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The Institutional Roots of American Trade Policy: Politics, Coalitions, and International Trade

  • Michael A. Bailey, Judith Goldstein and Barry R. Weingast (a1)

Abstract

The 1934 Reciprocal Trade Agreements Act (RTAA) changed the structure of the making of U.S. trade policy and made possible a dramatic reduction in tariffs. The authors demonstrate that the key institutional innovation in the RTAA was its mandate to lower tariffs through reciprocal agreements with foreign nations. The expansion of exports under the RTAA enhanced political support for increasingly lower U.S. tariffs. Evidence that export interests were positively associated with congressional votes for free trade supports this view.

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1 Bauer, Raymond, de Sola Pool, Ithiel, and Dexter, Lewis, American Business and Public Policy, 2d ed. (Chicago: Aldine-Atherton, 1972), 14; Nelson, Douglas, “Domestic Political Preconditions of U.S. Trade Policy: Liberal Structure and Protectionist Dynamics,” Journal of Public Policy 9 (January-April 1986).

2 Schattschneider, E. E, Politics, Pressure and the Tariff: A Study of Free Private Enterprise in Pressure Politics as Shown in the 1929–1930 Revision of the Tariff (Hamden, Conn.: Archon Books, 1935), 29, 36.

3 Schnietz, Karen, “To Delegate or Not to Delegate: Congressional Institutional Choices in the Regulation of Foreign Trade, 1916–1934” (Ph.D. diss., University of California, 1994), 125.

4 Destler, I. M., American Trade Politics, 2d ed. (Washington D.C.: Institute for International Economics, 1994), 14. See also Baldwin, Robert, The Political Economy of U.S. Import Policy (Cambridge: MIT Press, 1985); and Pastor, Robert, Congress and the Politics of U.S. Foreign Economic Policy (Berkeley: University of California Press, 1980).

5 See, for example, Destler (fn. 4), 71.

6 Haggard, Stephan, “The Institutional Foundations of Hegemony: Explaining the Reciprocal Trade Agreements Act of 1934,” in Ikenberry, G. John, Lake, David, and Mastanduno, Michael, eds., The State and American Foreign Economic Policy (Ithaca, N.Y.: Cornell University Press, 1988), 113.

7 Schnietz (fn. 3), 129.

8 Ibid., 128–32. For a third thesis, see Ferguson, Thomas, “From Normalcy to New Deal: Industrial Structure, Party Competition, and American Public Policy in the Great Depression,” International Organization 38 (Winter 1984). He argues that the New Deal coalition was not one of workers, poor, and minorities, but one of capital-intensive industries, investment banks, and internationally oriented commercial banks. Haggard offers a persuasive critique. First, Ferguson writes that this new coalition congealed “by 1938”; it was not clear that it was a powerful force in 1934 when the New Deal was clearly hostile to capital, pushing policies such as the NIRA. Second, Ferguson studies the preferences of one block to explain outcomes, ignoring other actors; see Haggard (fn. 6), 98.

9 For a more complete review of congressional policy, see Goldstein, Judith, Ideas, Interests, and American Trade Policy (Ithaca, N.Y.: Cornell University Press, 1993); Pastor (fn. 4); Evans, John, The Kennedy Round in American Trade Policy (Cambridge: Harvard University Press, 1971); Preeg, Ernest, Traders and Diplomats (Washington D.C.: Brookings Institution, 1973).

10 Chu, Yung-Chao, “A History of the Hull Trade Program, 1934–1939” (Ph.D. diss., Columbia University, 1957), 311.

11 Bauer, Pool, and Dexter (fn. 1), 33; Pastor (fn. 4), 101.

12 Haggard (fn. 6), 91.

13 Reciprocity in trade legislation had a long history before the RTAA. The first explicitly reciprocal treaty was with the German Zollverein in 1844. (It was rejected by the Senate.) Many of the previous measures on trade contained provisions for reciprocal agreements, but none was nearly as broad as the RTAA. See Goldstein (fn. 9), 93; and O'Halloran, Sharyn, Politics, Process, and American Trade Policy (Ann Arbor: University of Michigan Press, 1994).

