3.4 percentin I977.14 More tellingly, share of the world's manufactured its exportsplummetedfromnearly30 percentin I953 to about I3 percentin the late I970s.'5 Its share of the world's manufacturing output also lost ground, dropping from62 percentin I950 to 44 percentin I977.16 Many U.S. industrieshad lost theireconomic advantage and faced bittercompetitionboth at home and abroad. In addition,the United States was no longeras dominantin the international monetary system. I973, it had By scuttledthe monetarysystemit had created and found itselfunable to fashiona new, stable one. American hegemonyin monetary relationsin the I970s, however,was not as reduced as Britain'shad been in the I920S and early I930s.'? But it had declined substantially, especiallyin tradeand production,leaving the international distribution power in the I970S of more closelyresemblingthatof the interwarperiod than thatof the immediate post-WorldWar II period.This eclipseof hegemony mighthave been expected to produce widespread protectionism, it had in the as
I920S.

Althoughboth periodsexperiencedthedeclineof a hegemon,thismay be less importantto American policy than the relativeposition of the United States. The strikingfactis how similarthe relativeinternational positionof the U.S. appears to be in the late I920S and thelate I970s, and how different was in the I950S and i960s. America's share of the it world's manufacturing outputreached42 percentin I929 and had leveled offat 44 percentin I977. In contrast, U.S. had dominatedin the I950S the and i960s, with 62 percentin I950 and 5I percentin i960. In the trade area, the United Stateswas more dominantin the I920S thanin the I970s, but nowhere near as dominant as in the I950s. In the I920S, it was the world's largestexporterand biggestforeigninvestor, and ranked second only to Britain in its imports.'8By the late I970s, it had become the world's second-largestexporterof manufactures West Germany led with almost i6 percent compared to America's I3 percent and was being challenged forthatspot by Japan(i i percent).In I953, by contrast, the U.S. had reigned supreme in trade,controlling nearly30 percentof all manufactured exports.'9
Lake (fn. i), Table 3, p. 54I; Keohane and Nye (fn. I3), I4I. Feldstein(fn.7), I93, i96. 6 Ibid., i9i. '7 U.S. hegemonyin money was diminishedless than in trade. Its ending of the Bretton Woods systemwas more an act of power thanof weakness,accordingto manyanalysts. See Keohane and Nye (fn. I3), I4I, i65-86; JohnOdell, U.S. International Monetary Policy:MarPrinceton Power,and Ideas as SourcesofChange(Princeton: kets, University Press,i982), chap. 4,esp.p. 2I9. .8 Ratner, Soltow,and Sylla (fn.8), 464; Feldstein(fn.7), I9IL 9 Feldstein(fn.7), i96.
14

'5

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355

A similar storyis told by changes in relativeeconomic size and productivity. Accordingto Lake, who uses thesetwo measuresin his analysis ofinternational economic structures, positionof theUnited Stateswas the almost identicalin I929 and I977.20 This contrasts withitsclear predom-

ilarlysituatedrelativeto its nearestrivals.In I929, it led all countrieson thesetwo indicators, barelyedging out Britainwhile retaining substana tial lead over France and Germany.In I977, itsrelativepositionwas comparable: it was almost even with West Germany,but still outdistanced Japanand France. in of distribution ecoHence, two strongsimilarities the international nomic power existed in the I920S and I970s. In both,a hegemon was in decline,and in both the relativepositionof the United Stateswas slightly was being challenged by superior to all others but, most importantly, economic structure severalnations.These conditionsin the international and thus mighthave been exhave been linked to risingprotectionism, pected to engendersimilarprotectionist responsesin the two periods.21 The argumenthere is not.thatthe I920S and the I970S were alike in all at respects.Two importantdifferences, least,may attenuatethe comparison. First,the United Stateswas a risinghegemonin the I920S and a declining one in the I970s. Although hegemonic stability argumentsproto a vide no theoretical reason to expect thisdifference affect hegemon's trade policy,the notionof a lag has been introducedto account forthis.22 while a deA risinghegemon may failto appreciateitsown significance, clining one may fail to understand its weakness and need for closure. betweenthe two periods. This difference may account fordissimilarities But the reason forsuch a lag is obscure. in Second, there was a difference the monetarysystems operatingat the two times.In the I920s, a shiftoccurredfromthe controlledflexible beforeI925, to a fixedgoldexchange-rate systemthathad been in effect ment was in the opposite direction:froma fixed,dollar-goldstandardto afterI973. The consequencesof thesetwo a managed flexibleratesystem for of different systems trade policyare unclear,however;theeffects difon trade are not well understood.It has ferentexchange-ratesystems bebeen assertedby some thatflexibleratesshould hinderprotectionism
20

inancein I950. Moreover, bothI929 and I977, theU.S. appeared in sim-

untilI93I. whichwas in effect standard system

In theI970s, themove-

StudiesQuarterly David Lake, "Beneath the Commerce of Nations," International 28 (Junei984), Figs. 5 and 6, pp. I43-70. I do not agree with Lake's interpretation thesetwo structures of and theirdifferences; see fn.20. 22 Kindleberger (fn.5); Krasner(fn.5).
21

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WORLD POLITICS

cause such barriers are nullified exchange-rate by changes.23 Others maintain flexible that rates augment protectionist pressures increasing by fixed are free risk, that and rates bestfor ensuring trade.24 seemsfair It to in bothperiods little saythattheexchange-rate systems operating did to for trade. provide stable a environment international A related the had a difissueis whether valueofU.S. exchange rates in ferent effect tradepolicy thetwoperiods. on The argument that is the tradepolicy, levelof exchange rateswas driving especially the I970s. in of undervaluation thedollarinthelateI970S weakened Thus,therelative The withthisargument thatthe new pressures barriers.25 problem for is look similar: after World War I, theU.S. dollarappearedto be I920S undervalued, supposedly mitigating protectionist pressures. laterin But thedecade,thedollarseemedovervalued relative themark, to lira,franc, and gold,although relative sterling.26 to undervalued Differences exin do the change-rate levels, then, notseemto distinguish twoperiods. the between I920S and I970s the Despitethese differences, similarities in terms economic of and difficulties therelative economic position the of that U.S. trade in UnitedStates lead one toexpect might policy theI970s wouldlook likethatoftheI920S. The i970s, however, werenotmarked closureof theU.S. market thatoccurred the I920S. in by theextensive oriented toward relatively American tradepolicy remained a openmarbelieved that ket.Although is commonly it protectionism substangrew a there was probably smallnetincrease trade in mixedcurrents. Overall, on riers had little effect thevolumeof trade:globaland U.S. tradeconthe tinuedto growthroughout decadeof the I970s, and to growfaster In tariffs beenreduced their had to thanproduction. addition, lowest levon the els,about5 percent average, through GATTTokyoRoundnegotiations.27

protectionist pressures,while its overvaluationin the early i980s led to

tially in the

I970S

and the early i980s, U.S. trade policy actually had

barriersrelativeto the i960s, but thesenew barriers neverreached levels barnear thoseattainedin the I920S. Moreover,unlike in the I930s, these

On the otherhand,some non-tariff barriers (NTBs) weregrowing.

