Week 6 Reading

8/3/2019 Week 6 Reading

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Trustees of Princeton University

Trading Places: Industries for Free TradeAuthor(s): Helen MilnerReviewed work(s):Source: World Politics, Vol. 40, No. 3 (Apr., 1988), pp. 350-376Published by: Cambridge University PressStable URL: http://www.jstor.org/stable/2010217 .

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TRADING PLACES:Industries orFreeTradeBy HELEN MILNER*

INTRODUCTIONTODAY, protectionisms onceagaina central olitical ssue n theUnited States. Pressuresforprotectionism ave captured the na-tionalattention everal timesduringthe20thcentury. n the 920S, U.S.tradepolicymade a U-turn.Protectionism ad declinedfrom heDingleytariff ill in i897 until the Fordney-McCumber tariffaw of I922, astheaverage value of tariffsn dutiablegoods fellfrom45 percent o 28percent.'But thisdownward trend was reversedduringthe I92oS: be-tween I922 and I930, the United States closed its marketdramatically,with tariffsttaining n ad valoremaverageof53 percent.2 his evel, etby the I930 Smoot-Hawley tariff, as one of thehighest ver,and thehighest o far n the20thcentury.Beginningin the I930s, protectionismn theU.S. once again abated.The Reciprocal Trade AgreementsAct (R.T.A.A.), which was intro-duced in I934 and servedas a model forfuture radeacts, nitiated heopeningof the American market.Between I934 and I972, average U.S.tariffevels declinedbysome70 percent.3 y I972, tariffsverageda mere9.9 percent.4In theearly 970s, the courseof U.S. tradepolicy gainbecame a sourceof heated debate.Among thequestionsthatwere raisedabout thefutureof American tradepolicywas what direction radepolicywould take inthe I970S and beyond.Many observers nd scholarsfeared resurgenceofrapidlyrisingprotectionismnd international rade wars.5 xtrapolat-

* I would like tothankDavid Baldwin,Jeffryrieden, tephenHaggard, RobertKeohane,and theparticipantst the Ford FoundationConference n BlendingPolitical nd EconomicAnalysis f nternational rade Policiesfor heirhelpful omments.RobertPastor,Congressnd thePolitics f U.S. Foreign conomic olicy Berkeley:Univer-sity f CaliforniaPress, 980), Table 3,p. 78;David Lake, "InternationalconomicStructuresand AmericanForeignEconomic Policy, 887-I934," WorldPolitics 5 (July 983), 5I7-43,Table 2, p. 534-2Ibid.

3 U.S. TariffCommission,TradeBarriers: nOverview, o. 665 Washington, C: G.P.O.,I 974), 8I-82.4Pastor (fn. ), Table 6, p. I I9.5Harald Malmgren,"Coming Trade Wars?" ForeignPolicy I (Winter I970), 115-43;C. Fred Bergsten,The Crisis nUS Trade Policy," oreign ffairs9 July97i), 6I9-35; June


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INDUSTRIES FOR FREE TRADE 351ing fromprevious historicalperiodsofrising nd fallingprotectionism,these analysts xpectedthe I970S and I98os to look muchmore like theI920S than ike the periodbetween 934 and I970. In fact, he 920S wereofferedfrequently s the example forthe decade after 973. For many,the threat f a significant losureof theU.S. market voked a repetitionofthe dismal interwaryears.In thisarticle, challengethatviewofthe current eriod.There weresizable differencesn tradepolicyoutcomes between the I920S and theI970S; thesedifferencesrepuzzling becausetheybeliethepredictions fothertheories. maintainthat primary easonfor hesedifferent olicyoutcomes was the growth of international conomic interdependenceafterWorld War II. By the I970s, theexpansionof these nternationaleconomic tieshelped todampen pressures ortrade barriers s thepref-erencesofindustries urnedagainst protectionism. sing evidence froma number of industries n the 920S and the I970s, I shall showhow theinternationalizationf firms educedtheir nterestn protection ven indifficultconomictimes, nd thushelpedthe United States to resistpro-tectionismn the I970s.

THE PUZZLETwo common elements,which distinguish he I920S and the I970Sfrom he ntervening ears, eem central nthis omparisonbetweentheirtradepolicies. First,boththe I920S and the I970S were timesof seriouseconomic distress nd instability.uchdifficultonditionshave been seenas a key preconditionforrising protectionistctivity.One economistnoted:It sgenerallygreed hatna modern ndustrialconomyhe yclicaltateof theeconomynd thecountry'sompetitiveositionnternationallyretheprincipaleterminantsf hedegree fprotectionistressure.ow lev-elsofeconomic ctivity,ighunemployment,nused apacity,rade efi-cits, apid ncreasesnimports,nd increasesnimport enetrationllop-

Kronholz,"Trade and CurrencyWars Deepen the Depression,"WallStreet ournal, ctober23, I979, p. I-Hegemonic stability heorists ave also predicted uch a resurgence. ee Charles Kindle-berger,The World nDepression,929-I939 (Berkeley:UniversityfCaliforniaPress, 973),esp. 307-8; RobertGilpin,US Powerand theMultinational orporationNew York: BasicBooks, 975), esp. 258-62. For moreskepticalviews, ee StephenKrasner, State PowerandtheStructure f nternational rade," World olitics 8 (April 976), 3I7-47; Robert . Keo-hane, "The Theory of Hegemonic Stability nd Changes in International conomic Re-gimes," n Ole Holsti, RandolphSiverson, nd Alexander George, eds., Change n the nter-national ystemBoulder, CO: WestviewPress, 980), I3i-62.


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352 WORLD POLITICSerate to increase the temptation to protect domestic industries from importcompetition.6Economic difficultieswere similar in the two periods,which were

marked byrelativelyhighunemployment ates and sizable agriculturaland industrialovercapacity.n the 920S and early 930s, the U.S. econ-omy suffered wo major downturns-one in I920-I923 and one in I929-I933. Price deflation,abor unrest, nd internationalmonetary roblemscreated furtherconomicinstability.7n the 970s, the U.S. economyex-perienceddeep recessionsduring 973-I975 and I978-I982. Sparked bythe oil shocks,theserecessionswere aggravatedby rapidly hiftingradepatterns, rice instability,nd a confused nternationalmonetary itua-tion.These high evels of economicdistress nd instabilityhatwere feltin the 920S and I970S mightbe expectedtogenerate imilarwidespreadprotection.Indeed, in view of the absolute evelsof economic distress uringthetwo periods,the 970S mighthave generated vengreater evelsofmar-ket closure than the I920S.8 The averages for threemajor economic in-dicators ll are worsein the 970S than n the 920S, as Table I indicates.

TABLE IAVERAGES FOR THREE MAJOR ECONOMIC INDICATORS(percent)

1923-1929 1973-1979Average nnualgrowthnrealGNP 3.1 2.3Averagemeanvalue ofunemploymentate 3.5 6.8Average alueofnon-residentialfixed nvestmentoGNP 11.2 10.2

All data from eldstein fn.7), 04-5.6 Wendy Takacs, "PressuresforProtectionism: n EmpiricalAnalysis," conomic nquiry

i9 (October 98i), 687-93, t 687. In general, ee TimothyMcKeown, "Firms and TariffRe-gime Change: Explaining the Demand forProtectionism,"World olitics 6 (January984),2I5-33; Giulio Gallarotti, Toward a BusinessCycleModel of Tariffs,"nternational rgani-zation39 (Winter 985), I55-87; Susan Strange nd Roger Tooze, eds.,The nternationalol-itics f SurplusCapacity London: Butterworths,980).

