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Prelude to Trade Wars: American Tariff Policy, 1890-1922

Author(s):Kaplan, Edward S.
Ryley, Thomas W.
Reviewer(s):Aaronson, Susan Ariel

Edward S. Kaplan, American Trade Policy, 1923-1995. Westport, CT: Greenwood Press, 1996. x + 176 pp. Bibliography and index. $55.00 (cloth), ISBN: 0-313-29480-1

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Edward S. Kaplan and Thomas W. Ryley, Prelude to Trade Wars: American Tariff Policy, 1890-1922. Westport, CT: Greenwood Press, 1994. 160 pp. Bibliography and index. $49.95 (cloth), ISBN 0-313-29061-x.

Reviewed for EH.Net by Susan Aaronson, Department of History, University of North Texas and The Brookings Institution

Trade is where foreign and domestic policies meet. Consequently, the development of trade policy is fraught with controversy–between nations; between the affected interests and policymakers; between Congress and the Executive Branch; and between government agencies that negotiate and administer trade protection and agreements. Edward S. Kaplan’s new book, American Trade Policy, 1923-1995 promises to address some of that complexity. Kaplan is to be commended for attempting to tackle the morass of U.S. trade policy. Regrettably, his book falls short.

Kaplan relies on a few secondary sources, not primary sources, and thus, he provides an incomplete understanding of the politics and economics of trade policymaking. For example, rather than examine the Congressional Record or Congressional hearings, he relies on The New York Times (and no other papers) to describe the development of trade policy legislation. He consistently cites the same four secondary sources for his analysis of trade policy and ignores prominent analysts of trade such as E. E. Schattsneider (Politics, Pressures and the Tariff,New York, 1935) and John Jackson (The World Trading System: Law and Policy of International Economic Relations, Cambridge, MA, 1989). He does not review government reports for statistics or history (such as the Annual Report of the U.S. Tariff Commission on the Trade Agreements Program), speeches of the Presidents, or speeches or reports from the U.S. Trade Representative.

U.S. trade policy has always reflected freer trade and protectionist sentiment. Even during the supposed “glory days” of U.S. leadership of free trade, the U.S. protected some sectors. Kaplan seems to miss this crucial point because he oversimplifies the process by which trade policy is made. The nature of such protection as well as its endurance depends on the state of the economy, politics, and culture.

In contrast with many other nations, authority for U.S. trade policy is divided. The President has power to control foreign policy, but under the constitution, Congress has the power to regulate international commerce and to tax. Some special interests benefit from open markets and others benefit from protection. As a result, America has always had a bifurcated trade policy, with efforts to liberalize trade coexisting with protection. Finally, given the many interests concerned about trade, some protection is necessary to “buy” political support for freer trade measures. This has been true since 1789. Why is such protection necessary? Because trade can create both winners and losers. Those who are hurt may deserve temporary protection, despite the costs to consumers and taxpayers. Such protection is accepted by GATT law and considered appropriate.

Kaplan believes that the Clinton Administration is protectionist and negating U.S. leadership of global efforts to free trade. In his view, “U.S. trade policy in 1995 has come full circle since the protectionist 1920s.” This thesis is flawed because Kaplan does not understand modern modes of protection. Is the Clinton Administration really more protectionist or is it harder to reduce the types of protection nations rely on today?

In the first five decades of the twentieth century, nations relied on border measures (tariffs, exchange controls, quotas etc..) to protect. These border measures are overt and were easily reduced in the first eight GATT rounds. As a result, today tariffs in most GATT members are relatively low. Ironically, GATT’s very success may have encouraged nations to rely on “covert” trade barriers (domestic measures) such as subsidies, government procurement policies or regulation in recent years. Because these administrative measures are domestic policies, it is hard to determine whether nations use such regulations with the intent to discriminate against foreign producers. Under 301 trade legislation, when the President confronts such trade barriers, he is required to investigate and sometimes to punish protectionist nations with retaliatory protection in the United States. Kaplan fears that America (because of Super 301) appears less disposed towards multilateralism and is “moving from a multilateral trade approach within the WTO to a unilateral one under which it threatens countries like Japan with tariff increases for failing to open their markets” (p. x). Had Kaplan read primary sources or Susan Schwab’s Trade-offs (Cambridge, MA, 1994) he would understand that the Clinton Administration is reluctant to use these powers, nor did it call for them.

