Review 6: Trade Protection in the United States, by Charles K. Rowley, Willem Thorbecke & Richard E. Wagner (1995)

Colin A. Carter,
University of California, Davis,
Journal of Economic Literature, Vol. XXXV, No. 3, 1386-87 (September 1997)

"After serving as President of the United States, Jimmy Carter sat down and wrote a book entitled Keeping Faith, reflecting on his term in the White House. President Carter observed that the policy influence of special interest lobbies in the United States is almost unbelievable and he argued that ultimately "something will have to be done to control the influence of the special interests" (p.88). Fifteen years later, Rowley, Thorbecke, and Wagner examine the making of U.S. trade policy and they make essentially the same argument - something has to be done about the excessive power of special interest lobbies and their destructive influence over trade policy.

Rowley, Thorbecke and Wagner present a new way to look at the free trade issue, and their framework is a significant contribution. The theme of this book is that the economic benefits of unilateral free trade should be viewed as an issue involving individual property rights under the U.S. Constitution. Similarly, protectionism should be viewed as the taking of one's property rights. The book is then a mixture of economics, political science, and constitutional law. This is a useful approach for thinking about the problem of protectionism.

The situation of the all powerful lobby groups has worsened since Jimmy Carter's presidency and this is all the more reason why the message in the Rowley, Thorbecke, and Wagner book is an important one that requires public attention. For instance, the profession has recently discovered that when trade protection is modeled endogenously its confining impact on imports is found to be much larger than previously thought. Rowley, Thorbecke, and Wagner suggest amendments to the U.S. Constitution that would help to minimize the political power of rent-seeking lobby groups and thus facilitate moves toward unilateral free trade. Trade protectionism redistributes income away from consumers toward special producer interests and this can be viewed as a violation of the basic economic freedom of citizens. The authors argue that the courts are neglectful of this property rights violation.

This book describes the determinants of U.S. trade policy, and asks why the United States has not backed free trade across all goods and services, when economic theory is so clear on the issue. The central argument put forth in this book is that U.S. trade policy has tended to favor the politically powerful. While a political economy explanation of U.S. trade policy is not new, this book provides a legal perspective and a useful and detailed interpretation of historical milestones in U.S. trade policy. Its institutional discussion of the Congress, the presidency, and the federal bureaucracy is very comprehensive and well written.

The book has four main sections: a review of basic trade theory and the literature on the political economy of protection, a description of key U.S. policy making institutions, a discussion of the history of trade protection in the United States, and the case for constitutional reform. This first section basically summarizes the literature on free trade. The discussion in this section is highly opinionated in places. For instance it bashes government economists aggressively and asserts that not one in a hundred government economists even understands the Coase theorem. It seems unnecessary to discredit government economists; they can hardly be held accountable for trade protectionism in the United States.

The book examines the forces that have shaped trade policy over the past 60 years. The authors begin with the infamous Smoot-Hawley Tariff Act of 1930, which raised tariffs by almost 60 percent. They conclude with a discussion of the modern forms of protection, namely fair trade laws (antidumping and countervailing duty investigations) and voluntary export restraints. The authors employ a very casual methodology to quantify their claims that the public choice model best explains U.S. trade policy. However, some of their arguments are quite convincing because they have clearly done their homework on the historical aspects of trade policy. The book does not further our empirical understanding of the political economy of tariffs. Instead, it provides a clear description of the political and institutional background to the evolution of U.S. trade policy.

The writing style is very colorful in places. Rowley, Thorbecke, and Wagner are not too impressed by President Reagan's record with regard to trade policy and they are not too shy in explaining their reasoning to the reader. Despite Reagan's rhetoric to the contrary, Rowley, Thorbecke and Wagner demonstrate that he was committed to a protectionist trade policy.

This book is a useful addition to the literature. It debunks common myths associated with trade policy and does a nice job of explaining the powers of and incentives facing Congress, the presidency, and the federal bureaucracy, and their role in trade policy formation. Finally, the property rights interpretation of free trade puts a new and appealing spin on the argument for trade liberalization."