7 W. ArthurLewis, Economic urvey,9i9-i939 (London: Allen & Unwin, 949); U.S. De-partment fCommerce,Survey fCurrent usiness, arious ssues, 9I9-I930 (Washington,DC: G.P.O.); U.S. Census Bureau,Historical tatisticsftheU.S., ColonialTimes o thePresent(Washington,DC: G.P.O., I975); Kindleberger fn.5), esp. chaps. 5-8; League of Nations,EconomicFluctuationsn the U.S. and U.K., i9i8-I942 (Geneva: League of Nations, 942);MartinFeldstein, d.,TheAmericanconomyn TransitionChicago:National Bureau ofEco-nomic Research, 980), I2.8 Sidney Ratner,James oltow,and RichardSylla,TheEvolution ftheAmerican conomy


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354 WORLD POLITICSAmerica's share ofworld tradedroppedfrom 8.4 percentn I950 to I3.4percent n I977.14 More tellingly,ts share of theworld'smanufacturedexportsplummetedfromnearly 0 percent n I953 toabout 3 percent nthe late I970s.'5 Its share of the world'smanufacturing utputalso lostground,dropping from62 percent n I950 to44 percent n I977.16 ManyU.S. industrieshad lost their conomicadvantageand facedbitter om-petitionbothat home and abroad. In addition,theUnitedStates was nolonger as dominant n the nternationalmonetary ystem. y 973, ithadscuttled themonetary ystem t had created and founditselfunable tofashion new, stableone. Americanhegemonynmonetary elations nthe 970s, however,was notas reduced as Britain'shad been in the 920Sand early 930s.'? But ithad declinedsubstantially,speciallyntradeandproduction, eaving the international istribution fpower in the I970Smorecloselyresembling hat ofthe nterwar eriodthan thatofthe m-mediatepost-WorldWar II period.This eclipseofhegemonymighthavebeen expected to produce widespread protectionism,s it had in theI920S.Althoughbothperiodsexperienced hedecline of a hegemon, hismaybe less importantto American policythan the relativepositionof theUnited States. The striking act s how similartherelative nternationalpositionoftheU.S. appears to be in the ate 920S and the ate I970s, andhow differentt was in the I950S and i960s. America's share of theworld'smanufacturing utputreached 2 percentn 929 andhad leveledoff t44 percent n I977. In contrast,heU.S. had dominated nthe 950Sand i960s, with62 percent n I950 and 5I percent n i960. In the tradearea,theUnited Stateswas more dominant nthe 920S than nthe 970s,but nowherenear as dominantas in the I950s. In the 920S, itwas theworld'slargest xporter nd biggestforeignnvestor,nd rankedsecondonly to Britain in its imports.'8By the late I970s, it had become theworld's second-largest xporterof manufactures West Germany ledwith almost i6 percentcompared to America's I3 percent and wasbeingchallengedfor hat potbyJapan i i percent).n I953, bycontrast,theU.S. had reignedsupremein trade,controlling early 0 percent fall manufactured xports.'9

14 Lake (fn. ), Table 3, p. 54I; Keohane and Nye (fn. 3), I4I.'5 Feldstein fn.7), 93, i96. 6 Ibid., 9i.'7 U.S. hegemony n money was diminished ess than in trade. ts endingof theBrettonWoods systemwas more an act ofpower than ofweakness, ccording o many nalysts. eeKeohane and Nye (fn. 3), I4I, i65-86; JohnOdell, U.S. International onetary olicy:Mar-kets, ower, nd deas as Sources f Change Princeton: rincetonUniversity ress, 982), chap.4, esp.p. 2I9..8 Ratner, oltow, and Sylla fn.8),464; Feldstein fn.7), 9IL9Feldstein fn.7), 96.


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INDUSTRIES FOR FREE TRADE 355A similarstory s told by changes in relative conomic size and pro-ductivity. ccording to Lake, who uses these wo measures n his analysisof nternational conomic structures,heposition f theUnited Stateswas

almost dentical n I929 and I977.20This contrastswith ts clear predom-inance n 950. Moreover,nboth 929 and 977, theU.S. appeared im-ilarly ituatedrelative o its nearestrivals. n I929, it ed all countries nthesetwo indicators, arely dgingoutBritainwhile retaining substan-tial ead over France and Germany. n I977, itsrelative ositionwas com-parable: it was almost even withWest Germany,but still outdistancedJapan nd France.Hence, twostrong imilaritiesn the nternational istributionfeco-nomicpower existed n the 920S and I970s. In both, hegemonwas indecline, nd in both the relativeposition ftheUnited Stateswas slightlysuperiorto all others but,mostimportantly, as being challenged byseveralnations.These conditions n the nternational conomic structurehave been linked to risingprotectionism,nd thusmighthave been ex-pectedtoengendersimilarprotectionist esponsesn the twoperiods.21The argumenthere snot.that he 920S and the 970S were alike in allrespects.Two important ifferences,t least,mayattenuate hecompar-ison. First, heUnited States was a risinghegemon n the 920S and a de-cliningone in the I970s. Although hegemonic stability rgumentspro-vide no theoretical easonto expectthisdifference o affect hegemon'stradepolicy, henotion of a lag has been introduced oaccount for his.22A risinghegemon mayfailto appreciate tsown significance, hilea de-cliningone may fail to understand ts weakness and need for closure.This differencemayaccountfordissimilaritiesetween the twoperiods.But the reasonfor ucha lag is obscure.Second, therewas a differencen themonetary ystems perating tthe two times. n the 920s, a shift ccurredfrom hecontrolled lexibleexchange-rate ystem hathad been ineffect efore 925, to a fixedgold-standardystem hichwasin effect ntil 93I. In the 970s, themove-mentwas in theoppositedirection:from fixed, ollar-gold tandardtoa managedflexible atesystem fter 973. The consequencesofthesetwodifferentystems or radepolicy re unclear,however;the effects f dif-ferent xchange-rate ystems n trade are not well understood. t hasbeen assertedbysome thatflexible ates hould hinderprotectionisme-

20 David Lake, "Beneath the Commerce of Nations," InternationaltudiesQuarterly8(June 984), Figs. 5 and 6, pp. I43-70.21 I do not agree with Lake's interpretationf thesetwo structuresnd theirdifferences;see fn. 0.22 Kindleberger fn.5); Krasner fn.5).