23Herbert Grubel,International Economics (Homewood, IL: Irwin,I977), chap. 22; Charles Kindlebergerand Peter Lindert,International Economics,6th ed. (Homewood, IL: Irwin, I978), chap. 2i; RobertBaldwin and J.David Richardson, International Tradeand Finance, 3rd ed. (Boston: Little,Brown, i986) , chap. 2I. 24 C. Fred Bergstenand William Cline, "Overview,"in William Cline, ed., TradePolicyin the 1g8os (Washington,DC: Institute International for Economics,i983). 25 Kindleberger and Lindert(fn.23), chap. 2I, esp. Fig. 2I.5. 26Ibid.,chap. 21, Fig. 21.3. Note how all othercurrencies rise in value againstthe dollar afterthe change in I93I. 27 U.S. TariffCommission(fn.3), 8i-82.

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to These are difficult measure (and were generallynot measured while remained high),but theirrelativeimportanceincreasedin the late tariffs 1970s. By that time, nearly 30 percentof all categories(not values) of One empirical by importswere affected them.28 American manufactured studyconcludes, however,that these new NTBs have had only limited effects;as the authors point out, "on average over a full protectionist given by NTBs thatmay products,the protection range of manufactured afforded limitor reduce imports... is not nearlyas largeas theprotection ... by tariffs or natural barriersto trade. ... ."29They projectthat,"if the United States continues on its presentpolicy course, the U.S. economy Thus the will be considerablymore open in i985 than it was in 1976."30 erectionof NTBs in the I970S and i980s may have produced a small net But thisincreasedid not approach thelevelsof the increasein protection. and two key preconditions seriouseconomicdistress I920S even though declining hegemony-characterized both periods. Given the fertile as could have grown rampantly, ground of the late I970s, protectionism it did in the I920S. For some reason,it did not.
OTHER EXPLANATIONS

in The question, then,is why trade policywas different the I920S and it I970S even thoughkey pressuresinfluencing were similar.This puzzle has been addressed by a number of studies.Three answers,all of which or thatare different focuson aspectsof the international domesticsystem fromthe one centralto thisstudy,require examination.They should be levelsof analysis. seen less as competingthan as being pitchedat different I maintain thatthe argumentdeveloped in thisstudyhas been neglected and thatit is more basic than theseothers. One type of explanation looks at the internationaldistributionof It power,usuallyin termsofeconomiccapabilities. involvesmodifications of the hegemonicstability thesis,which,as has been shown,cannot in its in original form explain the differences policy outcomes between the I920S and the I970s.3' Three modifiedargumentshave been presented. First, it has been asserted that American hegemony has not declined Even thoughother response.32 enough to setofftheexpectedprotectionist
RobertReich,"Beyond Free Trade," Foreign 6i Affairs (Spring i983), 773-804, at786. PeterMoriciand Laura Megna, U.S. Economic Policies Affecting Industrial Trade:A Quantitative Assessment (Washington,DC: National PlanningAssociation,i983), I I. 3?Ibid., I03. 3 Krasner (fn.5). 32 Bruce Russett, "The Mysterious Case ofVanishingHegemony;or,Is Mark Twain Really Dead?" International Organization (Spring i985), 207-32; Susan Strange, 39 "Still An ExtraordinaryPower," in Raymond Lombra and Willard Witte,PoliticalEconomy International of and DomesticMonetary Relations (Ames: Iowa State University, i982).
28 29

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countries have caught up with the United States, it still remains the strongest, especiallywhen its military mightis considered.Thus, thisargument depends on militarycapabilities being an importantfactorin trade policy considerations. However, the fungibility these power reof In sources is questionable.33 fact,the second typeof hegemonicstability argument denies this fungibility. Considering only trade-related power resources,it suggests that U.S. hegemony has not declined enough to But evoke extensiveprotectionism.34 in comparisonto itstradepositionin the I920S, the U.S. held a similar,or even less dominant,positionin the is I970s. One explanationforthisdisparity thelag phenomenon discussed earlier. A third argument modifyingthe thesis of hegemonic stability of holds thatdifferent configurations statesin termsof theirrelativeeconomic power lead to different outcomes in trade policy.But this argument is not able to explain the differences between the I920s and I970s, of since the configuration statesat those two points(I929 and I977) was verysimilar.35 A second type of explanation focuseson the existenceof an international regimein trade. In thisview, the creationof the GATT system after World War II and its continuedfunctioning have been partially responsible forthe maintenanceof a relatively open international economy.In the I920S, the lack of any such regime helped to spread protectionism. in GATT is seen as working against protectionism numerous ways. Some of analystsargue that it operates throughthe externalization a normi.e., "embedded liberalism" which promotestrade but also minimizes its domestic costs and, with it, protectionist demands.36 Others suggest thattheregimeand itsnormsare embodied in domesticpoliciesand pracand shaping domestic tices and that it is effective throughconstraining behavior.37 Still otherssee the regimeas encouraginginternational com33David Baldwin, "Power Analysisand World Politics:New Trends VersusOld Politics," World Politics3I (January I979), i6 I-94; Keohane and Nye (fn. I3), chap. 2. 34Ibid., chap. 3; Robert0. Keohane,After Hegemony: Cooperation Discordin theWorld and PoliticalEconomy(Princeton:Princeton University Press,i984), chaps.4,9; Vinod Aggarwal, Liberal Protectionism: International The Politics Organized TextileTrade(Berkeley:Univerof sityof CaliforniaPress, i985), chaps. 2, 7. 35Lake (fns. I, 9, and 20). To overcomethisdifficulty, Lake makes two points:first, that due to the disruption caused by World War I, muchgreateruncertainty existedin the I920S, whichpromptedmore protectionist activity. Second, he impliesthattheheightof protectionismgloballywas in the I93os, notthe I920S, when thestructure somewhatdifferent. was Protectionism, however,was risingworld-widethroughout I920S; it hit itspeak in the U.S. the by I930 and elsewhereby I933 or I934. This explanationof trade policyoutcomesis more sophisticated and perhapsmoreaccuratethanotherhegemonicstability but arguments, itstill has difficulty accountingforthe differences betweenthe I920S and the I970s. 36 John Ruggie, "International Regimes,Transactions, and Change," International Organization36 (Spring I982), 379-4I537Charles Lipson, "The Transformation Trade," International of Organization (Spring 36