A more careful review of the history of Uruguay Round negotiations and enabling legislation shows that both the Bush and Clinton Administrations have tried hard to broaden the rules that govern trade to include corruption and labor standards, and to complete negotiations to bring new sectors into the GATT/WTO system such as services and agriculture. This is not a protectionist record. Ironically, Jesse Helms, Pat Buchanan, and other noted protectionists frequently complain that the United States under Clinton is too supportive of multilateralism. The author ignores the Clinton Administration’s push to expand the North American free trade agreement (NAFTA); its continued leadership of global efforts to free trade; its unwillingness to cite many nations (from Argentina to India) under super 301; and its attempts to bring non-WTO members into membership (such as Saudi Arabia, China, Ukraine, and Russia). Finally, instead of relying on domestic tools to protect, the Clinton Administration seems to be relying on international tools. The U.S. is using the dispute settlement mechanism of the WTO. From January, 1995 to July, 1996, the U.S. has invoked dispute settlement in 16 cases, more than any other country in the world.

Writing a history of tariffs is a daunting task. It is hard to make it interesting. Dr. Kaplan has also teamed up with Thomas W. Ryley in an earlier book on the history of tariff policy, Prelude to Trade Wars, which does a good job at describing the politics of trade policy without being dry. The book is especially good at explaining the background of the participants and how they came to their positions. Unfortunately, the authors rely principally on secondary sources to make their case. Consequently, they are making their arguments based on the strong (or weak shoulders) of others rather than their own extensive research.

For example, describing the Emergency Tariff Act of 1921, the authors write “to all appearances in 1914, the country desired a moderate tariff bill.” To prove their point they cite one article in the American Economic Review, written in 1923. That would not convince most historians that is what the country desired.

The analysis is hampered by sloppy writing and inadequate argumentation. For example, “The McKinley Tariff … was the first of a number of tariff bills that raised duties to their highest levels in U.S. history.” Which one was the highest? All of them? Moreover, the title is a shocker. Which trade wars are the authors talking about? In the 20th century, when did the U.S. go to war over trade? The very term “trade wars” gives one the sense that trade is a zero sum game, a competition. A more plausible assumption is that entities trade because they think they can both gain.

The authors’ contribution is strongest in political history. (Ironically, the authors write for a series called Contributions in Economics and Economic History.) For those interested in the politics of American tariff making in this period, they provide a decent read. But to understand U.S. trade policy, one must understand the social, technological and economic environment, as well as the political environment..

Those readers who want to gain a better understanding of the complexities of the history of U.S. trade policy should look beyond these two books. Good books with very different perspectives include Thomas Zeiler’s American Trade and Power in the 1960s (New York, 1992); Alfred Eckes’s Opening America’s Market: U.S. Foreign Trade Policy since 1776 (Chapel Hill, NC, 1995); I.M. Destler’s American Trade Policies: System Under Stress (Washington, DC, 1995); G. John Ikenberry et al, The State and American Foreign Economic Policy (Ithaca, NY, 1984); William Becker and Samuel F. Wells, eds., Economics and World Power: An Assessment of American Diplomacy since 1789 (New York, 1984); Susan Aaronson, Trade and the American Dream (Lexington, KY, 1996); and John Dobson, Two Centuries of Tariffs (Washington, 1976).

Susan Ariel Aaronson Department of History University of North Texas and Guest Scholar in Economics The Brookings Institution

Susan Aaronson is also a regular commentator on Public Radio International’s Marketplace.

