Proposal preview

Trade Policy and Diverse Paths of Globalization: Tariffs, Market Integration, and Political Economy in Europe, America, and Asia, 1834-1939

Building on growing bodies of scholarship—ranging from cliometrics based on the “new-new trade theory” to international political economy—this session includes studies on the drivers of global market integration and disintegration, and the relationships between international trade and tariffs, political interest groups, transportation, economic ideas, and diplomacy, in Europe, North and South America, and Asia from the late nineteenth century to the interwar period. Collectively, we aim to deepen our understanding of how tariffs and other trade costs acted at the international level, and how trade policy was discussed, planned, and implemented in different countries and colonies. By adopting both cliometric and qualitative approaches, these papers aim to clarify the various responses to waves of globalization in different areas of the world, each of which was in different political-economic contexts but all of which had to adapt to globalizing markets.

In so doing, these papers ask two types of questions. On the one hand, cliometricians ask through what kind of mechanisms trade policies affected the shaping or dissolving of the global economy. How were trade volume and economic growth determined by tariffs, transportation fares, and other costs, as well as colonial, linguistic, and other socio-political variables? Was the decision-making on tariff rates influenced by political interest groups or by diplomatic treaty negotiations? On the other hand, transnational historians ask how and what kind of trade policies were implemented through domestic and diplomatic processes in different areas of the world. How did various economic integration movements affect policy making? Was there any academic communication among economists in the three regions regarding commercial policy at that time? As a whole, we ask how the difference in trade policy and other conditions affected the diverse results of economic globalization.

Our presentations are divided into two panels. In the first panel, Ryotaro Sugiyama will focus on the relation between the Tariff Reform movement in Britain and the social policy of the British Conservative party before 1914. The paper by José Alejandro Peres-Cajías and Agustina Rayes seeks to evaluate the controversy over Latin American protectionism during the First Globalization by looking at the import substitution industrialization in Argentina, the leading economy in the region on this issue. Using a new dataset disaggregated by product and trade partner for the universe of Japanese exports between 1880 and 1910, Christopher M. Meissner and John P. Tang find that extensive margins accounted for 30 percent of Japanese export growth, with trade costs and market size associated with successful market entry.

In the second panel, Toshiki Kawashima will examine how the network of commercial treaties in Central Europe before 1914 affected the renegotiation of unequal treaties in Meiji Japan. Marcela Sabaté and José María Serrano will deal with the reconstitution of a pro free-trade organization in Spain as a reaction, quite unique in Europe, to the protectionist backlash inaugurated by the German bill of 1879. Analyzing the impact of terms of trade and tariff rates on GDP after financial crises during the “first era of globalization,” Peter Bent’s paper suggests that national governments, through trade policies, played a more significant role in shaping economic outcomes during this period than is typically recognized.

The commentators on our panel are economic historians with a long-standing interest in the role of trade policy in globalization. Douglas Irwin, our first commentator, is one of the pioneers in the study of the relationships between trade policy and globalization. Markus Lampe, our second commentator, is known for his study of commercial treaties and international trade. Florian Ploeckl, our third commentator, studies the role of political-economic unification in market integration. Alexander J. Green, our fourth commentator, studies the relationship between the international grain markets and trade policies.

Organizer(s)

  • Toshiki Kawashima University of Pennsylvania tkaw@sas.upenn.edu United States
  • Peter H Bent University of Massachusetts, Amherst pbent@umass.edu United States

Session members

  • Peter H Bent, University of Massachusetts, Amherst
  • José Alejandro Peres-Cajías, Universitat de Barcelona
  • Agustina Rayes, National Council of Scientific and Technical Researchers, Argentina
  • Marcela Sabaté, University of Zaragoza
  • José María Serrano, University of Zaragoza
  • Ryotaro Sugiyama, The University of Tokyo
  • Toshiki Kawashima, University of Pennsylvania
  • Brian Varian, Swansea University
  • Florian Ploeckl, The University of Adelaide

Discussant(s)