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Differences existoverexactly merceby increasing efficiency.38 its thus how theGATThas workedto abateprotectionism, generally is seen but it for a as exerting brakeon domestic pressures protection. In all ofthese views, however, regimes playonlyan intermediate role. are acknowledged an intervening as the They variable, influencing prefand established thedomestic at and erences, pressures, practices already to factors. thusneeds essary examinethesepre-existing Regimeanalysis of to be supplemented withanalyses otherdomestic and international forces, whichthisstudy provides. A third focuses thestructure thedomestic on of typeof explanation The argument policy-making system. hereis that, despite pressures the forprotection the I970s, a different in existedwhich policystructure This defuse these insulated eshelped pressures. structure political actors, from for societal pecially Congress, pressures protection. Hence,thestate on nations differ thespecific thisinsulation Mostscholars occurred. way of in the from acknowledge importance theshift tariff-making authority as to to Others of Congress thePresident beingcentral.40 point thenature therelationship between and theexecutive;4' someto theway Congress some of trade policy made within executive is the branch;42 tothelessons theI930S and thenorms and ideology now surrounding thoselessons;43 and yetothers the way Congressfunctions responds societal to and to pressures.44 of This proliferation domestic "structures" indicates trade that policy one structure. actors inare policyis not made within Manyeconomic and their and to volved, they bring complaints pressures bearon different no actors. coherent national trade political Moreover, single, exists. policy of The policy to relating one sector theeconomy maydiffer completely
i982),

international levels.39 In order to judge the effect the regime,it is necof

was able to resistsuch pressuresin the I970s, but not in the 1920S.

Expla-

I985).

4I7-56; Stephanie Lenway, The Politicsof U.S. International Trade (Boston: Pitman,

40 Pastor (fn. i); Judith Goldstein,"The PoliticalEconomy of Trade," American Political ScienceReview 8o (March i986), i6i-84; I. M. Destler,American TradePolitics: Under System Stress DC: Institute International for (Washington, Economics,i986). 4' Pastor(fn. i). 42 Roger Porter,Presidential Decision-Mating(New York: Cambridge University Press, i980); GilbertWinham, "RobertStrauss, The MTN, and the Controlof Faction,"Journal of WorldTradeLaw I4 (September-October, 1980), 377-97. 43 Goldstein (fn. 40); Judith of Goldstein,"A Reexamination AmericanCommercial Policy" (Ph.D. diss.,UCLA, i983). 44 E. E. Schattschneider, Politics, Pressures the Tariff and (Englewood Cliffs, NJ: PrenticeHall, I935); Raymond Bauer, Ithiel de Sola Pool, and Lewis Dexter,American Business and Public Policy(Chicago: Aldine-Atherton, I972).

38 Lipson (fn.37)39See International Organization (Spring i982), esp. theintroduction StephenKrasner. 36 by

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fromthatconcerninganother.Thus, the policyforautomobilesmay differgreatlyfrom the policies for wheat, textiles, telecommunications or equipment. Moreover,foreach of theseindustries, influence Conthe of gress,the executive,and the InternationalTrade Commission varies. A knowledge of the relevantdomesticactorsand theirtrade preferences is essentialto understanding influence the particularpolicystructure the of forthatsectoron the policyoutcome.
THE ARGUMENT

My argumentoperateson a different level of analysis.I maintainthat the increased international economic interdependence the post-World of War II period has been a major reason whyprotectionism not spread did widely in the I970S and early i980s. By alteringdomesticactors' preferences, aspects of America's greater integrationinto the international economyworked againstrecourseto protectionism. Specifically, while increased interdependence subjectedsome areas of theeconomyto new has foreign competition,it has also greatly augmented internationaleconomic tiesforsome firms theformofexports, in of imports critical inputs, multinationalproduction,and global intrafirm trade. Despite pressures forclosure,thegrowthof theseinternational is a major reasonforthe ties maintenanceof a relatively open marketin the I970s. Evidence of the growthof these international is abundant. Amerties ican trade grew phenomenallybetween the I920S and the i980s.45 More goods and more different typesofgoods were traded.Specifically, America's trade dependence grew substantially. U.S. export dependence (exportsas a percentageof totaldomesticproduction)rosefromabout 2 percentin I923 to 9 percentin i960, and to about 20 percent thelate I970s. by Likewise, importsclimbed from2.5 percentof totaldomesticconsumption in I92I to 5 percentin i960, and to over 20 percentin ig80.46 The of multinationality American firms also rose substantially over thesefive decades. The total of American directforeigninvestment abroad grew fromabout $5.5 billion in I923 to $ii.8 billion in i950, and to over $86 billionin I970.47 Moreover, internationalization Americanindustry the of
For the I920S, see RobertLipsey,Priceand Quantity Trends theForeignTradeoftheU.S. in (Princeton:PrincetonUniversity Press,i963), 434-35; fortheperiodfromi960 on, see Report of the President'sCommissionon IndustrialCompetitiveness, Global Competition: New The Reality, Vol. I (Washington,DC: G.P.O., i985),36. 47Robert Dunn, AmericanForeign Investments (New York: Viking, I926), I82; Kent Hughes, Trade,Taxes,and Transnationals (New York: Praeger,I979), 94. Ratner, Soltow,and Sylla(fn.8), 464, showit grewto$17.2 billion theI920S and thenretreated $I I.5 billion in to by theend of the I93os. Accordingto RobertPollard,EconomicSecurity theOrigins the and of
46

45Ratner, Soltow,and Sylla (fn.8), 463-66.

