Kicking Away the Ladder. Development Strategy in Historical Perspective

In 1913, following the previous Democratic electoral victory, the Underwood Tariff bill was passed, leading to ‘a large increase in the categories of goods allowed free entry and to a substantial drop in average import duties’;[82] this reduced the average tariff on manufactured goods from 44 per cent to 25 per cent. However, the onset of the First World War made this bill ineffective and a new emergency tariff legislation was put in place by 1922, following the Republican return to power in 1921. In the 1922 law, although the tariffs did not return to their high 1861-1913 levels, the percentage effectively paid on manufactured imports rose by 30 per cent.[83]

Following the start of the Great Depression there came the 1930 Smoot-Hawley tariff – ‘the most visible and dramatic act of anti-trade folly’, according to Bhagwati.[84] However, this characterization is very misleading. While the Smoot-Hawley tariff provoked an international tariff war, thanks to its bad timing – especially given the new status of the USA as the world’s largest creditor nation following the First World War – it did not constitute a radical departure from the country’s traditional trade policy stance.[85]

In fact, the Smoot-Hawley tariff only marginally increased the degree of protectionism in the US economy. As we can see from table 2.1, the average tariff rate for manufactured goods that resulted from this bill was 48 per cent, which still falls within the range of the average rates that had prevailed in the USA since the Civil War, albeit in the upper region of this range. It is only in relation to the brief ‘Liberal’ interlude of 1913-29 that the 1930 tariff bill can be interpreted as increasing protectionism, although even then it was not by very much. Table 2.1 shows that the average rate of tariff on manufactures in 1925 was 37 per cent and rose to 48 per cent in 1931.

It was only after the Second World War that the USA – with its industrial supremacy unchallenged – finally liberalized its trade and started championing the cause of free trade. However, it should be noted that the USA never practised free trade to the same degree as Britain did during its free-trade period (1860 to 1932). It never had a zero-tariff regime like that of the UK, and it was much more aggressive in using ‘hidden’ protectionist measures. These included: VERs (voluntary export restraints); quotas on textile and clothing (through the Multi-Fibre Agreement); protection and subsidies for agriculture (compare this with the repeal of the Corn Laws in Britain); and unilateral trade sanctions (especially through the use of anti-dumping duties).[86]

In contrast to the attitude of a generation ago, represented by the above-mentioned work of North, there is now a growing recognition of the importance of protectionism among US economic historians, who used to be extremely wary of saying anything positive about it. Today, there seems at least to be a consensus that tariff protection was critical in the development of certain key industries, such as the textile industry in the early nineteenth century and the iron and steel industries in the second half of the nineteenth century.[87] Although some commentators doubt whether the overall national welfare effect of protectionism was positive, the US growth records during the protectionist period make this scepticism look overly cautious, if not downright biased.

Bairoch points out that, throughout the nineteenth century and up to the 1920s, the USA was the fastest growing economy in the world, despite being the most protectionist during almost all of this period.[88] There is also no evidence that the only significant reduction of protectionism in the US economy, between 1846 and 1861, had any noticeable positive impact on the country’s development. Most interestingly, the two best 20-year GDP per capita growth performances during the 1830-1910 period were 1870-1890 (2.1 per cent) and 1890-1910 (two per cent) – both periods of particularly high protectionism.[89] It is hard to believe that this association between the degree of protectionism and overall growth is purely coincidental. Indeed, O’Rourke shows some statistical evidence from ten NDCs, including the USA, during the ‘liberal golden age’ of 1875-1914, to the effect that protection (measured by average tariff rates) was positively related to growth.[90]