  • Douglas A Irwin Dartmouth College Douglas.A.Irwin@dartmouth.edu
  • Markus Lampe Vienna University of Economics and Business markus.lampe@wu.ac.at
  • Alexander J Green London School of Economics and Political Science A.J.Green@lse.ac.uk

Papers

Panel abstract

Building on growing bodies of scholarship—ranging from cliometrics based on the “new-new trade theory” to international political economy—this session includes studies on the drivers of global market integration and disintegration, and the relationships between international trade and tariffs, political interest groups, transportation, economic ideas, and diplomacy, in Europe, North and South America, and Asia from the late nineteenth century to the interwar period. Collectively, we aim to deepen our understanding of how tariffs and other trade costs acted at the international level, and how trade policy was discussed, planned, and implemented in different countries and colonies. By adopting both cliometric and qualitative approaches, these papers aim to clarify the various responses to waves of globalization in different areas of the world, each of which was in different political-economic contexts but all of which had to adapt to globalizing markets.

1st half

The function of Tariff Reform movement of Joseph Chamberlain as labor policy

Ryotaro Sugiyama

In 1903-1906, Joseph Chamberlain, the colonial minister of UK, started Tariff Reform movement to introduce preferential tariffs with Dominions. The purpose of Tariff Reform was not protection of Britain’s domestic market but increasing employment and wages in Britain by securing the demand in Dominion for goods of British industries, and stabilizing operation of companies. Since 1890s, the plan to improve employment of working class by expanding demand had been composing his concept of social policy, especially contributory old-age pension on which he insisted during Tariff Reform movement. Beneath his pension plan and Tariff Reform, there was his interventionist opinion about social policy. Chamberlain’s opinion can be called the indirectly interventionist liberalism. He argued that the state should not directly intervene in the functions of companies, workers, and societies, such as determination of production quantity and price, industrial relations, but develop competitive conditions to support stable industry and self-help, mutual associations.

In 1903-1906, Joseph Chamberlain, the colonial minister of UK, started Tariff Reform movement to introduce preferential tariffs with Dominions. The purpose of Tariff Reform was not protection of Britain’s domestic market but increasing employment and wages in Britain by securing the demand in Dominion for goods of British industries, and stabilizing operation of companies. Since 1890s, the plan to improve employment of working class by expanding demand had been composing his concept of social policy, especially contributory old-age pension on which he insisted during Tariff Reform movement. Beneath his pension plan and Tariff Reform, there was his interventionist opinion about social policy. Chamberlain’s opinion can be called the indirectly interventionist liberalism. He argued that the state should not directly intervene in the functions of companies, workers, and societies, such as determination of production quantity and price, industrial relations, but develop competitive conditions to support stable industry and self-help, mutual associations.

Food import substitution in Argentina during the First Globalization, 1870-1913. Did trade protection matter?

José Alejandro Peres-Cajías, Agustina Rayes

The seminal work by Coatsworth and Williamson (2004) has confirmed an idea that was previously defended by several Latin American scholars: trade policy during the First Globalization was not as liberal as normally thought. In contrast, by looking at the tariff average rate, these scholars suggest that Latin America was the most protectionist region in the world from the early 1820s to 1929. However, despite the high rates of average tariffs, the protectionist effect of trade policy has been put into question (Rubio, 2006; Nenci & Pietrobelli, 2008; Peres-Cajías, 2017). This paper seeks to evaluate this controversy by looking at the import substitution industrialization in Argentina, the leading economy in the region on this issue. Particularly, it analyzes if food industries growth in Argentinean coastal provinces was an automatic process derived from market expansion or the result of protectionist measures.