INDUSTRIES FOR FREE TRADE

361

accountedforonly grew in relativeterms.Foreign assetsof U.S. industry assetsin 1929, but forover 20 percentin the 25 percentof totalindustrial leadintensified, I970s.48 In addition,the global operationsof thesefirms Extradeflowswithinfirms. ing to the creationof webs of international portsby American multinationalsfromforeignproductionsitesback to the U.S. market have grown immensely.This practicewas almost unaccount for known beforethe I940s; at present,these typesof transfers In imports.49 somewherebetween I5 and 50 percentof all U.S. industrial economy of sum, the integration the United Statesinto the international since has throughboth tradeand multinationality deepened considerably the I920S. This aspect of increased interdependencehas lessened pressuresfor protectionin domestic industries.I hypothesizethatfirmswith greater and multinationality, global inties in the formof exports, international in thanfirms thatare more trade will be less interested protection trafirm domesticallyoriented. The formerwill view protectionas undesirable, since it will be more costlyforthem than forthe latter,forfivereasons. First,firmsthat export or produce abroad will be concernedabout forat and itscosts.Demanding protection home may prompt eign retaliation abroad, which may lead to a reductionof exportsor to greaterprotection on new restrictions foreignoperationsand theirtrade flows,thus reducin Second, protection one marketmay hurta firm'sexing profitability. to third markets as other exportersdiverttheirproductsto these ports marketsto compensateformarketclosureelsewhere. witha global web of productionand tradewill view trade Third, firms barriers,even at home, as a new cost one that may undermine their and costly. will be disruptive For thesefirms, protection competitiveness. Fourth, for firmsdependent on imports whether from subsidiaries, or subcontractors, foreignfirms new trade barrierswill increase costs rivalrieswill creand thuserode competitiveness. Finally,intra-industry Trade barrierswill put internationally ate opposition to protectionism. oriented firmsat a disadvantage relativeto theirdomesticallyoriented
Cold War (New York: Columbia University investments Press,i985), 205,U.S. directforeign so dropped to theirlowestpointin the century farin I946. 48 For the I920S, BranchFactories see U.S. Congress,Senate,American Abroad,S. Doc. No. 258, 7Ist Cong., 3rd sess., 1931, p. 27, on the value of U.S. directforeign investment manin ufacturing, Lipsey (fn.46), 424, on the value of U.S. manufacturing and GNP. For the I970s, see U.S. DepartmentofCommerce,I977EnterpriseStatistics DC: G.P.O., i98i). (Washington, 49The figuresvary widely. See JosephGrunwald and Kenneth Flamm, Global Factory (Washington, DC: BrookingsInstitution, i985), 7; Gerald Helleinerand Real Lavergne,"Intra-firm Trade and IndustrialExportsto the U.S.," Oxford Bulletin Economics Statistics and of 4I (November I979), 297-3I2; Gerald Helleiner,"TransnationalCorporations and theTrade Structure,"in Herbert Giersch, On the Economicsof Intra-Firm Trade (Tiibingen: Mohr,
I979),

I59-84.

362

WORLD POLITICS

firms while competitors. Such barriersimpose new costson international relativecosts and providing benefitsto domestic ones. These different firmsto oppose probenefitswithin an industry may lead international For all thesereasons,firms withstronginternational will find ties tection. protection the home marketverycostlyand will be likelyto resistapof peals forit,even when faced with severeimportcompetition. While containingan international element,thisargumentis similarto those concerningdomesticinterest analyses, groups. Most interest-group focus on the forcespushingforprotection.50 One reason is the however, assumptionof a collectiveaction problemin trade politics.Small groups of producers(managementand labor) facingimportcompetition seen are as more likelyto press activelyforhelp since it will bringthem concentratedand substantial while largergroups(otherindustries, conbenefits, will be less likelyto act since the benefits of sumers) opposing protection openness will be diffuseand less tangible.51 some small groups may But and receiveimportant tanalso sufferfromthe high costs of protection fromopenness. gible benefits literature focusedon the variables has Increasingly, interest-group the examined here. Several aggregate-levelstudies of U.S. industrieshave shown that high levels of export dependence reduce industries'preferand lead to lower tradebarriers theseindustries.52 for ences forprotection Other studiesreveal that,even in the I920S, thegrowthofan exportsector Some contributedto attemptsto open American and foreignmarkets.53 have also linked the adoption of the R.T.A.A. in I934, with its antiprotectionist and multinationbent,to the influenceof American exporters These studieshave lent credenceto the idea thatexport-dependent als.54 and may even advocate the dismanindustriesmay not preferprotection tlingof trade barriers.
5- Examples are Richard Caves, "Economic Models of Political Choice: Canada's Tariff CanadianJournal Economics (May I976), 278-300; William Brockand Stephen Structure," of 9 Magee, "The Economics of Special Interest Politics:Case of the Tariff," American Economic 68 Review,Papersand Proceedings (May I978), 246-50; RobertBaldwin,The PoliticalEconomy of U.S. ImportPolicy (Cambridge: MIT Press, i986); Jonathan Pincus,Pressure Groupsand Politicsin Antebellum Tariffs (New York: Columbia University Press, I977); Edward Ray, "Determinantsof Tariffand Nontariff Trade Restrictions the U.S.," Journal Political in of

Economy 8i (No. i, i98i),

ronto:Academic Press,i983). 51 Mancur Olson, The Logic of Collective Action(Cambridge: Harvard University Press, i965), forthe classic treatment; also see Brock and Magee (fn.50). 52 Glenn Fong, "Export Dependence and the New Protectionism" (Ph.D. diss., Cornell University, i982) thiscontention. does RobertBaldwin (fn.5o). Lavergne(fn.50) So supports and Goldstein(fn.43) providemixed evidenceforthisassertion. 53 JoanH. Wilson,American Business and ForeignPolicy,1920-33 (Boston: Beacon, 1971); William Becker,The Dynamics Business-Government Relations of of (Chicago: University Chicago Press, i982). 54 Thomas Ferguson,"From Normalcyto New Deal," International Organization (Win38 ter i984), 40-94-

I05-2I;