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Subject(s):International and Domestic Trade and Relations
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

Economics and the Historian

Author(s):Rawski, Thomas G.
Reviewer(s):Kiesling, Lynne

Thomas G. Rawski, ed., Economics and the Historian. Berkeley: University of California Press, 1996. xiv + 297 pp. Bibliography and index. $45.00 (cloth), ISBN 0-520-07268-5; $17.00 (paper), ISBN 0-520-07269-3.

Reviewed for EH.Net by Lynne Kiesling, College of William and Mary

Economic historians fill a peculiar, and sometimes uncomfortable, intellectual gap in the social sciences. In an ever-fracturing and increasingly compartmentalized scholarly environment, the economic historian may not find a welcoming, collegial home with either historians or economists; the notion of a truly interdisciplinary analysis is more rhetoric than reality for many scholars.

This volume of essays seeks to bridge the gap in the direction of historians. Arguing that economic analysis contributes a useful set of tools to historical scholarship, the eight economic historians writing these essays attempt to negate the stereotype of economic analysis as false quantification and so much mathematical esoterica. These chapters are well written, tightly argued, and should be of value both to the historian looking to learn more about the economic approach to history and to the economist looking for a clear presentation of the general methodological foundations of “historical economics.”

In his introductory chapter Thomas Rawski starts by observing how pervasive economic factors are, and were, in everyday situations, and that economists and historians ignoring each other is a two-way street:

“Even if man does not live by bread alone, economics lurks beneath the surface of any historical inquiry. The economist who hesitates to peek outside the confines of his models can overlook cultural influences on markets. Likewise the historian of labor, of agriculture, of trade policy, of elite politics, of the church, of international conflict, of the arts, of migration, ideas, industrialization, universities, technology, demography, or crime ignores the economic approach at the risk of losing important lines of explanation” (p. 1).

After noting the apparent enthusiasm of economists for the benefits of history, Rawski goes on to discuss briefly the ideas underlying basic economic models; by doing so he lays a foundation of understanding in the reader for the more sophisticated analyses presented in the subsequent chapters.

Rawski also wrote the second chapter, in which he discusses the analysis of economic trends. Historical analysis is especially suited to studying long-term changes in factors such as “economic welfare, distribution of income and wealth, degree of commercialization, patterns of cropping, organization of economic activity, [and] significance and functioning of various economic institutions” (p. 15). Getting to the heart of a common misperception that historians often hold concerning economic modeling, Rawski clearly points out that examining long-term changes in such factors is meaningless without putting the trend in its relevant economic context. Rawski then refers to the most common way to explore aggregate trends across time and across countries, national income accounts, and briefly explores the three areas of economic activity that national income accounts miss: household production, underground activity, and unrecorded costs. However, when we look at broad trends we are looking for general tendencies across time, and national income accounts give us an imperfect, but rather consistent, indication of these tendencies or trends. After a useful explanation of how national income accounts are derived, on both the expenditure and the output sides, Rawski also examines economic cycles and trends within them.

Jon Cohen then provides an interesting discussion of the role of institutions in economic analysis, a currently fruitful area of research in some fields of economics. Cohen defines institutions as “efficient ways of organizing human activity where markets alone will not suffice” (p. 60), such as the firm or the family. In the most basic, most restricted economic model of human behavior, all resources in the economy find their highest value use through the market, without any need for relationships beyond those stemming from market activity. Clearly, this simplistic model abstracts too far from the real relationships of life, all of which do have some economic component (even friendship does–when we spend time with friends and do things for and with them, we forego opportunities to do other things that might also be of value to us). Cohen focuses on the family, the farm, and the firm as institutions that work in conjunction with the market, in a more realistic model of human behavior. In the course of discussing why such institutions exist and what benefits they provide, Cohen highlights the property rights literature building on Coase’s work analyzing the existence of the firm.