14 Consistent with section 317 of the 1922 Fordney-McCumber Act, concessions granted any one country would be generalized to all others receiving most-favored-nation status.

15 Haggard (fn. 6), 106–7.

16 See Hull, Cordell, Memoirs (New York: Macmillan, 1948), 353; Goldstein (fn. 9), 154–58; and Haggard (fn. 6), 97. The clash between free traders such as Secretary of State Hull and protectionists led Moley to comment that “nothing which we have been dealing with has been subject to such wide differences of opinion”; Goldstein (fn. 9), 142. By 1935 Moley was an outspoken critic of the administration's trade policy. See Schatz, Arthur, “Cordell Hull and the Struggle for the Reciprocal Trade Agreements Program, 1932–1940” (Ph.D. diss., University of Oregon, 1965), 240.

17 While Southern Democrats favored lower tariffs, they were not necessarily free traders. In general they shared the belief with Republicans that tariffs were necessary to protect wages, but disagreed with Republicans on the extent and level of tariffs. See Goldstein (fn. 9), 92.

18 Fetter, Frank, “Congressional Tariff Policy,” American Economic Review 23 (September 1933), 416.

19 Tasca, Henry, The Reciprocal Trade Policy of the United States (Philadelphia: University of Pennsylvania Press, 1938), 14.

20 Goldstein (fn. 9), 142; Schatz (fn. 16), 51.

21 Tasca(fn. 19), 24.

22 Of course, the relative weight members assign foreign tariffs vis-à-vis imports will vary. Our assumption, however, is that all members put at least some weight on foreign tariffs and prefer lower foreign tariffs for any given level of U.S. tariffs.

23 For an argument relating constituency size to concern of the representative with particularistic policies, see Weingast, Barry, Shepsle, Kenneth, and Johnsen, Christopher, “The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics,” Journal of Political Economy 89 (June 1981).

24 See Weingast, Barry and Marshall, William, ldquo;The Industrial Organization of Congress” Journal of Political Economy 96 (June 1988); Cox, Gary and McCubbins, Mathew, Legislative Leviathan: Party Government in the House (Berkeley: University of California Press, 1991); and Krehbiel, Keith, Information and Legislative Organization (Ann Arbor: University of Michigan Press, 1991).

25 See, for example, Hull (fn. 16), 357; Bauer, Pool, and Dexter (fn. 1). The argument of the paper holds even if we were to assume the floor median could set the agenda.

26 The level of foreign tariffs at the start of the game is assumed to be the level of tariffs the foreign government sets if there is no agreement with the U.S. As long as Congress sets tariffs unilaterally, the foreign country is assumed to choose this level of tariffs.

27 The situation is more complicated if there is divided government. These results are deemphasized, since major tariff legislation occurred under unified rule. The equilibria are easily established, however. If the status quo is Q j a nd an election puts a Republican president and Democratic Congress in power, the Democrats will propose nothing and the status quo will remain Q7. However, if the status quo is Q7 and a Democratic president and Republican Congress win, the Republicans will propose an increase in rates. Because an increase to Q+ would be vetoed by the Democratic president, the Republicans will only propose an increase to the maximum point in the preferred set over Q7 held by the veto player to the left of the median. The veto player to the left of the median is the member the Republicans will need in order to pass a two-thirds override of a presidential veto. Similar reasoning establishes the remaining possibilities. On divided government and tariff policy, see Lohmann, Susanne and O'Halloran, Sharyn, “Divided Government and U.S. Trade Policy: Theory and Evidence,” International Organization 48 (Autumn 1994).

28 We concentrate on the implications of unified government, as most tariff changes occurred under unified government. The effects of divided government can be determined in this framework, however. There is also no change if the Democrats retain control of Congress but a Republican wins the presidency. The foreign government would not negotiate a U.S. tariff increase, as the president might wish, because it prefers the status quo to such an agreement. Congressional agenda setters would also desire no change. If Republicans win Congress and Democrats retain the presidency, there is also no change, as the president can veto any efforts by Republicans to increase tariffs and not be overturned. A sufficient condition for this is that D is equal to, or to the right of, the thirty-third percentile member. In 1934 this was an accurate depiction of the situation. Democrats controlled about two-thirds of the seats in Congress. The median Democrat was therefore roughly at the thirty-third percentile. Given that T* was chosen by Democrats when they could have chosen a higher level, we know that they will not prefer a tariff increase to T*. They would therefore not support any effort to overturn a presidential veto of legislation raising tariffs.