Real Lavergne, The Political Economy of U.S. Tariffs(To-

INDUSTRIES FOR FREE TRADE

363

and Scholars have also examined how multinationality its related intradepolicy.On theone hand,theidea thatthespread tradeaffect trafirm of multinationalfirmswould reduce trade barriershas been challenged and such barriers, oftenentera marketto circumvent because thesefirms on thus come to see them as a brake against other foreigncompetitors; has led to the idea trading the otherhand, the growthof global intrafirm in thatfirmswith such trade would be adverse to protection theirmarlevel has produced mixed eviAnalysis at the aggregate industry kets.55 dence forboth of thesearguments.56 I In thisstudy,I do not adopt an aggregateapproach; rather, examine in a set of industriesand theirfirms detail. This methodpermitstheconsiderationof firmswho are the chiefactors experiencingthe particular of costs and benefits protection.It thus overcomesa centralproblem of of aggregatestudies; thatis, thattheymask thedistribution international divisionsover proand with it the intra-industry ties withinan industry, The poor resultsof aggregateanalysesconcerningexportdetectionism. are due to thesedivisionswithininpendence and multinationality partly dustries.An industrythat is highlymultinationalmay actually contain who may or may not be able only one or two large multinationalfirms, and/oron on against protection the industry to impose theirpreferences differences and theireffects trade on state actors. These intra-industry policywill be examined in the presentstudy. This focus correctsforanotherproblem. Unlike argumentsbased on my regimes,or domesticstructures, argumentcan international systems, in during accountfordifferences tradepolicyoutcomesamong industries the same period. Why some industriesdemand and receive protection, while at the same time othersdo not, is hard to explain parsimoniously with these otherarguments.For example, the factthat6o percentof all in importsenteredthe U.S. duty-free the 1920S is not easilyexplicable if the structure, lack of any regime,or the one assertsthatthe international encouraged the adoption of widespread prodomesticpoliticalstructure able to address such The argumenthere is better at tectionism thattime.57 differences among industriesat any one time and to account fordifferences over time. It should not be seen, however,as directlycompeting
55Gerald Helleiner, "Transnational Enterpriseand the New Political Economy of U.S. Trade Policy," Oxford EconomicPapers29 (March 1977), 102-16; alsoHelleiner 49). See (fn. Lipson (fn.37) fora discussionof the effect intra-industry of tradeon industry tradepreferences. 56 Baldwin (fn.50) and Lavergne(fn.50) do notfind much influence exercisedbythesevariables,but Thomas Pugel and Ingo Walter,"U.S. CorporateInterests the PoliticalEconand omy of Trade Policy,"Review of Economics and Statistics (August i985), 465-73,do find 67 to brake on protectionist multinationality be an important preferences. 57Lake (fn.9), chap. 5, p. 8 and Table 5-I.

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WORLD POLITICS

with the otherexplanations,which operate at different levels of analysis and may all have some validity.The point is thatexaminationsof trade politicshave missed antiprotectionist interests, and thata domesticpoliticsview of the pressuresforand against tradebarriers theplace where is one should startto understandtrade policy.
THE CASE STUDIES

the The industriesexamined were thoseexperiencing greatest growth in importpenetration among those already having high levels of import in In showed evipenetration thetwo decades.58 addition,theseindustries dence of other economic difficulties: unemployment, profitproblems, and so forth. Since studieshave demonstrated thathighlevovercapacity, associated with demands forproels of importpenetrationare strongly the tectionand high actual levels of protection, industries selectedshould be the least likelyto confirm argument;59 my theyshould have been most likely to desire protection.Indeed, it would be surprisingto find that new tradebarriers. industries notprefer did these import-threatened Once these "hard" cases were chosen,I exploredtheextentof theirintegrationinto the international economy and theirtrade policy preferdata on theirexportdependence,imences. To measure theirintegration, and global intrafirm trade were port requirements,multinationality, In and itsfirms. orderto understandtheir collectedforboth the industry in I preferences, surveyedtheiractivities a numberof politicalarenas. In the 1920S, these were (I) the U.S. Congress, which handled most issues relatedto tariff levels; (2) theU.S. TariffCommission,whichinvestigated trade associaindustry complaintsabout trade matters;and (3) industry in over tradeissues were reported vartions,whose internaldeliberations ious newspapers and industrytrade journals. For the 1970s, the arenas different: the U.S. Congress,which authorized general were slightly (I) tariff level changes and introducedbills to help particularindustries;(2) inTrade Commission(I.T.C.), whichinvestigated theU.S. International trade complaints; (3) the U.S. Special Trade Representative dustry (S.T.R.) and otherexecutiveagencies,who decided on and implemented tradecomplaintswhile also managingU.S. activities solutionsto industry in the GATT negotiations;and (4) the industrytrade associations,which developed industry-wide positionson trade.
58 Eighteen industries were examined in detail; see Helen Milner,"Resistingthe ProtecPoliticsand Trade Policyin France and theUS in the 1920S and tionist Temptation:Industry i986). 1970s" (Ph.D. diss.,Harvard University, 59 Many studieshave foundthathigh levelsor high ratesof increasein import penetration and high actual levels of are strongly correlatedwith high levels of demand forprotection protection. See, forexample,Baldwin (fn.50); Lavergne (fn.50); Goldstein(fn.43).

INDUSTRIES FOR FREE TRADE

365

of chosen revealeda strongcorrelation The investigation theindustries ties between theirfirms'international and theirtrade policypreferences. firmsthat (See Table 2.) In the face of mounting import competition, lacked tiesto theinternational economyvoiced risingdemands forextenfirms with well-developedmultinational sive protection. contrast, By opand tradeflows, and strong erations,including integrated global production even when importsrose to high levels. In exportsdid not seek protection fact, thesefirms oftendesiredthatmarketsat home and abroad be opened furtherstill. Firms with substantialexport dependence but no multinational productionalso did not desire protection long as importcomas petitiondid not swamp theirexports.Finally, firmswith some foreign productionbut no U.S. exportsor intrafirm trade oftenresortedto limited protectionism when facing importcompetition. These firmssometimes sought selective protection;that is, theyattemptedto curb their strongestcompetitorsthrough limited protectionagainst a particular country productline while leaving undisturbedthemain foreign or markets in which they were involved. Overall, the cases revealed that the more integrated firmwas intothe international a economy,theless likely it was to seek importrestraints even when importsrose significantly. of of U.S. manufacturers woolen goods in the 1920s and producers footwear in the 1970S were typicalof industrieslacking international economic ties. Most firmsin the woolen goods sectorwere domestically oriAfterWorld War I, ented, with few exports and no multinationality. when importcompetitionresumed and otherdifficulties in, the maset of in jority firms thisindustry began lobbyingforclosureof theU.S. market.60 They demanded and received increased tariffs throughthe 1921 hearEmergencyTariffbill; later,duringtheFordney-McCumbertariff ings,theycalled fora 130 percentrise in theirduties and were granteda sizable increase. They lobbied foreven highertariffs beforeand during the Smoot-Hawley hearingsafterproblemsarose in the late 1920S. Success with Congress did not satisfy them, however: theyfoughtagainst rulesthatcould have made tariff reductions changesin tariff-making easier. They also pressuredthe U.S. TariffCommission forgreaterprotection. Thus, the woolens manufacturers' demands were voiced in all possible politicalarenas and were focusedon obtainingglobal protection for In all segmentsof the industry. view of theireconomicproblemsand lack of international ties,theirintenseand unifiedadvocacy forclosureof the home marketwas not surprising. Like the woolen goods manufacturers, the American (non-rubber) footwearproducershad largelydomesticoperationsin the 1970s. Begin60