Exploring labor economics and labor history, Susan Carter and Stephen Cullenberg creatively construct a dialogue between “Clio” and “Hades,” two professors of history and economics, respectively, on the relative merits of their methodologies. They first discuss social norms and market forces as determinants of female labor-force participation, subsequently covering the individual choice between work and leisure as the basis for most economic models of labor. Carter and Cullenberg reinforce what I perceive as the essential elements of this book: economic models are tools, nothing more, but they are useful tools because they may highlight relationships that might otherwise not have been obvious; these tools, as well as the tools of historical analysis, need to be used in context.

The fourth chapter, written by Donald McCloskey, focuses on the basic model of neoclassical economics and its emphasis on choice. Because economists emphasize resource scarcity, they look at human behavior in the context of individuals making choices facing a set of alternatives. McCloskey argues that (neoclassical, but I would argue all) economists “would urge the historian not to jump hastily to a diagnosis that peasants follow their plows by custom alone or that traders trust each other on grounds of solidarity alone…. Neoclassical economics, in other words, completes sociology and anthropology, because it studies a motivation unattractive to those fields: choice under constraint” (p. 123). Choice transcends markets and permeates nonmarket institutions, as Cohen’s chapter suggested. McCloskey’s articulation of the choice basis of economics also enables him to address a common misperception of economics–economics is not about money alone. Choices made and profits garnered need not be pecuniary. This focus on choice complements other historical approaches emphasizing, for example, culture.

Richard Sutch’s chapter provides a concise survey of macroeconomics, peppered with historical examples that highlight some benefits of aggregate economic analysis. He concludes that thinking in terms of a macroeconomic approach could be useful to the historian, even if he or she is not using aggregate economic data. Sutch clears up another problem area for non-economists–what exactly are inflation and unemployment, and how can we tell if they are present in our historical situation? Sutch also addresses the potential pitfalls of aggregation, fruitfully discussing the benefits of, for example, micro studies of real wages in 1830s Britain by region and by occupation, but reminding the reader not to commit the fallacy of composition. Just because handloom weavers in Lancashire suffered large declines in their incomes does not mean that all British workers fared poorly during the 1830s. Sutch also uses the tools of macroeconomic analysis to understand wartime destruction and postwar economic activity after the Civil War and World War II.

Next Hugh Rockoff tackles the thorny topic of money, banking and inflation. He structures his discussion as the tale of the development of money in a hypothetical economy, using examples from history to illustrate issues that arise as an economy becomes more commercial. He starts in medieval times with a gold-based money, moving on to explain how new discoveries of gold caused inflation. His subsequent explanation of the quantity theory of money and Hume’s price-specie flow mechanism is valuable to non-monetary economists as well as to historians interested in monetary history. Rockoff then discusses the rise of banking, usually starting with individuals “depositing” gold coins with their local goldsmith for safekeeping. As goldsmiths discovered that not everyone wanted all of their money back at the same time, they found that they could make money by lending out some of the deposits they held: thus the birth of fractional reserve banking. This development also meant that the goldsmith had an incentive to pay the depositor interest on his deposit, thereby creating a dimension on which goldsmiths compete for business. Rockoff also explores banking panics, fiat money and central banking, which require more sophisticated economic models and some attention to institutional detail.

The final chapter, by Peter Lindert, highlights the role of international economics in understanding the evolution of trade relationships through history. In the context of discussing international relations, Lindert emphasizes one of the basic tenets of economics–trade creates value, and both parties benefit. But that value is not distributed equally among the trading partners, and Lindert addresses the implications of that fact in terms of the development of trade restrictions (tariffs and quotas) and the evolution of trading relationships. In the final section of his chapter Lindert provides a discussion of the determination of exchange rates that I found extremely valuable, and much clearer than any other I’ve seen on the subject.

Every chapter in this collection provides valuable insights on the use of economic logic and modeling in explaining historical phenomena. I sensed no condescension from the authors toward the methodology of the historians among their readers; I sensed only respect and appreciation for good economic methodology, and an interest in sharing that enthusiasm with historian colleagues.