29 Here it is assumed that the foreign country raises tariffs back to their unilateral tariff level if the U.S. nullifies the RTAA agreements and raises tariffs

30 Schnietz (fn. 3) has made a similar claim, that the RTAA increased the durability of liberal trade policies. She uses a one-dimensional model to argue that holding the median constant, the RTAA mitigates protectionist potential. That is, when Republicans take over after Democrats, a relatively liberal Republican president will raise tariffs to co-opt the extremist Republican Congress. We make a much stronger claim. Holding the median constant, the RTAA eliminates protectionist potential under general conditions. In addition, in our model the RTAA's low tariffs are robust to a whole class of preference changes. Also, note that, in Schnietz's argument, the RTAA will lead to more protection than if there were no RTAA when a Republican president and Democratic Congress win; a Republican president in this situation would be able to use his authority to preempt more extreme Democratic cuts in tariffs.

31 Weingast, Shepsle, and Johnsen (fn. 23).

32 Woytinsky, E. S. and Woytinsky, W. S., World Commerce and Governments: Trends and Outlooks (New York: Twentieth Century Fund, 1955), 48; Pastor (fn. 4), 332.

33 Tasca (fn. 19).

34 United States Bureau of the Census, Congressional District Data Book: Districts of the 87th Congress (Washington, D.C.: U.S. Government Printing Office, 1961).

35 United States Department of Labor, Employment and Earnings: State and Local Areas, 1939–1971 (Washington, D.C.: U.S. Government Printing Office, 1972).

36 United States Bureau of the Census, U.S. Commodity Exports and Imports as Related to Output (Washington, D.C.: U.S. Government Printing Office, various editions).

37 Lechter, Max, U.S. Exports and Imports Classified by End-Use Commodity Categories, 1923–1968 (Washington, D.C.: U.S. Office of Business Economics, 1970).

38 United States Bureau of the Census, The Census of Agriculture (Washington, D.C.: U.S. Government Printing Office, various editions); United States Bureau of the Census, United States Census of Manufactures (Washington, D.C.: U.S. Government Printing Office, various editions); United States Bureau of the Census, Historical Statistics of the United States: Colonial Times to 1970 (Washington, D.C.: U.S. Government Printing Office, 1975).

39 For an explanation of the ideology scores, see Poole, Keith and Rosenthal, Howard, “Patterns of Congressional Voting,” American Journal of Political Science 35 (February 1991). For a formal theory of low-dimensional ideological consistency, see Hinich, Melvin and Munger, Michael, Ideology and the Theory of Political Choice (Ann Arbor: University of Michigan Press, 1995).

40 On ordered probit analysis, see Krehbiel, Keith and Rivers, Doug, “The Analysis of Committee Power,” American Journal of Political Science 32 (November 1988).

41 American trade politics has historically shown strong regional variation. We also ran estimations that included regional dummy variables in our equations. The result was consistent with the previous analysis; but there were interesting differences across regions. Among the Republicans in 1953, an increase of two standard deviations in exports led to a 13 percent increase in the chance that representatives from the Northeast will vote for trade liberalization, an 18 percent increase for those from the Midwest, and a huge, 51 percent hike for those from the West. For Democrats in 1953, the comparable numbers were 2 percent Northeast; 10 percent Midwest; 31 percent West; 8 percent South; 5 percent Border (no South or Border results are reported for Republicans given the scarcity in the number of representatives). In 1962 the increase in probability of a free-trade vote with a two-standard deviation rise in exports was for Republicans: 8 percent Northeast; 25 percent Midwest; and 18 percent West. For Democrats in 1962, the vote effects were 2 percent Northeast; 2 percent Midwest; 5 percent West; 11 percent South, and 6 percent Border.

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World Politics
  • ISSN: 0043-8871
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