For the fullstory, Milner(fn.58), 138-63. see

TABLE THE INDUSTRIES, THEIR

2 AND POLICY

PREFERENCES,

OU

International Ties Multinational Export and Global Dependence Intrafirm Trade Low Low

Industry Woolens,1920s Watches and Clocks, 1920s Footwear, 1970s

Expected Preferences Protectionist Protectionist Protectionist

Act

Prote

Prote

Prote

High

Low

TextileMachinery, 1920s MachineTools, 1970s

Open markets, esp.abroad Open markets, esp.abroad

Divid t s

Freet P i

Low

High

1920s Newsprint, Tires,1970s & Watches Clocks, 1970s Radios& Television 1970s sets,

Selective protection, Freet ifany Selective protection, Free t c ifany u protection, Divid Selective ifany t s

protection Some Selective p s Freetrade Free trade

High

High

1920s Fertilizer, PhotoEquipment, 1920s 1970s Semiconductors,

Free t Mode t i

Free trade

Free t s d 1

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WORLD POLITICS

ningin thelate i96os, when shoe importsbegan flooding U.S. market, the the industry association-backed by almost all of the producersAfterthe early 197os, launched a campaign to obtain tariff protection.6' the associationand the firmspursued thisgoal with increasingintensity. The associationfiled numerous trade complaintswith the I.T.C.; it lobbied Congress forhelp and formeda coalitionof congressmen promote to the industry's cause; and it launched a public relationscampaign to generate public support.These activities forcedPresidentCarterto negotiate voluntaryexport restraintswith several East Asian competitors;even those restraints were not restrictive enough for many of the firmswho sought global quotas. By the early i98os, however,the industry's unity over trade mattersbegan to decline. A growing number of producers startedto oppose renewed protection theybegan importing producas or ing offshore. This oppositionweakened the association'sappeals forhelp and contributedto its more limitedpoliticalsuccess since then. Overall, the firms'waxing and waning protectionist demands were relatedto the level of theirinternational economic ties. By contrast,large multinationalswith extensiveinternationaltrade flowsand exportsfromthe United Statesavoided protection a solution as to their import problems largely because of the costlyeffects would it have on thefirms' global operations.U.S. fertilizer producersin the 1920S and the semiconductorproducersin the 1970s were characteristic. the By early 1920S, for example, the large fertilizer producerswere highlyexport-dependentand multinational. Despite their economic problems, In theypreferredfreertrade.62 the 1921 tariff hearings,theyrequested and receivedthe retention the duty-free of statusof theirproducts.During the Smoot-Hawley hearings,thispreference prevailedamong mostof the firms,although certain producersadvocated demanding protection on certaingoods if theydid not receivetariff reductions others.This on was aimed at, and resultedin, greateropennessof the U.S. marstrategy were imposed on fertilizers, some were reduced. and ket,since no tariffs Finally, throughoutthe 1920S, the major producers-i.e., those with internationaloperations-opposed the demands of some small domestic on producersforhighertariffs various fertilizer products.In general,the manufacturers orientedfertilizer wanted to preservethe internationally U.S. market's openness and, despite mountingforeigncompetition, oparound it. posed attemptsto erectnew barriers faced serious During the 1970s, the American semiconductor industry for time.The largestfirms thisindustry-I.B.M., in competition the first
6,

Ibid., 300-19.

62

Ibid., 244-70.

INDUSTRIES FOR FREE TRADE

369

and Motorola-had widespread foreignoperations Texas Instruments, and intrafirm trade flows,while the remainderwere more domestically oriented. Most of the firmsfavored trade liberalizationthroughoutthe 1970s; despite risingforeigncompetition, demands foraid or protection were nonexistent beforethe late 1970s.63Later in the decade, the smaller unitedin the new SemiconductorIndustry firms, Association(S.I.A.), bea gan formulating trade complaintagainst Japan.Due to the opposition of the large firms-mainly I.B.M. and T.I. thiscomplaintwas not formalized at the time. Instead, I.B.M. joined the S.I.A. and helped turnits tariff reductions. attentiontoward negotiationswith Japan over further These negotiations, impelled by the industry, resultedin lower tariffs for to semiconductors; othernegotiations, open theJapanesemarketfurther, continuedas well. In the early i98os, however,the S.I.A. and some firms withinthe industry filedseveraltradecomplaintsagainsttheJapanese, as itself.64 These complaintsresultedin indid the Reagan administration efforts open the Japanesemarketand in a pact to regulateexto tensified which was intendedto alleviate port prices of Japanesesemiconductors, illegal dumping. On the whole, however, American firmsresistedthe economic ties made strongpressuresfor protection;theirinternational less protection desirablethanthefurther openingof marketsat home and abroad. firmswith extensiveexport Like these trade-oriented multinationals, tended to avoid protectionist not multinationality) dedependence (but mands in times of difficulty. Examples are the U.S. textilemachinery in builders in the 1920S and machine tool manufacturers the 1970s. The former,while having significant export dependence in the aggregate, had become substantial were divided: the producersof cottonmachinery since World War I, while thoseof woolen machinery were still exporters and volatility This division,as well as thenovelty domestically oriented.65 unable to develop a uniof the producers'exports,renderedthe industry In fied trade policy preference. the early 1920S, when exportswere most the significant, producersdid not lobbyCongress forany change in their and risingimports.Over the dectariffs despite severeeconomic distress of ade, the export interests some firmsdeclined,and so did the capacity demands. In the 1929 Smootof these firmsto forestallprotectionist firmsfrom the woolen machinerysectorpressed for Hawley hearings, and received moderate tariffincreases on their machines; the more
64Boston Globe, April 13, 1986, Businesssection,pp. A-i, A-9; Wall Street March Journal, I2, i986, p. 7; Wall Street March 31, i986, p. 2. Journal, 65 Miner (fn.58), I90-2I563Ibid.,
343-71.

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WORLD POLITICS

firms export-oriented remainedsilent.Even thoughtheywere besiegedby fromdemanding protection much for imports, theseexportersrefrained of the decade and remainedmoderateand divided in theirlaterrequests. The American machine tool builderswere sizable althoughdeclining exportersin the 1970s. During this decade, these producerslost major market shares to imports and experienced other economic difficulties. Their response, however, was not a resortto demands for protection; rather,the industryassociation backed by most producers favored tariff reductionsduring the GATT negotiationsand lobbied Congress to In the obtain aid for theirexports.66 particular, builderswanted to open major foreignmarkets-especially those of the Soviet Union and other Eastern bloc countries.By the late 1970s, the failureof theseexportinitiatives,thecontinuingdecline of theindustry's exporttrade,and therising to fromimports. Presimporttide pushed some in theindustry seek relief rose in the late I970s; but it was not formalizedintoa sure forprotection public complaint until the early i98os, when the tide of importsoverresponded to whelmed the firms'exports. The Reagan administration this trade complaint against several countries' imports-mainly JaThe pan's-by negotiatinga set of voluntaryexportrestraints.67 case of themachine tool buildersthusshows how sizable exportdependencemay promote an interestin freertrade and dampen pressuresforprotection even when importssurge. But, when the firms'exportorientationdeas shifted well. clined,theirtrade preferences or Industrieswith firmsthat had foreignproductionbut no intrafirm export trade showed some resistanceto protectionwhen importsgrew, industries. many In but it was oftenweaker than thatof export-oriented was metbycalls forlimof theseindustries, growingforeign competition could be minimized. ited protectionbecause the costs of this protection Two examples are the American newsprintproducersin the 1920S and U.S. televisionmakers in the I970s. Newsprint producersin the 1920S were multinationalbut had only minor U.S. exports.Their foreignoperations were concentratedalmost exclusivelyin Canada; from there, thus had theyexported heavilyback to the United States. The industry trade.Throughoutthe 1920S, thenewsprint intrafirm substantial producers activelysupported freertrade of their products,and did not tryto statusof newsprintaltered in eitherthe 1921 or the have the duty-free 1929 tariff In did attempt to revisions.68 1921, several manufacturers of make their status conditional on other countries'treatment imports
67New YorkTimes,February3, i986, p. D-2; New YorkTimes,March 6, i986, p. D-3. 68 Milner (fn.58), 271-97.
66Ibid., 320-42.

INDUSTRIES FOR FREE TRADE

371

and exports.But this strategicmaneuver was distasteful many firms to and was neveradopted as partof U.S. policy.As theirtradebetweenCanada and the U.S. grew in the 1920S, interestin protectionwaned even more. During the Smoot-Hawley tariffrevision, when most tariffs reached theirhighestlevels ever,thenewsprint manufacturers uniformly statusof theirproducts.Not even rissupportedthe continuingduty-free ing imports could induce these international producers to think about protection. American televisionmakers had some foreign operationsin the I970s; but, unlike the newsprintproducers,theywere not verytrade-oriented. The industry divided in two: thelargestproducers, was, in fact, RCA and General Electric, were multinationalswith global trading operations, while the rest,including Zenith, Magnavox, and GTE-Sylvania, were domesticproducers.In the 1970s, importsstarted pouringintotheUnited led States,and the domesticallyorientedfirms, by Zenith,initiateda series of trade complaints on several specificproducts,targetedagainst a few East Asian countries.69 These complaintsmet with varyingsuccess, but theywere opposed by RCA, theindustry's giantmultinational. the By late 1970S and early i98os, much of thisprotectionist had abated activity as the domesticallyorientedAmerican firmsmoved productionabroad, leftthe industry, were bought by foreigninterests. or This international adjustmentprocesseroded supportforeven the limited,selectiveprotection thatsome had desired earlier. In all of these cases, then,the existenceor creationof extensiveinternational economic ties promptedfirmsto resistseeking protection even in timesof severeimportcompetition. the Conversely, lack or loss ofthese ties was associated with risingdemands forprotection. This patternoccurred both in the 1920S and the 1970s. In both decades, increased integration into the internationaleconomy was experienced similarlyby firmsin spite of theirdifferent historicalcontexts.This patternhelps to the varied natureof tradepolicywithin each timeperiod.At each explain point, industriesthat were dominated by firmswith extensiveinternathan thosethatwere not. tional ties were less protectionist In addition to accountingforvariationin preferences withineach period,the argumentand the cases suggestwhy tradepolicyvariedbetween the two periods. On a macro level, the evidence implies that in periods like the 1970s, when such international economictiesare widespreadand will be reduced. well-developed,pressureforprotection industries by ties contributed the mainteto Although the growth of international
69

Ibid., 372-96.

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WORLD POLITICS

the be tradein the1970sand earlyi980s,itmust notedthat nanceoffree wenthandin handwithtradelibof internationalizationU.S. industry of in The liberalization trade the1950S in period. eralization thepostwar the of promoting growth theseinternational and i960s was one factor the had occurred before twomostsigties.But muchof thisexpansion U.S. export and dependence, espein nificant reductions tradebarriers. the had grownsignificantly before phasing ciallyU.S. multinationality, induscuts Roundtariff in theearly1970s.America's in oftheKennedy producas of (exports a percent totaldomestic trialexport dependence between i960 and 1970,whilethevalueofU.S. dition)rose33 percent increased nearly percent 8oo in investment manufacturing rectforeign of ties between1950 and 1970.70The growth theseinternational cannot of at the from liberalization tradeoccurring thesametime. be separated ties withinternational were in place priorto the But,sinceindustries to that durcontributed theliberalization occurred probably 1970s,they firms weremanymore ing thatdecade.In anycase,by the 1970Sthere of levels Despitehigher to pressures. that werewilling resist protectionist than wereless widespread demandsforprotection penetration, import a answer ourcentral to had beenin the 1920S. This provides partial they puzzle.
INDUSTRY DIVISIONS, CONTEXT, AND POLICY OUTCOMES

issues.The first deals withintraraisesthreefurther The argument infeature thegrowing of on One notable divisions tradeissues. industry has been its uneven character. of ternationalization U.S. industries the somefirms usually largest havebecomeinWithinan industry, remained on oneshaveoften whilethesmaller dependent the ternational, to industries trade on hastended divide This difference market. domestic the of opposing morenumerous a politics: pattern largemultinationals in firms domestic-centered is evident thecases. butsmaller standout.First, makes it division of Two consequences thispolitical As mastanddifficult. seen in thetextile an developing industry-wide created different international interests divisions case,internal by chinery to a without capacity develop political the position can leavean industry in an to the position a divided on trade. Second, attempt create "industry" that of may industry lead to thefashioning compromises are notas pro7- Consistentdata serieson exportdependenceand multinationality a percent as of GNP from1945 on are not available. The exportdependencedata come fromReportof the President's Commission (fn.46), 36. The data on directforeign investment come fromFeldstein (fn.7), Table 3.30, p. 240.

INDUSTRIES FOR FREE TRADE

373

may prefer, was evidentin the semias tectionist the majorityof firms as demands even conductor case. Both results may reduce protectionist would sugof more than the extentof internationalization the industry divisions through ungest. Thus, the creation of these intra-industry reduce pressuresfor protecevenly risinginterdependencemay further
tion.