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356 WORLD POLITICScause such barriers re nullified y exchange-ratehanges.23 thersmaintain hat lexible ates ugment rotectionistressuresy ncreasingrisk, nd that ixed ates re best or nsuringree rade.24t seems air osaythat he xchange-rateystemsperatingnbothperiods id ittle oprovide stable nvironmentornternationalrade.A related ssue s whether hevalueofU.S. exchange ateshada dif-ferentffectn trade olicynthe woperiods. he arguments that helevelof exchange ateswas drivingradepolicy,speciallyn the 970s.Thus, herelativendervaluationf hedollarnthe ate 970S weakenedprotectionist ressures,while its overvaluation n theearly 980s led tonew pressures or arriers.25he problemwith his rguments that heI920S look similar: fterWorldWar I, theU.S. dollar ppeared o beundervalued,upposedlymitigatingrotectionistressures. ut ater nthedecade, hedollar eemed vervalued elative o themark, ira, ranc,andgold, lthough ndervaluedelative osterling.26ifferencesnex-change-rateevels, hen, o not eem odistinguishhe woperiods.Despite hese ifferences,he imilaritiesetween he 920S and 970sintermsf conomic ifficultiesnd therelativeconomic osition ftheUnited tatesmighteadone toexpect hatU.S. trade olicynthe 970swould ook ike that fthe 920S. The i970s, however, erenotmarkedbytheextensivelosure ftheU.S. market hat ccurredn the 920S.American radepolicy emainedriented oward relativelypenmar-ket.Althought scommonlyelieved hat rotectionismrew ubstan-tially n the I970S and the early i980s, U.S. trade policy actuallyhadmixed urrents. verall, herewasprobably smallnet ncreasentradebarriers elative o the 960s, butthesenew barriersneverreached evelsnear those attained n the 920S. Moreover,unlike nthe 930s, these ar-riershad little ffectnthevolume ftrade: lobal ndU.S. trade on-tinued ogrow throughouthedecadeofthe 970s, and togrowfasterthan roduction.naddition,ariffsad beenreducedotheirowest ev-els, bout5 percentnaverage, hroughheGATTTokyoRoundnegoti-ations.27On the otherhand, omenon-tariffarriersNTBs) weregrowing.

23Herbert Grubel, nternationalconomicsHomewood, IL: Irwin, 977), chap. 2; CharlesKindleberger nd Peter Lindert, nternational conomics, th ed. (Homewood, IL: Irwin,I978), chap. 2i; Robert Baldwin and J. David Richardson,nternationalrade and Finance,3rded. (Boston: Little,Brown, 986) , chap.2I.24 C. Fred Bergsten nd William Cline,"Overview," nWilliamCline, ed.,TradePolicy nthe1g8os (Washington,DC: Institute or nternational conomics, 983).25 Kindleberger nd Lindert fn.23), chap.2I, esp. Fig. 2I.5.26Ibid., hap. 21, Fig. 21.3. Note how all othercurrencies ise n value against the dollarafter he change n I93I.27U.S. TariffCommission fn.3), 8i-82.


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INDUSTRIES FOR FREE TRADE 357These are difficult o measure (and were generallynot measured whiletariffsemainedhigh),but theirrelative mportance ncreased n the ate1970s. By thattime, nearly 30 percentof all categories not values) ofAmericanmanufacturedmportswere affected ythem.28ne empiricalstudyconcludes, however,that these new NTBs have had onlylimitedprotectionistffects; s the authorspoint out, "on average over a fullrangeofmanufactured roducts, heprotection iven byNTBs thatmaylimitor reduce mports .. isnotnearly s largeas theprotectionffordedbytariffs.. or naturalbarriers o trade. .. "29They projectthat, iftheUnited States continueson itspresentpolicycourse, the U.S. economywill be considerablymore open in i985 than t was in 1976."30 hus theerectionofNTBs in the I970S and i980s mayhave produceda smallnetincrease nprotection. ut this ncreasedid notapproachthe evels of theI920S even thoughtwokey preconditions serious conomicdistress nddeclining hegemony-characterized both periods. Given the fertilegroundof the late I970s, protectionismould havegrown rampantly,sit did in the 920S. For some reason, tdid not.

OTHER EXPLANATIONSThe question,then, s whytrade policywas differentn the 920S andI970Seven though key pressures nfluencingt were similar.This puzzlehas been addressedbya numberofstudies.Three answers, ll of whichfocuson aspectsof the nternationalrdomestic ystem hat re differentfrom heone centralto this study, equire examination.They shouldbeseen lessas competing han as being pitched t differentevelsofanalysis.I maintain that theargumentdevelopedin this tudyhas been neglectedand that t is more basic thantheseothers.One type of explanation looks at the internationaldistribution fpower,usually nterms feconomiccapabilities.t involvesmodificationsof thehegemonicstabilityhesis,which, s has been shown,cannot n itsoriginal formexplain the differences n policyoutcomes between theI920S and the I970s.3' Three modifiedargumentshave been presented.First, it has been asserted that American hegemonyhas not declinedenoughtosetoff heexpectedprotectionistesponse.32ven thoughother28 RobertReich, "Beyond Free Trade," ForeignAffairsi (Spring 983), 773-804, at 86.

29 PeterMoriciand Laura Megna, U.S.Economic oliciesAffectingndustrial rade:A Quantitative ssessmentWashington,DC: National PlanningAssociation,983), I I.3?Ibid., I03. 3 Krasner fn.5).32 Bruce Russett, The Mysterious ase ofVanishingHegemony;or, s Mark Twain ReallyDead?" International rganization 9 (Spring 985), 207-32; Susan Strange, StillAn Extraor-dinaryPower," in Raymond Lombra and Willard Witte,PoliticalEconomy f nternationaland DomesticMonetary elations Ames: Iowa State University,982).


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358 WORLD POLITICScountries have caught up with the United States, it still remains thestrongest, speciallywhenitsmilitarymight s considered.Thus, this r-gument depends on military apabilities being an importantfactor ntrade policy considerations.However, the fungibilityf these power re-sources is questionable.33n fact, he secondtypeofhegemonic stabilityargument denies this fungibility. onsidering only trade-related owerresources, t suggests that U.S. hegemony has not declined enough toevoke extensiveprotectionism.34ut in comparison o tstradeposition nthe I920S, the U.S. held a similar, r even less dominant,position n theI970s. One explanationfor hisdisparitys the ag phenomenondiscussedearlier. A thirdargument modifying he thesisof hegemonic stabilityholds thatdifferentonfigurationsfstates n terms ftheirrelative co-nomic power lead to different utcomesin tradepolicy. But this argu-ment s notable to explain the differences etween the 920s and I970s,since theconfigurationfstates t those two points I929 and I977) wasvery imilar.35A second typeof explanationfocuseson theexistenceof an interna-tionalregime n trade. n thisview,thecreationoftheGATT system fterWorld War II and its continuedfunctioning ave beenpartially espon-sible forthemaintenanceofa relatively pen international conomy. nthe I920S, the lack of any such regime helped to spread protectionism.GATT is seen as working against protectionismn numerousways. Someanalysts rgue that t operates through heexternalization fa norm-i.e., "embedded liberalism" which promotestrade but also minimizesits domestic costs and, with it,protectionistemands.36Otherssuggestthat heregime nd itsnorms re embodied ndomesticpolicies nd prac-ticesand that t is effectivehrough onstrainingnd shapingdomesticbehavior.37 tillothers ee theregimeas encouraging nternational om-

33David Baldwin,"PowerAnalysis ndWorld Politics:New Trends VersusOld Politics,"World olitics I (January979), i6 I-94; Keohane andNye (fn. 3), chap. 2.34 bid., chap. 3; Robert0. Keohane, After egemony: ooperationnd Discord n theWorldPolitical conomy Princeton:PrincetonUniversityress, 984), chaps.4,9; VinodAggarwal,LiberalProtectionism:he nternational olitics fOrganized extileTrade Berkeley:Univer-sity fCaliforniaPress, 985), chaps.2, 7.35Lake (fns. , 9, and 20). To overcomethisdifficulty,ake makestwopoints:first,hatdue tothedisruption aused byWorld War I, muchgreater ncertaintyxisted n the 920S,whichpromptedmoreprotectionistctivity.econd,he implies hat heheight fprotection-ismgloballywas in the 93os, notthe 920S, whenthe tructure as somewhat ifferent.ro-tectionism, owever,was risingworld-wide hroughouthe 920S; ithit tspeak in theU.S.by I930 and elsewhereby I933 or I934. This explanation ftradepolicyoutcomes s moresophisticatednd perhapsmore accurate hanotherhegemonic tabilityrguments, ut tstillhasdifficultyccounting or he differencesetween he 920S and the 970s.