Lynne Kiesling Department of Economics College of William and Mary

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Subject(s):Development of the Economic History Discipline: Historiography; Sources and Methods
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

The Evolution of International Business: An Introduction

Author(s):Jones, Geoffrey
Reviewer(s):Taylor, Graham D.

H-NET BOOK REVIEW Published by H-Business@cs.muohio.edu (July 1996)

Geoffrey Jones, The Evolution of International Business: An Introduction . London and New York: Routledge, 1996. xii + 360 pp. Bibliographical references and index. Cloth, ISBN 0-415-10775-X; paper, ISBN 0-415-09371-6.

Reviewed for H-Business by Graham D. Taylor, Professor of History/Dean of Arts and Social Sciences, Dalhousie University, Halifax, Nova Scotia

During the 1960s multinational enterprises emerged as a focus of interest (and much controversy) both for economists and for the general public. Much of the literature of that era (leaving aside the important pioneering works of Raymond Vernon, Charles Kindleberger, and John Dunning) provided a very time-bound perspective on this phenomenon. Economists tended to treat multinationals as byproducts of post-World War II international financial integration and improvements in communications and transport technologies. To the broader public, in the United States and elsewhere, they were associated with U.S. economic expansion and indeed were perceived as reflecting a particularly “American” form of business organization.

Since that era, the international economy has changed dramatically: multinational enterprises became truly “multinational” as East Asian and European firms expanded (or, perhaps more properly in many instances, reappeared) in global markets and new cross-national “strategic partnerships” of firms emerged. During the same period, the historiography of multinational enterprise was vastly enriched by scholars such as Mira Wilkins, D. K. Fieldhouse, Peter Hertner, Shin’ichiYonekawa, and many others, who not only probed well into the pre-twentieth-century origins of multinational activities, but also linked their work with broader reinterpretations of the dynamics of business evolution and organization.

Geoffrey Jones has been very much a part of that international community of scholarship on multinationals, and in this book he has undertaken to synthesize that literature. Jones far too modestly designates the study as a “text book” or “introductory survey.” It is in fact a substantial contribution to our understanding of the historical significance of multinational business, broadly defined to encompass more than the conventional category of “foreign direct investment” (FDI). His book provides a needed overview of the global dimensions of this phenomenon and a coherent framework for analysis of major historical trends and central issues emerging from the literature.

Jones’s study opens with a review of the major interpretive approaches to analyzing multinationals, including concepts of ownership advantage, internalization/transaction cost, and Dunning’s “eclectic model,” all of which are well integrated into the historical chapters that follow. He also links the study of multinational evolution to the themes of organizational development associated with Alfred Chandler and the literature on the firm and national competitiveness.

This section is followed by a general overview of the major trends in multinational operations since the mid-nineteenth century, highlighting the distinctiveness of different periods in that evolution (1880-1914; the interwar period; the 1940s to 1960s; and the period since 1971). This periodization indicates both the continuities of growth of international business and the volatility of that history, reflecting shifts in external factors (“the business environment,” encompassing the impact of wars, shifts in global trade and monetary arrangements, nationalizations and other governmental regulatory measures) and consequent changes in the strategies of firms.

The next chapters review the role of multinationals in specific industrial sectors: natural resources, manufacturing and services. There is a certain degree of repetition in these sections, as Jones works through each period for the different sectors. But it is also clear that very different patterns can be discerned in the forms and motivations underlying international direct investment in each sector, as well as in the internal dynamics of firm organization, relations among firms, and between multinationals and governments.

The final chapters focus on particular issues that have emerged in the literature. These include: the variations among nations and cultures in the propensity of their business enterprises to engage in foreign investment; the relationship between foreign direct investment and economic development, in terms of both home economies (of the multinationals) and host economies; and the relationships of multinationals and governments.