In the i92os, these internaldivisions were less apparent than in the Moreover,exwas less widespread.71 because internationalization isting divisions tended to be only the initial breach in an industry's The textile machinunity-a consequence of recentinternationalization. divisions,another ery industryis a good example. Thus, intra-industry were also weaker in the i92os. to pressures, counterweight protectionist between the two periods have been alSecond, contextualdifferences But leged to undercutany comparisonbetweenthem.72 contextualdifferthata firm'sinternational ences did not overridethe powerfulinfluence In positionexertedon its trade preferences. both periods,internationally solutions to their problems. This oriented firmsopposed protectionist between the two periodsfindingsuggests that the broad differences politicalstructures, economic and e.g., in macroeconomiccircumstances, ideology-did not greatlyaffectthe way firmscalculated their preferin in ences. The similarities preferences thetwo periodsimplythatfactors the differentiating two timesmay have onlya minorimpacton demands at forprotection industries any time. by as Moreover,firmsoftendid not take thesecontextualfeatures given. In both periods,some firmsworked to alter domesticpoliticalstructures responsiblefortrade policy.In the i92os, forexample, several industries oriented,opposing attemptedto make U.S. proceduresmore free-trade valuation plan and supportingflexibletariff provisions; the American orientedwoolen goods one, other industries, including the domestically In took the opposite stance.73 the 1970s, those footwearand television manufacturerswho pursued protectionlobbied to change U.S. proceoutcomes.This dures in order to make them more open to protectionist involved efforts-most of which were successful-to loosen U.S. trade to theirenforcement agencies more favorableto domeslaws and to shift such as the domesticpolitical Certain contextualfeatures, tic industry.74 the processfortrade issues,may thusnot be exogenous; rather, structures
1970s, Milner (fn.58), chap. 8. DiTriangle: Monetary For example,see Kenneth A. Oye, "The Sterling-Dollar-Franc Politics38 (October i985), 173-99, at 199. World plomacy 1929-1937," 73 Milner (fn.58), chap. 4. 74 Ibid., chap. 5.
772

374

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POLITICS

to in which firms assumed to operatemay be responsive the influence are of firms. A finalissue involvesthe question of trade policyoutcomes.I have fothan on policy decisions. cused more on explaining firms'preferences on of The influence such preferences policyoutcomeshas been largelyassumed. The cases presentedhere providesupportforthisassumption.In or almost all of the cases, the industries'demands forprotection forfreer in upon policy.75 (See Table 2.) First, noneof the tradehad someeffect when theydid not demand it. cases were industriesaccorded protection was usuallyplaced on the politthatthe issue of protection This suggests desiringthe Second, industries ical agenda by the industriesthemselves. were sucmaintenanceof low trade barriersor reductionsof restraints and semiconductor innewsprint, cessfulin all the cases, as the fertilizer, bias againstlow or reduced tradebardustriesshow. Thus, no systematic riersappears to have existedeven in the 1920S. also tended to be Finally,industriesseeking increasesin tradebarriers was divided, however,its capacityforefsuccessful.Where an industry by fective politicalinfluencewas reduced,as exemplified the limitedsuccess of the domesticallyorientedtelevisionmakers in the 1970s. In contheygenerally trast, where industrieswere united in favorof protection, received it. This was true forall cases in the 1920S and forall but two in the the 1970s. Although the footwearproducersfailed throughout early met to have new trade barriers erected,theirefforts withsome suc1970S negotiatedvoluncess in the late 1970s, when the Carter administration of for taryexportrestraints them.Likewise, theearlyefforts themachine tool builders in the late 1970S and early i98os failed to produce any response from the government.By the mid-ig8os, however, the Reagan case and negotiating was pressingtheindustry's administration exportrewith foreign straints governments. In neitherperiod did industriesalways get exactlywhat theywanted when theywanted it. But theirdemands tended in time to move policy that in thedesireddirection.The greaterdifficulty industries experienced in boththe in attainingtheirdemands forprotection the 1970S may reflect and government officials the interof greaterawareness among industry and the more limitedresponsivenational problemscaused by protection ness to domesticpressuresof the executive(now in controlof more trade issues) as opposed to Congress (which played a largerrole in the 1920S). Some bias in the tradepolicysystem appears evidentin againstprotection
see 75Ibid., cases and chap. 8.

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then,tradepolicyoutcomesmay dethe I970S. Unlike firms'preferences such as policypend more on factorsthat differedin the two contexts, and ideology. making structures In both periods,industries were able over timeto realize tradepolicies seemed to count in close to the ones theydesired. Thus, theirpreferences on the policy process. Other influences trade policy,such as the interests of labor or the ideologies of decision makers,were also likelyto be important.The evidence presented here simply shows that,by itself,reorientedindustriesin the in duced interest protectionby internationally in to reason forthe resistance protectionism the I970S was one important United States.
CONCLUSION

betweenthe I920S and the I970S Why did tradepolicyoutcomesdiffer when a number of conditions influencingtrade politics were similar? resistedin the I970S when economic difficulties Why was protectionism were severe and U.S. hegemonywas in decline? While notingotheranof distribuswers to thispuzzle-such as the influence the international tion of power, international regimes,and domesticpoliticalstructureseconomic interdependence I maintain thataspectsof risinginternational in the post-WorldWar II period led to changes in the trade policypreferences of domestic actors. Rising interdependencemeant, in part, the muleconomythroughexports, growthof firms'ties to the international and global intrafirm trade; because of theseties,protectiontinationality, made ism had become a more costlypolicy. The new interdependence a protectionism less viable option formany firmsfacingserious import competition. Consequently,it dampened the demand forprotection. Examination of a set of industriesfromthe I920S and I970S supports orientedfirmswere less likelyto dethe contentionthat internationally orientedones,even ifboth faced than were domestically mand protection high levels of importpenetration.The cases also pointed to the importance of firm-level analysis.Internationalties conditionedfirms'prefercreatedimportant ences,and divergencesin thesetieswithinthe industry divisionsalso helped political divisions over trade. These intra-industry to dampen pressuresforprotectionism. Differencesin the historicalcontextbetween the I920S and I970S did and in not override the argument.Despite differences the international orientedfirmsin both periods were internationally domestic structures, In often than theirdomesticcounterparts. fact,features less protectionist

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wereresponsive influence firms. contextual considered to by Moreover, tradepreferences amongthefirms examined mattered. Policyoutcomes often reflected desires firms. the of Thus,reduced demandfor protection in the I970S maybe one important, nottheonly, but reasonwhyU.S. in tradepolicy differed thetwoperiods.