36 JohnRuggie, "InternationalRegimes,Transactions,nd Change," nternationalrgani-zation36 (Spring 982), 379-4I5-37CharlesLipson, "The Transformation fTrade," Internationalrganization6 (Spring


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INDUSTRIES FOR FREE TRADE 359merceby increasingtsefficiency.38ifferenceshus xist verexactlyhow theGATThas worked o abateprotectionism,utgenerallyt sseenas exertingbrake ndomestic ressuresor rotection.

In allofthese iews, owever, egimes lay nly n intermediateole.They reacknowledgeds an interveningariable,nfluencinghepref-erences, ressures,ndpracticeslready stablishedt thedomestic ndinternationalevels.39 n order to judge theeffect f theregime, t is nec-essaryo examine hesepre-existingactors. egime nalysishusneedsto be supplemented ith nalyses fotherdomestic nd internationalforces, hich his tudy rovides.A third ype fexplanationocuses n thestructurefthe domesticpolicy-makingystem.he argument ere s that, espite hepressuresforprotectionn the 970s, a differentolicy tructurexistedwhichhelped efuse hese ressures.hisstructurensulatedoliticalctors,s-pecially ongress,romocietal ressuresor rotection.ence, he tatewas able to resist uchpressuresn the 970s, but not nthe 920S. Expla-nations iffernthe pecific aythisnsulationccurred.Most cholarsacknowledgehe mportancefthe hiftntariff-makinguthorityromCongressothePresidentsbeing entral.40thers oint othenature ftherelationshipetween ongressnd the xecutive;4'ometo thewaytrade olicy s made withinhe xecutive ranch;42ome o the essons fthe 930S and thenorms nd ideology owsurroundinghose essons;43andyetothers o thewayCongress unctionsnd respondso societalpressures.44Thisproliferationfdomestic olicy structures"ndicates hat radepolicy s not made within ne structure. any conomic ctors re in-volved,ndthey ring heiromplaintsndpressuresobear ndifferentpoliticalctors.Moreover,osingle,oherent ationalrade olicyxists.The policy elatingoone sector f theeconomymaydifferompletelyi982), 4I7-56; StephanieLenway, The Politics f U.S. Internationalrade (Boston: Pitman,I985).

38 Lipson (fn. 7)-39See Internationalrganization6 Spring 982), esp.the ntroductionyStephenKrasner.40 Pastor fn. ); JudithGoldstein, The PoliticalEconomyofTrade," American oliticalScienceReview 8o (March i986), i6i-84; I. M. Destler,American radePolitics: ystem nderStressWashington, C: Institute or nternational conomics, 986).4' Pastor fn. ).42 Roger Porter,Presidential ecision-MatingNew York: CambridgeUniversity ress,i980); GilbertWinham,"RobertStrauss,The MTN, and theControlofFaction,"Journal fWorldTradeLaw I4 (September-October,980), 377-97.43 Goldstein fn. 0); JudithGoldstein, A Reexamination fAmericanCommercial Pol-icy" Ph.D. diss.,UCLA, i983).44 E. E. Schattschneider,olitics, ressuresnd theTariffEnglewoodCliffs,NJ: Prentice-Hall, I935); RaymondBauer, Ithiel de Sola Pool, and Lewis Dexter,American usiness ndPublicPolicy Chicago: Aldine-Atherton,972).


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360 WORLD POLITICSfrom hatconcerning nother.Thus, thepolicyfor utomobilesmay dif-fergreatlyfromthe policies forwheat, textiles, r telecommunicationsequipment.Moreover,foreach ofthese ndustries, he nfluence f Con-gress,theexecutive, nd the InternationalTrade Commissionvaries. Aknowledgeof therelevantdomestic ctorsand their radepreferencessessentialtounderstanding he nfluence ftheparticular olicy tructureforthat ectoron thepolicyoutcome.

THE ARGUMENTMy argumentoperateson a differentevel ofanalysis. maintain that

the ncreased nternationalconomic nterdependence fthepost-WorldWar II periodhas been a major reasonwhyprotectionismid notspreadwidelyin the I970S and early 980s. Byalteringdomestic ctors'prefer-ences, aspects of America's greaterintegration nto the internationaleconomyworkedagainst recourse oprotectionism.pecifically, hile n-creased nterdependence as subjected omeareasoftheeconomy o newforeigncompetition, t has also greatlyaugmented international co-nomic tiesfor ome firms ntheform fexports,mports fcriticalnputs,multinationalproduction, nd global intrafirmrade.Despite pressuresfor losure, hegrowthofthese nternationalies sa majorreason for hemaintenanceofa relatively penmarket n the 970s.Evidence ofthegrowthofthese nternationalies s abundant.Amer-ican tradegrewphenomenallybetweenthe 920S and the i980s.45Moregoods and moredifferentypes fgoodsweretraded.Specifically, mer-ica's trade dependence grew substantially. .S. exportdependence (ex-ports s a percentage ftotaldomesticproduction) ose from bout2 per-cent n 923 to9 percent n i960, and to about20 percent ythe ate 970s.Likewise, imports limbed from .5 percent ftotaldomesticconsump-tion in I92I to 5 percent n i960, and to over 20 percent n ig80.46 ThemultinationalityfAmericanfirms lso rosesubstantiallyverthesefivedecades. The totalofAmerican directforeign nvestmentbroad grewfrom bout $5.5 billion in I923 to $ii.8 billion in i950, and to over$86billion n I970.47 Moreover,he nternationalizationfAmerican ndustry

45Ratner, Soltow, and Sylla fn.8),463-66.46 For the 920S, see RobertLipsey,Price ndQuantity rendsn the oreignTrade f heU.S.(Princeton:PrincetonUniversity ress, 963), 434-35;for he periodfrom960 on, see Reportof the President'sCommission on IndustrialCompetitiveness, lobalCompetition:heNewReality,Vol. I (Washington,DC: G.P.O., i985),36.47Robert Dunn, AmericanForeign nvestmentsNew York: Viking, I926), I82; KentHughes,Trade,Taxes, nd TransnationalsNew York: Praeger, 979), 94. Ratner, oltow, ndSylla fn. ), 464,show tgrew o 17.2 billionnthe 920S and thenretreated o$I I.5 billionby theendof the 93os. According o RobertPollard,Economic ecurityndtheOriginsfthe


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INDUSTRIES FOR FREE TRADE 361grew in relative erms. oreign assetsofU.S. industryccounted foronly25 percent f total ndustrial ssets n 1929, butforover 0 percentntheI970s.48 In addition,the global operations fthesefirms ntensified,ead-ing to thecreationof webs of nternationalrade flowswithinfirms. x-portsby Americanmultinationals romforeignproduction ites back totheU.S. markethave grown immensely.This practicewas almost un-known before the I940s; at present, hesetypesoftransfersccount forsomewherebetween 5 and 50 percent f all U.S. industrialmports.49nsum, the integration f the United States nto the nternational conomythroughbothtrade and multinationalityas deepenedconsiderably incethe 920S.

This aspect of increased interdependencehas lessenedpressuresforprotection n domestic ndustries. hypothesize hatfirmswith greaterinternational ies n the formofexports,multinationality,nd global in-trafirmrade will be less interestednprotection hanfirms hat re moredomestically riented. The formerwill view protection s undesirable,sinceit will be morecostlyforthem thanforthelatter, orfivereasons.First,firms hat exportor produce abroad will be concerned bout for-eignretaliation nd itscosts.Demanding protectiont homemay promptgreaterprotection broad,whichmay ead to a reduction fexports r tonew restrictionsn foreign perations nd their radeflows, hus reduc-ing profitability.econd,protectionn one marketmayhurt firm's x-portsto third markets as otherexportersdivert theirproductsto thesemarkets ocompensateformarketclosureelsewhere.Third,firmswith a globalweb ofproduction nd tradewill view tradebarriers, ven at home, as a new cost one thatmay underminetheircompetitiveness.or thesefirms, rotectionwill be disruptivend costly.Fourth, forfirmsdependent on imports whether fromsubsidiaries,subcontractors,r foreignfirms new trade barrierswill increase costsand thus erode competitiveness.inally, ntra-industryivalrieswill cre-ate oppositionto protectionism. rade barrierswill put internationallyorientedfirms t a disadvantagerelativeto theirdomestically rientedCold War New York: Columbia University ress, 985), 205, U.S. direct oreignnvestmentsdroppedto their owestpoint n thecenturyo far n I946.

48 For the 920S, see U.S. Congress, enate,American ranchFactories broad, . Doc. No.258, 7Ist Cong., 3rd sess.,1931, p. 27, on thevalueof U.S. directforeignnvestmentn man-ufacturing,nd Lipsey fn.46), 424,on the value of U.S. manufacturingNP. For the 970s,seeU.S. Department fCommerce, 977EnterpriseStatisticsWashington, C: G.P.O., i98i).49The figuresvarywidely.See JosephGrunwald and KennethFlamm, Global Factory(Washington, C: Brookings nstitution,985), 7; GeraldHelleinerandReal Lavergne, In-tra-firm rade and Industrial xports othe U.S.," Oxfordulletin fEconomics nd Statistics4I (NovemberI979), 297-3I ; GeraldHelleiner, TransnationalCorporations nd theTradeStructure," n HerbertGiersch,On theEconomics f Intra-Firm rade (Tiibingen: Mohr,I979), I59-84.


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362 WORLD POLITICScompetitors. uch barriers mpose new costson international irmswhileproviding benefits o domestic ones. These different elativecosts andbenefitswithin an industrymaylead international irms o oppose pro-tection. or all thesereasons, irmswith trong nternationalieswillfindprotection f the home marketvery ostly nd will be likelyto resist p-peals for t,even when facedwithsevere mport ompetition.While containing n international lement, his rgument s similar othoseconcerningdomestic nterest roups.Most interest-groupnalyses,however,focus on the forcespushingforprotection.50ne reason is theassumptionof a collective ctionproblem n tradepolitics. mall groupsofproducers management nd labor)facing mport ompetition re seenas more likelyto press activelyforhelp sinceit will bringthemconcen-trated nd substantial enefits, hile argergroups other ndustries, on-sumers) opposing protectionwill be less likelyto act since thebenefits fopenness will be diffuse nd less tangible.51ut some small groups mayalso suffer romthehighcostsofprotection nd receive mportant an-gible benefits romopenness.Increasingly, he nterest-groupiterature as focusedon thevariablesexamined here. Several aggregate-level tudies of U.S. industrieshaveshown thathigh levels of export dependencereduce industries'prefer-encesforprotection nd lead to owertradebarriers or hese ndustries.52Other studiesrevealthat, veninthe 920S, thegrowth fan export ectorcontributed o attempts o open Americanand foreignmarkets.53 omehave also linked theadoptionofthe R.T.A.A. in I934, with ts antipro-tectionist ent,to the influence fAmericanexporters nd multination-als.54 hese studieshave lent credenceto the dea thatexport-dependentindustriesmaynotprefer rotectionnd mayeven advocate the disman-tlingoftrade barriers.

5- Examples are Richard Caves, "Economic Models of PoliticalChoice: Canada's TariffStructure," anadianJournal fEconomics (May I976), 278-300; William Brock and StephenMagee, "The Economics of Special Interest olitics:Case of the Tariff," merican conomicReview,Papers ndProceedings8 (May I978), 246-50; RobertBaldwin,ThePolitical conomyof U.S. Import olicy Cambridge: MIT Press, 986); Jonathan incus,PressureGroups ndPolitics n Antebellum ariffsNew York: Columbia University ress, 977); Edward Ray,"Determinants fTariff nd Nontariff rade Restrictionsn theU.S.," Journal fPoliticalEconomy 8i (No. i, i98i), I05-2I; Real Lavergne, The Political Economy of U.S. Tariffs To-ronto:Academic Press, 983).51 Mancur Olson, The Logic of CollectiveAction Cambridge: Harvard University ress,i965), for heclassic treatment; lso see Brock and Magee (fn. 0).52 Glenn Fong, "Export Dependence and the New Protectionism"Ph.D. diss.,CornellUniversity,982) supports his ontention. o does RobertBaldwin fn. o). Lavergne fn. 0)and Goldstein fn.43) providemixed evidencefor his ssertion.53 Joan H. Wilson, American usiness nd ForeignPolicy, 920-33 (Boston: Beacon, 1971);WilliamBecker,TheDynamics fBusiness-GovernmentelationsChicago: Universityf Chi-cago Press, 982).54 Thomas Ferguson, FromNormalcy o New Deal," Internationalrganization 8 (Win-ter 984), 40-94-


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INDUSTRIES FOR FREE TRADE 363Scholars have also examined how multinationalitynd its related n-trafirmradeaffect radepolicy.On theonehand, the dea that hespreadofmultinationalfirmswould reduce tradebarriershas been challenged

becausethesefirms ften nter market ocircumventuch barriers,ndthus come to see themas a brake against otherforeign ompetitors; nthe otherhand,the growthof global intrafirmradinghas led tothe deathat firmswith such tradewould be adverse to protectionn theirmar-kets.55 nalysisat theaggregate ndustryevel has producedmixed evi-dence forbothofthese arguments.56In thisstudy, do notadopt an aggregate pproach; rather, examinea set of ndustries nd theirfirms n detail. This methodpermits he con-siderationoffirmswho are the chiefactorsexperiencing he particularcostsand benefits f protection.t thus overcomesa centralproblemofaggregate tudies;that s,thattheymask the distributionf nternationalties within n industry,nd with tthe ntra-industryivisionsoverpro-tectionism. he poor results faggregate nalysesconcerning xportde-pendenceand multinationalityrepartly ue to thesedivisionswithin n-dustries.An industry hat s highlymultinationalmay actually containonlyone or two largemultinational irms,who mayor maynot be ableto impose theirpreferences gainstprotection n the ndustrynd/or nstate actors.These intra-industryifferences nd theireffects n tradepolicywill be examinedin thepresent tudy.This focus corrects oranotherproblem.Unlike argumentsbased oninternationalystems, egimes, r domestic tructures,my argument anaccountfordifferencesntradepolicy utcomes mongindustries uringthe same period.Why some industriesdemand and receiveprotection,while at the same timeothersdo not, s hard to explainparsimoniouslywith these other arguments.For example,the factthat 6o percent fallimports nteredthe U.S. duty-freen the 1920S is noteasilyexplicable fone asserts hatthe nternationaltructure,he ack ofany regime, r thedomesticpoliticalstructurencouragedtheadoptionofwidespreadpro-tectionismtthat ime.57he argumenthere s better ble to address suchdifferencesmong industries t anyone timeand to account for differ-ences over time. It should not be seen,however,as directly ompeting

55GeraldHelleiner, "TransnationalEnterprise nd the New Political Economy of U.S.Trade Policy," Oxford conomicPapers 9 (March 1977), 102-16; alsoHelleinerfn. 9). SeeLipson (fn.37) for discussion fthe effect fintra-industryradeon industryradeprefer-ences.56 Baldwin fn. 0) and Lavergne fn. 0) do notfindmuch nfluence xercised ythesevar-iables,butThomas Pugel and Ingo Walter, U.S. Corporate nterests nd the PoliticalEcon-omy of Trade Policy,"ReviewofEconomics nd Statistics7 (August i985), 465-73,do findmultinationalityo be an important rake on protectionistreferences.57Lake (fn.9), chap. 5, p. 8 and Table 5-I.


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TABLE 2THE INDUSTRIES, THEIR PREFERENCES, AND POLICY O

InternationaliesMultinationalExport andGlobalDependence Intrafirmrade Industry Expectedreferences AcLow Low Woolens, 920s Protectionist Prot

Watches ndClocks, Protectionist Prot1920sFootwear, 970s Protectionist Prot

High Low TextileMachinery, Openmarkets, Divi1920s esp. broadMachineTools,1970s Openmarkets, Freeesp. broad i


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Low High Newsprint,920s Selective rotection, Freeif nyTires,1970s Selectiverotection, Freeif nyWatches Clocks, Selective rotection, Divi1970s if nyRadios&Television Selective rotection Somsets, 970s

High High Fertilizer,920s Freetrade FreePhotoEquipment, Freetrade Mod1920sSemiconductors,970s Freetrade Free


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368 WORLD POLITICSning n the ate i96os, when shoeimports egan flooding he U.S. market,the industry association-backed by almost all of the producers-launched a campaign to obtain tariff rotection.6' fter he early 197os,theassociation and the firms ursuedthisgoal with ncreasing ntensity.The association filednumerous tradecomplaintswiththe .T.C.; it lob-biedCongress forhelp and formed coalition fcongressmeno promotethe ndustry's ause; and it auncheda publicrelations ampaign to gen-eratepublicsupport.These activities orcedPresidentCartertonegotiatevoluntaryexport restraintswith several East Asian competitors; venthoserestraintswere not restrictivenough formanyof the firmswhosoughtglobal quotas. By the early i98os, however, the industry's nityover trade mattersbegan to decline. A growingnumberof producersstarted ooppose renewedprotections theybeganimporting rproduc-ing offshore. his oppositionweakened theassociation's ppeals forhelpand contributed o itsmore limitedpoliticalsuccess since then.Overall,the firms'waxing and waning protectionistemandswere relatedtotheleveloftheir nternational conomic ties.By contrast, arge multinationalswith extensive nternational radeflows nd exportsfrom heUnited States voidedprotections a solutionto their mport problems largelybecause of the costly ffects t wouldhaveon thefirms' lobal operations.U.S. fertilizerroducers nthe 920Sand the semiconductor roducers nthe1970s werecharacteristic.ytheearly 1920S, forexample, the large fertilizer roducerswere highlyex-port-dependent nd multinational.Despite theireconomic problems,they preferred reer rade.62n the 1921 tariff earings, hey requestedand receivedthe retention ftheduty-freetatus f theirproducts.Dur-ing theSmoot-Hawley hearings, hispreference revailed mongmostofthefirms, lthoughcertainproducersadvocateddemanding protectionon certaingoods iftheydid notreceivetariff eductions n others.Thisstrategywas aimed at,and resulted n, greater pennessof theU.S. mar-ket,since no tariffs ere imposedon fertilizers,nd somewere reduced.Finally,throughout he 1920S, themajor producers-i.e., those with n-ternationaloperations-opposed the demands of some small domesticproducersforhighertariffs n various fertilizerroducts. n general, heinternationallyrientedfertilizermanufacturerswantedto preserve heU.S. market'sopenness and, despitemountingforeign ompetition, p-posed attempts o erectnew barriers round it.During the 1970s, the American semiconductorndustry acedseriouscompetition orthe first ime.The largest irmsn this ndustry-I.B.M.,

6, Ibid.,300-19. 62 Ibid.,244-70.


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INDUSTRIES FOR FREE TRADE 369Texas Instruments, nd Motorola-had widespread foreignoperationsand intrafirm rade flows,while the remainderwere moredomesticallyoriented. Most of the firmsfavored trade liberalization hroughout he1970s; despite risingforeign ompetition, emands for id or protectionwere nonexistent eforethe ate 1970s.63Later in thedecade, thesmallerfirms, nited nthenew SemiconductorndustryAssociation S.I.A.), be-gan formulating tradecomplaint gainst Japan.Due to theoppositionof the arge firms-mainly I.B.M. and T.I. thiscomplaintwas not for-malized at the time. nstead, .B.M. joined theS.I.A. and helpedturn tsattention owardnegotiationswith Japan over further ariff eductions.These negotiations, mpelled bythe ndustry, esulted n lower tariffs orsemiconductors; thernegotiations,oopen theJapanesemarketfurther,continued s well. In the early 98os, however, he S.I.A. and some firmswithin he ndustry iled everaltradecomplaints gainsttheJapanese, sdid theReagan administrationtself.64 hese complaintsresulted n in-tensifiedfforts oopen theJapanesemarket nd ina pacttoregulate x-port pricesofJapanese emiconductors,whichwas intendedto alleviateillegal dumping. On the whole, however,American firmsresistedthestrongpressuresforprotection; heir nternational conomicties madeprotectioness desirablethan the furtherpeningofmarkets t home andabroad.Like thesetrade-orientedmultinationals, irmswithextensive xportdependence (but notmultinationality)endedto avoid protectioniste-mands in times of difficulty. xamples are the U.S. textilemachinerybuilders n the 1920S and machine toolmanufacturersn the 1970s. Theformer,while having significant xport dependence in the aggregate,were divided: theproducersof cottonmachinery ad become substantialexporters ince World War I, while thoseof woolenmachinerywere stilldomestically riented.65his division, s well as thenoveltynd volatilityoftheproducers'exports, endered he ndustry nable todevelopa uni-fied tradepolicy preference.n theearly1920S, whenexportswere mostsignificant,heproducersdid not obbyCongressfor ny changein theirtariffs espitesevereeconomic distress nd rising mports.Over the dec-ade, theexport nterests f some firms eclined,and so did thecapacityof these firms to forestallprotectionist emands. In the 1929 Smoot-Hawley hearings,firmsfrom the woolen machinery ectorpressedforand received moderate tariff ncreases on theirmachines; the more

63 bid., 343-71.64BostonGlobe,April 13, 1986, Businesssection, p. A-i, A-9; Wall Street ournal,MarchI2, i986, p. 7; Wall Street ournal,March31, i986, p. 2.65 Miner (fn.58), I90-2I5-


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370 WORLD POLITICSexport-orientedirms emained ilent. ven though heywere besiegedbyimports, hese exporters efrained romdemanding protection ormuchof the decade and remainedmoderate nd dividedintheir aterrequests.