Despite its relative brevity, this is a dense book that covers a wide range of topics relating to the history and theory of multinational business, each in a balanced but succinct manner. Consequently, it would be an oversimplification to suggest that it embraces a particular set of themes or line of argument. But there are certain general characteristics of the history that emerge from the study.

From the late nineteenth to well into the twentieth century, most foreign direct investment was focused on the development of natural resources, with some spinoff growth of ancillary services. Latin America and Asia were particularly notable recipients of this investment. FDI in manufacturing expanded slowly through the early twentieth century and more dramatically in the period after World War II, and the geographic center for such investment shifted to Western Europe. This trend in turn was overtaken by developments in the service sector (particularly in finance) in the past two decades, with East Asia and Western Europe, along with the United States, as major areas of investment activity.

Although there have been periods of single-country dominance in outward investment (the United Kingdom between the 1880s and 1914, and the United States in the 1950s and 1960s), perhaps more significant has been the consistent growth of multinational operations over the past century. As noted earlier, Jones’s approach embraces a range of international business activities. During the pre-World War I era, investment flows were tied to some extent to the “imperial” territories of various European nations (with regions such as Latin America becoming a battleground for European and American investors), and occurred through a peculiar (and primarily British) form called “free-standing companies” (local enterprises owned by foreign syndicates) as well as the more familiar home-and-branch operations.

In the interwar period, as national governments imposed a variety of constraints on international trade and capital flows, international cartels flourished, in part as a means of circumventing them. In the period since the 1970s, a new form of “strategic partnership” among firms of different nationalities has emerged, reflecting both the diverse origins of enterprises in global markets and the effects of financial integration coupled with the growth of regional trade blocs. In each era multinational businesses have altered their forms of operation to suit contemporary conditions, while sustaining a general trend toward growth and integration.

The strength of the book lies in its coherence, its ability to provide a clear framework for a complex process of development over a fairly long time-span. Some of this coherence might have been lost had Jones extended his analysis even further back in time, but it might have been a useful exercise to provide a broader historical perspective on the evolution of international business (as opposed to the evolution of multinational enterprise). Jones does devote a section of his chapter on “Multinationals and Services” to a discussion of the large international trading companies of the seventeenth and eighteenth centuries; but generally he focuses on the period after 1880, with an emphasis on improvements in technology (enhancing the internal management of firms in international markets) and financial integration, accompanied by nationalistic trade policies, in shaping a business environment congenial to multinationals.

But, as studies by Larry Neal (on international capital markets), James Tracy and Jonathan Israel (on the Dutch and British “merchant empires”), and Ann Carlos and Steve Nicholas (on the internal organization of trade companies) indicate, by the eighteenth century the international economy had developed strong financial and logistical links, and businesses such as the Hudson’s Bay Company and the East India companies were developing mechanisms for internal communication and management.

Jones’s chapter on multinationals and natural resources understandably gives pride of place to the “nonrenewable” resource sector (mining and petroleum) and does not ignore the “renewable” area. But a review of multinationals in the forest products industry could reinforce some of the points he makes in other contexts. As a capital-intensive industry, forest products (especially pulp and paper) has been a field with a number of multinational actors, such as the British firm Bowater, the Swedish Stora, the U.S. Weyerhaeuser, and Canada’s MacMillian-Bloedel. The intricate links between publishing companies and paper manufacturers in international markets provide another interesting feature of this industry, ranging from direct-investment ventures (such as the Chicago Tribune‘s Canadian pulpmills) to Bowater’s “strategic partnerships” in the 1920s-1940s (not without endless friction) with the British newspaper barons, Rothermere and Beaverbrook, to exploit the forestry resources of North America.

These are minor caveats, however, and do not detract from the general quality and significance of Jones’s study. As noted earlier, the book represents a well-organized synthesis of the state of the historiography of international business today, which at the same time can provide a basis for future research in the field, by identifying major lines of argument and the areas of uncertainty and controversy that still must be addressed.

Graham D. Taylor Dalhousie University

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Subject(s):Business History
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII