"Historical Aspects of U.S. Trade Policy "

Douglas Irwin of Dartmouth summarizes his research into the history of U.S. trade policy in the Summer 2006 issue of the NBER Reporter: Historical Aspects of U.S. Trade Policy .

Did high tariffs after the Civil War give U.S. "infant industries" an opportunity to grow, and contribute to U.S. development?  The questions are important, because many developing countries now justify high tariffs partly on an "infant industry" basis, and point to high 19th Century U.S. tariffs as a precedent.  His research sheds some light on the impact in the U.S.:

Were protectionist policies essential for domestic industries after the Civil War? In the case of pig iron, high import tariffs may have helped those producers, but they harmed other manufacturers who needed access to cheap iron to produce other products, such as machinery and bridges. One justification for the tariffs is that they promoted the growth of infant industries. I examined the case that has been heralded as possibly the best example of infant industry protection: the tinplate industry, which produces thin sheets of iron or steel that have been coated with tin. Although the tinplate industry is an obscure one, it is unique because, unlike most manufacturing industries, it did not receive significant tariff protection after the Civil War, apparently because of a mistaken interpretation of the tariff code. Left without adequate protection, there was virtually no domestic production prior to 1890. The McKinley tariff of 1890 substantially raised the duty on imported tinplate to encourage the entry and growth of domestic producers. The act also contained an unusual provision in which the tariff would be completely eliminated in six years if, by that time, domestic production did not amount to at least one-third of imports. The tariff succeeded in promoting domestic production and output rapidly expanded, and by about 1910 the price of U.S. tinplates fell below those produced in the United Kingdom.

The tinplate example has all the elements of an apparently successful application of infant industry protection. But in asking the counterfactual question - would the industry have developed anyway, and were the tariffs worthwhile? - I answer yes and no. My analysis suggests that tinplate was not an "infant industry" that floundered because of the lack of previous production experience (learning by doing), but rather an industry in which domestic production was not profitable because of the high domestic cost of iron and steel inputs attributable to tariffs. The tinplate industry suffered from negative effective protection due to the existing tariff structure; while a second-best optimal tariff could have corrected that distortion, and improved welfare, such an optimum was not imposed. In the absence of the McKinley tariff, the U.S. tinplate industry would have established itself about a decade later as the material input costs of iron and steel converged with those in Britain. Over this time horizon, the McKinley duty fails to pass a cost-benefit test.

Were high import tariffs somehow related to the strong U.S. economic growth during the late nineteenth century? One paper investigates the multiple channels by which tariffs could have promoted growth during this period. I found that 1) late nineteenth century growth hinged more on population expansion and capital accumulation than on productivity growth; 2) tariffs may have discouraged capital accumulation by raising the price of imported capital goods; and 3) productivity growth was most rapid in non-traded sectors (such as utilities and services) whose performance was not directly related to the tariff.

Comments

[Richard Baldwin]

Manufacturing in the 19th and 18th century was very different; now you cannot make anything unless you make everything or import many components.