The Americanmachine tool builderswere sizable although decliningexporters n the 1970s. During thisdecade, theseproducers ostmajormarket shares to importsand experiencedother economic difficulties.Their response, however,was not a resortto demands for protection;rather,the industry ssociation backed by most producers favoredtariff eductionsduring the GATT negotiations nd lobbiedCongress toobtainaid for theirexports.66n particular, he builders wantedto openmajor foreignmarkets-especially thoseof the Soviet Union and otherEasternbloc countries.Bythe ate 1970s, thefailure f theseexport niti-atives, hecontinuing ecline of the ndustry's xport rade, nd the risingimport idepushedsomeinthe ndustryoseekrelief rommports. res-sure forprotection ose in the ate I970s; but twas notformalized nto apublic complaint until the early i98os, when the tide of importsover-whelmed the firms'exports.The Reagan administration esponded tothis trade complaint against several countries' imports-mainly Ja-pan's-by negotiating set ofvoluntary xportrestraints.67he case ofthe machine tool buildersthus howshowsizableexport ependencemaypromote an interestn freer rade and dampen pressuresfor protectioneven when imports surge. But, when the firms' xportorientation e-clined,their radepreferenceshifted s well.Industrieswith firms hat had foreignproductionbut no intrafirm rexporttrade showed some resistance o protectionwhen importsgrew,butitwas oftenweaker thanthatofexport-orientedndustries. n manyofthese ndustries, rowing foreign ompetitionwasmetbycalls for im-ited protectionbecause the costs of thisprotection ould be minimized.Two examples are the Americannewsprintproducers n the 1920S andU.S. televisionmakers in the I970s. Newsprint producers n the 1920Swere multinationalbut had onlyminorU.S. exports.Their foreign p-erationswere concentrated lmost exclusively n Canada; fromthere,theyexported heavilyback to theUnited States.The industry hus hadsubstantialntrafirmrade.Throughoutthe1920S, thenewsprint roduc-ers actively supportedfreer rade of theirproducts, nd did not trytohave the duty-freetatus of newsprint ltered n eitherthe 1921 or the1929 tariff evisions.68n 1921, several manufacturers id attempttomake their status conditionalon other countries'treatment f imports

66 bid.,20-42.67NewYorkTimes, ebruary , i986, p. D-2; New YorkTimes,March6, i986, p. D-3.68 Milner fn.58), 271-97.


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INDUSTRIES FOR FREE TRADE 371and exports.But thisstrategicmaneuver was distasteful o manyfirmsand was neveradoptedas partofU.S. policy.As their radebetweenCan-ada and the U.S. grew in the 1920S, interestn protectionwaned evenmore. During the Smoot-Hawley tariffrevision,when most tariffsreachedtheirhighest evelsever,thenewsprintmanufacturers niformlysupported hecontinuing uty-freetatus f theirproducts.Not even ris-ing imports could induce these international roducersto think aboutprotection.American televisionmakers had someforeign perations nthe 970s;but,unlike the newsprintproducers, heywere notvery rade-oriented.The industrywas,infact, ivided ntwo: the argestproducers,RCA andGeneral Electric, were multinationalswith global trading operations,while the rest, ncludingZenith, Magnavox, and GTE-Sylvania, weredomesticproducers. n the1970s, imports tarted ouring ntotheUnitedStates, nd thedomestically rientedfirms,ed byZenith, nitiated se-ries of trade complaintson severalspecificproducts, argeted gainst afew East Asian countries.69hese complaintsmet withvarying uccess,buttheywereopposed by RCA, the ndustry's iantmultinational. ythelate 1970S and early 98os, much of thisprotectionistctivity ad abatedas thedomestically rientedAmerican firmsmoved production broad,left heindustry,r wereboughtby foreignnterests. his internationaladjustmentprocesseroded supportfor ven the imited, electiveprotec-tion that ome had desired earlier.In all of thesecases, then,theexistenceor creationofextensive nter-national economic tiespromptedfirms o resist eeking protection venintimesof severe mport ompetition. onversely,he ackor oss of theseties was associated withrisingdemands forprotection. his pattern c-curred bothin the 1920S and the 1970s. In bothdecades, increased nte-gration into the international conomy was experienced similarlybyfirms n spiteof theirdifferent istorical ontexts.This patternhelpstoexplainthe varied natureof tradepolicywithin ach timeperiod.At eachpoint, ndustries hat were dominatedbyfirmswithextensive nterna-tional ties were lessprotectionisthanthosethatwere not.In addition to accountingforvariation n preferences ithin ach pe-riod,theargument nd the casessuggestwhytradepolicyvaried betweenthetwo periods.On a macro level, theevidenceimpliesthat n periodslike the 1970s, when such international conomic ties rewidespreadandwell-developed,pressureforprotection y ndustrieswillbe reduced.Althoughthegrowthof international iescontributed o themainte-

69 Ibid.,372-96.


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372 WORLD POLITICSnance ffree raden the1970sand early 980s, tmust e noted hat heinternationalizationf U.S. industry enthand nhand with rade ib-eralizationnthepostwar eriod. he liberalizationftrade n the1950Sand i960s was one factor romotinghegrowth fthese nternationalties.Butmuchofthis xpansion ad occurred eforehetwomost ig-nificant eductionsn tradebarriers. .S. export ependence,ndespe-ciallyU.S. multinationality,adgrown ignificantlyeforehephasinginoftheKennedyRoundtariffuts n the arly 970s.America'sndus-trial xport ependenceexportss a percentf totaldomestic roduc-tion)rose33 percent etween960 and 1970,while hevalueofU.S. di-rectforeignnvestmentn manufacturingncreased early oopercentbetween 950 and 1970.70The growth f thesenternationalies annotbe separated romhe iberalizationf trade ccurringt the ametime.But,since ndustries ith nternationalies were n place prior o the1970s,they robablyontributedo the iberalizationhat ccurred ur-ingthatdecade. n any case,bythe1970Sthereweremanymorefirmsthatwerewilling o resist rotectionistressures.espitehigherevels fimport enetration,emandsforprotection ere esswidespreadhanthey ad been n the 920S. Thisprovides partialnswer o our centralpuzzle.

INDUSTRY DIVISIONS, CONTEXT, AND POLICY OUTCOMESThe argument aises hree urtherssues.The first ealswith ntra-industryivisionsn tradessues.Onenotable eaturef hegrowingn-ternationalizationf U.S. industries as been its uneven character.

Within n industry,omefirms usually he argest have become n-ternational,hile he maller neshave ften emainedependentn thedomesticmarket. his differenceastended odivide ndustriesn tradepolitics: patternf argemultinationalspposing hemorenumerousbut maller omestic-centeredirmss evidentnthe ases.Two consequencesfthispolitical ivisiontand ut.First, t makesdevelopingn industry-widetanddifficult.s seen n thetextilema-chineryase, nternalivisionsreated ydifferentnternationalnterestscan eavean industry ithout he apacityodevelop political ositionon trade. econd, he ttemptocreaten"industry"ositionna dividedindustry ay eadto thefashioningfcompromiseshat re not s pro-

7- Consistentdata serieson exportdependenceand multinationalitys a percent fGNPfrom1945 on are not available. The exportdependencedata come fromReport f the Presi-dent's Commission fn.46), 36. The data on directforeignnvestmentome fromFeldstein(fn.7), Table 3.30, p. 240.