The seminal work by Coatsworth and Williamson (2004) has confirmed an idea that was previously defended by several Latin American scholars: trade policy during the First Globalization was not as liberal as normally thought. In contrast, by looking at the tariff average rate, these scholars suggest that Latin America was the most protectionist region in the world from the early 1820s to 1929. However, despite the high rates of average tariffs, the protectionist effect of trade policy has been put into question (Rubio, 2006; Nenci & Pietrobelli, 2008; Peres-Cajías, 2017). This paper seeks to evaluate this controversy by looking at the import substitution industrialization in Argentina, the leading economy in the region on this issue. Particularly, it analyzes if food industries growth in Argentinean coastal provinces was an automatic process derived from market expansion or the result of protectionist measures.

A Novel Institution: The Zollverein and the Origins of the Customs Union

Florian Ploeckl

The Zollverein, the outcome of sequential negotiations between Prussia and other sovereign German states in 1834, was the first international customs union, the template for modern ones such as the European Union. This paper applies a bargaining model to analyse the logic behind the creation of this novel institutional form and the choice of sequential rather than multilateral negotiations. The existence of negative coalition externalities, the effects of new coalitions on non-participants, led the agenda setter, Prussia, to choose sequential over multilateral negotiations as that lowered the membership reservation prices of the other states involved. Institutionally the features of a customs union structure provided a higher payoff for the agenda setter than capturing the welfare gains from the differential tariff setting in a free trade agreement, explaining the emergence of this novel institutional structure on an international scale.

The Zollverein, the outcome of sequential negotiations between Prussia and other sovereign German states in 1834, was the first international customs union, the template for modern ones such as the European Union. This paper applies a bargaining model to analyse the logic behind the creation of this novel institutional form and the choice of sequential rather than multilateral negotiations. The existence of negative coalition externalities, the effects of new coalitions on non-participants, led the agenda setter, Prussia, to choose sequential over multilateral negotiations as that lowered the membership reservation prices of the other states involved. Institutionally the features of a customs union structure provided a higher payoff for the agenda setter than capturing the welfare gains from the differential tariff setting in a free trade agreement, explaining the emergence of this novel institutional structure on an international scale.

2nd half

A European Political-Economic Space That Embraced Japan: The International Context of the Conventional Tariff Network, ca. 1892–1914

Toshiki Kawashima

This article sheds new light on the economic globalization in Europe and Asia from the 1890s to the 1910s, with a special focus on the role of bilateral commercial treaties and import tariffs. Countries concluded a number of treaties in those days, and they came to form an extensive ‘conventional tariff network’, which helped stabilizing the international economic-political space by facilitating reciprocal tariff concessions. The extent of this conventional tariff network was both temporally and geographically larger than has been assumed. First, as the recent literature shows, the network survived the political turbulence of the 1890s and spanned Central European countries such as Germany and Italy by the early 1910s. Second, the network spread outside Europe and reached Japan by the 1910s, when it renegotiated its commercial treaties and became a new member of the network. It embodied a strong mechanism of self-maintenance based on the coordination of economic interests.

This article sheds new light on the economic globalization in Europe and Asia from the 1890s to the 1910s, with a special focus on the role of bilateral commercial treaties and import tariffs. Countries concluded a number of treaties in those days, and they came to form an extensive ‘conventional tariff network’, which helped stabilizing the international economic-political space by facilitating reciprocal tariff concessions. The extent of this conventional tariff network was both temporally and geographically larger than has been assumed. First, as the recent literature shows, the network survived the political turbulence of the 1890s and spanned Central European countries such as Germany and Italy by the early 1910s. Second, the network spread outside Europe and reached Japan by the 1910s, when it renegotiated its commercial treaties and became a new member of the network. It embodied a strong mechanism of self-maintenance based on the coordination of economic interests.

Between Ideas and Interests. The Spanish Fight for Free Trade, 1879-c. 1903

Marcela Sabaté, José María Serrano

The Asociación para la Reforma de los Aranceles de Aduanas (Association for the Reform of Customs Tariffs) was a Spanish free trade organization. The Asociación was created in 1859, dissolved in 1869, and reconstituted in 1879 as a response to the protectionist reaction in the late nineteenth century. This second phase turned out to be singular because of the intensity of the Asociación’s activism in the 1880s and early 1890s, while free trade activism was fading in Continental Europe. We reconstruct its composition, ideas and campaigns and explain the relatively late activism of the Asociación as due to the delayed Spanish protectionist backlash. The end of the Asociación in the mid-1890s is a good illustration of the difficulty of promoting free trade ideas when an economic crisis introduces distributional issues into public debate.

The Asociación para la Reforma de los Aranceles de Aduanas (Association for the Reform of Customs Tariffs) was a Spanish free trade organization. The Asociación was created in 1859, dissolved in 1869, and reconstituted in 1879 as a response to the protectionist reaction in the late nineteenth century. This second phase turned out to be singular because of the intensity of the Asociación’s activism in the 1880s and early 1890s, while free trade activism was fading in Continental Europe. We reconstruct its composition, ideas and campaigns and explain the relatively late activism of the Asociación as due to the delayed Spanish protectionist backlash. The end of the Asociación in the mid-1890s is a good illustration of the difficulty of promoting free trade ideas when an economic crisis introduces distributional issues into public debate.

Recovery from financial crises in peripheral economies, 1870-1913

Peter H. Bent

What drives recoveries after financial crises? I address this question for the 1870-1913 “first era of globalization,” a period when international economic integration meant that terms of trade movements could have significant national-level impacts, but before governments were engaged in widespread economic management. Protectionism was one of the few economic policy options available at this time. The impacts of these two factors–terms of trade and tariff rates–over this period have been studied before. But previous studies have not looked specifically at how these factors influenced recoveries from financial crises. I find that tariff shocks had a positive impact on GDP in post-crisis periods, while terms of trade shocks had a slightly negative impact. The tariff results are especially pronounced in temperate economies. Overall this suggests that national governments, through trade policies, played a more significant role in shaping economic outcomes during this period than is typically recognized.

What drives recoveries after financial crises? I address this question for the 1870-1913 “first era of globalization,” a period when international economic integration meant that terms of trade movements could have significant national-level impacts, but before governments were engaged in widespread economic management. Protectionism was one of the few economic policy options available at this time. The impacts of these two factors–terms of trade and tariff rates–over this period have been studied before. But previous studies have not looked specifically at how these factors influenced recoveries from financial crises. I find that tariff shocks had a positive impact on GDP in post-crisis periods, while terms of trade shocks had a slightly negative impact. The tariff results are especially pronounced in temperate economies. Overall this suggests that national governments, through trade policies, played a more significant role in shaping economic outcomes during this period than is typically recognized.

The Economics of Edwardian Imperial Preference: What can New Zealand Reveal?

Brian Varian

In the Edwardian era, the British Dominions adopted policies of imperial preference, amid a period of rising imports from the United States and industrial Continental Europe. Hitherto, there has been no econometric assessment of whether these policies produced an intra-Empire trade diversion, as intended. This paper focuses on New Zealand’s initial policy of imperial preference, codified in the Preferential and Reciprocal Trade Act of 1903. New Zealand’s policy was unique insofar as it extended preference to only certain commodities. Using a commodity panel regression, this paper exploits the cross-commodity variation in the extension of preference, but finds no statistically significant effect of preference on either the Empire share or, specifically, the British share of New Zealand’s imports. This finding is corroborated by an alternative empirical approach involving propensity-score matching.

In the Edwardian era, the British Dominions adopted policies of imperial preference, amid a period of rising imports from the United States and industrial Continental Europe. Hitherto, there has been no econometric assessment of whether these policies produced an intra-Empire trade diversion, as intended. This paper focuses on New Zealand’s initial policy of imperial preference, codified in the Preferential and Reciprocal Trade Act of 1903. New Zealand’s policy was unique insofar as it extended preference to only certain commodities. Using a commodity panel regression, this paper exploits the cross-commodity variation in the extension of preference, but finds no statistically significant effect of preference on either the Empire share or, specifically, the British share of New Zealand’s imports. This finding is corroborated by an alternative empirical approach involving propensity-score matching.