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INDUSTRIES FOR FREE TRADE 373tectionist s the majority f firmsmay prefer, s was evident n the semi-conductor case. Both resultsmay reduce protectionist emands evenmore than the extentof internationalization f the industrywould sug-gest. Thus, the creation of these intra-industryivisions through un-evenly rising nterdependencemayfurther educepressures or protec-tion.In the i92os, these internaldivisions were less apparentthan in the1970s, because internationalizationwas less widespread.71Moreover, x-isting divisions tended to be only the initial breach in an industry'sunity-a consequenceof recent nternationalization. he textilemachin-ery ndustry s a good example. Thus, intra-industryivisions, nothercounterweightoprotectionistressures,werealso weakerin the 92os.Second, contextualdifferencesetween the two periodshave been al-legedto undercut nycomparisonbetweenthem.72 utcontextual iffer-ences did not override the powerful nfluence hata firm's nternationalpositionexertedon its tradepreferences.n bothperiods, nternationallyorientedfirmsopposed protectionistolutions to theirproblems. Thisfinding uggeststhatthe broad differences etweenthe two periods-e.g., n macroeconomiccircumstances, olitical tructures,nd economicideology-did not greatly ffect heway firms alculated their prefer-ences.The similaritiesnpreferencesn thetwoperiods mply hatfactorsdifferentiatinghe two timesmayhaveonlya minor mpacton demandsforprotection yindustries t anytime.Moreover,firms ftendid not take these contextualfeatures s given.In bothperiods,some firmsworked to alter domesticpolitical tructuresresponsiblefortradepolicy. n the i92os, forexample,several ndustriesattempted o make U.S. proceduresmore free-trade riented, pposingthe American valuation plan and supportingflexible ariff rovisions;other ndustries,ncludingthedomestically rientedwoolen goods one,took the opposite stance.73n the 1970s, those footwear nd televisionmanufacturerswho pursued protection obbied to change U.S. proce-dures in orderto make them moreopen toprotectionistutcomes. Thisinvolved efforts-most of which were successful-to loosen U.S. tradelaws and to shift heir nforcementoagenciesmore favorable o domes-tic industry.74ertain contextualfeatures,uch as the domesticpoliticalprocessfor rade ssues,maythusnot be exogenous;rather,hestructures

7- Milner fn.58), chap. 8.72 For example, ee KennethA. Oye, "The Sterling-Dollar-Francriangle:Monetary i-plomacy 929-1937," World olitics 8 (October 985), 173-99, at 199.73 Milner fn.58), chap. 4.74 Ibid., chap. 5.


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374 WORLD POLITICSin which firms re assumed to operatemay be responsive o the nfluenceof firms.A final ssue involvesthe questionof trade policyoutcomes. have fo-cused more on explainingfirms'preferences han on policy decisions.The influence f suchpreferencesn policyoutcomeshas beenlargely s-sumed. The cases presentedhereprovidesupportfor his ssumption. nalmostall of thecases,the ndustries' emands forprotection r forfreertradehad someeffectpon policy.75 (See Table 2.) First,n noneof thecases were industries ccorded protectionwhen theydid not demand it.This suggests hatthe ssueofprotectionwas usually placedon thepolit-ical agenda bythe industries hemselves. econd, industries esiring hemaintenance of low trade barriers r reductions f restraintswere suc-cessful n all the cases, as the fertilizer, ewsprint,nd semiconductor n-dustries how.Thus, no systematic iasagainst ow or reduced tradebar-riers ppears to have existedeven in the 1920S.Finally, ndustries eeking ncreases n trade barriers lso tended to besuccessful.Where an industrywas divided, however, tscapacityforef-fective olitical nfluencewas reduced, s exemplified ythe imited uc-cess of thedomestically rientedtelevisionmakers n the 1970s. In con-trast,where industrieswere united n favorofprotection,heygenerallyreceived t. This was true for ll cases in the 1920S and for ll but two inthe 1970s. Althoughthefootwearproducersfailedthroughout heearly1970S to have new tradebarriers rected, heir ffortsmet with some suc-cess in the late 1970s, when theCarteradministration egotiatedvolun-tary xportrestraints or hem.Likewise,theearly ffortsf the machinetool builders in the late 1970S and early 98os failed to produce any re-sponse fromthe government.By the mid-ig8os,however,the Reaganadministrationwas pressing he ndustry'sase andnegotiatingxportre-straintswithforeign overnments.In neitherperioddid industries lways get exactlywhat theywantedwhen theywanted it. But theirdemands tendedin timeto move policyin the desired direction.The greater ifficultyhat ndustriesxperiencedinattaining heirdemandsforprotectionnthe1970S mayreflect oththegreater warenessamong industrynd government fficials f the nter-nationalproblemscaused by protectionnd the more imitedresponsive-ness to domesticpressures f the executive now incontrol f more tradeissues) as opposed to Congress (whichplayeda largerrole in the 1920S).Some bias in the tradepolicy ystemgainstprotectionppearsevident n

75Ibid., ee casesand chap. 8.


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INDUSTRIES FOR FREE TRADE 375the I970S. Unlike firms' referenceshen, radepolicyoutcomesmay de-pend more on factors hat differedn the two contexts, uch as policy-making structuresnd ideology.In bothperiods, ndustrieswereable overtimeto realize tradepoliciesclose to theones theydesired. Thus, theirpreferenceseemedto count nthe policy process. Otherinfluences n trade policy, uch as theinterestsof labor or the ideologies of decisionmakers,were also likelyto be im-portant.The evidence presentedhere simplyshows that, by itself, e-duced interestn protection yinternationallyriented ndustriesn theI970S was one important easonfor he resistance o protectionismn theUnited States.

CONCLUSIONWhydid trade policyoutcomesdiffer etweenthe 920S and the 970Swhen a number of conditions nfluencing rade politicswere similar?Why was protectionism esisted n the I970S when economicdifficultieswere severeand U.S. hegemonywas in decline? While notingotheran-

swers to thispuzzle-such as the influence fthe nternational istribu-tion ofpower, nternational egimes, nd domesticpolitical tructures-I maintain thataspectsofrising nternational conomic nterdependencein the post-WorldWar II period led to changes n the tradepolicypref-erencesof domesticactors.Rising interdependencemeant, n part,thegrowthof firms' iesto the nternational conomythrough xports,mul-tinationality,nd global intrafirmrade;becauseoftheseties,protection-ism had become a more costlypolicy.The new interdependencemadeprotectionism less viable optionformanyfirms acing erious mportcompetition. onsequently, tdampened the demand forprotection.Examinationof a setof industries rom he I920S and I970S supportsthecontention hat nternationallyrientedfirmswere less likelyto de-mandprotection han weredomestically riented nes,even ifboth facedhigh levels of importpenetration.The cases also pointedto the impor-tance of firm-level nalysis. nternational iesconditionedfirms'prefer-ences,and divergencesn thesetieswithin he ndustryreated mportantpoliticaldivisionsover trade.These intra-industryivisions lso helpedtodampen pressuresforprotectionism.Differencesn the historical ontextbetweenthe 920S and I970S didnot overridetheargument.Despite differencesn the internationalnddomesticstructures,nternationallyrientedfirmsn bothperiodswerelessprotectionisthantheirdomesticcounterparts.n fact, eatures ften


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376 WORLD POLITICSconsideredontextual ereresponsiveo influenceyfirms.Moreover,trade referencesmong hefirms xaminedmattered.olicy utcomesoften eflectedhedesires ffirms. hus,reduced emand or rotectionin the 970S maybe one important,utnottheonly, easonwhyU.S.trade olicy ifferednthe woperiods.

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