Transcript Powerpoint slides are available - Faculty Directory | Berkeley-Haas

The March of an
Economic Idea?
Protectionism Isn’t
Counter-Cyclic (anymore)
Andrew K. Rose
UC Berkeley, CEPR and NBER
Protection Isn't Counter-Cyclic
1
Summary & Objective
• Conventional Wisdom: protectionism is
counter-cyclic
– Tariffs, quotas, etc., rise during recessions
– Perhaps valid before WWI
• New Finding: Since WWII, protectionism has
not been counter-cyclic
– Tariffs, NTBs have been acyclic or even pro-cyclic
• Robust to measures of cycle, protectionism, …
Protection Isn't Counter-Cyclic
2
Why?
• Test and reject many potential reasons
– Exchange Rate Regime
– GATT/WTO
– Importance of tariff revenue
– Government size
– Income, openness, production fragmentation,
intra-industry trade, …
• Measurable national “Fundamentals” don’t
affect protectionism’s cyclicality
Protection Isn't Counter-Cyclic
3
Diagnosis of Exclusion
• Rise of Modern Economics may be responsible
for decline in cyclicality of protectionism
– Free trade: an area of strong consensus
– This is especially true in business cycle context
– Don’t Protect because of Recessions!
• Optimistic Conclusion: after reducing
cyclicality of protectionism, profession can
reduce level of protectionism further
Protection Isn't Counter-Cyclic
4
Quotations
• “Empirical studies have repeatedly documented the
countercyclical nature of trade barriers”
• Bagwell and Staiger (2003)
– Also cite eight papers which “all conclude that the average level
of protection tends to rise in recessions and fall in booms.”
• “That the average tariff level tends to rise in recessions is a
robust finding in the literature…”
– Rodrik (1995)
• “One very robust finding of the empirical literature on trade
protection is the positive impact of unemployment on the
level of trade barriers. The same pattern can be observed
across industries, among countries, and over time …”
– Costinot (2009)
Protection Isn't Counter-Cyclic
5
From Political Science
• “That tariff levels and economic growth rates
tend to move in opposite directions is a venerable
piece of conventional wisdom. As early as 1879,
Gustav Schmoller, the famous economist of the
German historical school, noted that, ‘The times
of boom, of increasing exports, of new openings
of overseas markets, are the natural free trade
epochs, while the reverse is true in times of
foreign slumps, of depressions, of crisis.’”
– McKeown (1984)
Protection Isn't Counter-Cyclic
6
More Quotations, 1
• “One feature of tariff policy is that tariff levels
tend to move in a cycle coupled with the
business cycle. Tariff barriers are lowered
during periods of relative prosperity, only to
be raised again during world recessions.”
– Cassing, McKeown and Ochs (1986, p. 843
Protection Isn't Counter-Cyclic
7
More Quotations, 2
• “The idea that there exists some relationship
between patterns of tariff legislation and a nation’s
economic health is by no means new… Empirically,
the hypothesis has been strengthened by the
identification of an inverse correlation between
levels of economic activity and protection.
Historically, prosperous periods have been
accompanied by free trade, and periods of
depression by closure.”
– Gallarotti (1985, p. 157)
Protection Isn't Counter-Cyclic
8
More Quotations, 3
• “It is generally agreed that in a modern industrial economy
the cyclical state of the economy and the country’s
competitive position internationally are the principal
determinants of the degree of protectionist pressure. Low
levels of economic activity, high unemployment, unused
capacity, … all operate to increase the temptation to protect
domestic industries from import competition.”
– Takacs (1981, p. 1987)
• “… as Bagwell and Staiger (2003) and others have established,
… there is an empirical presumption that import protection
rises during recessions … ”
– Bown and Crowley (2012, p. 2)
Protection Isn't Counter-Cyclic
9
Literature has Different Focus
• Normal focus of determinants and incidence of
protectionism is cross-sectional
– “Why do certain industries/areas/interest groups receive
protectionism, while others do not?”
• Grossman and Helpman (1994) a prominent example
– Many tests, including Goldberg and Maggi (1999)
• Focus here: time-series variation
– “How does protectionism respond to business cycle
fluctuations?”
• Hansen (1990, p 537) “Among quantitative studies, most
model the rates of duty in the cross-section, across
industries, usually in recent periods … Only a handful of
quantitative studies examine policy variations over time.”
Protection Isn't Counter-Cyclic
10
Literature: Counter-Cyclic
Protectionism before WWI
• Hansen (1990) “During economic recessions,
the federal government posted taxes [tariffs]
4.69 percentage points higher than it did
during expansions.”
• Gallarotti (1985) finds counter-cyclic
protectionism from pre-WWI data from
Germany, the UK and the USA
• McKeown (1984)
Protection Isn't Counter-Cyclic
11
Literature: Long-Term
• Magee and Young (1987): tariffs rise with unemployment
– Standard techniques, data from twenty twentieth-century American
presidential administrations.
• Bohara and Kaempfer (1991a) American data 1890 to 1970
– VAR : a) real trade balance; b) log unemployment; c) growth real GNP;
d) inflation; and e) growth rate of average tariff on dutiable imports.
– Find significant Granger causality to tariff levels from all variables
except the trade balance.
– Find impulse response functions “sensible” in the very short run
(higher unemployment/lower GDP associated with higher tariffs), but
reversed within a few years.
• Bohara and Kaempfer (1991b), same data, smaller VAR
– Find no significant effect of unemployment on tariffs
– Also, higher growth is associated with higher tariffs.
Protection Isn't Counter-Cyclic
12
Literature: Post WWII
• Takacs (1981), annual US data 1949-1979, USITC temporary protection
petitions
– Escape clause not correlated with cyclic/trend economic activity.
• Grilli (1988), 18 annual observations for EC and the USA 1969-1986, 1) log
import penetration, 2) petitions for anti-dumping, subsidy-countervailing
and safeguard actions
– Evidence of counter-cyclic movement in non-tariff barriers.
• Heavily parameterized approach, long on assumptions and short on sensitivity analysis and
data.
• Bown and Crowley (2012), bilateral quarterly data 1988-2010 on
antidumping cases, other measures
•
Focus: switch in behavior for foreign growth explains lack of protectionism in great
recession
• Knetter and Prusa (2003), multilateral and bilateral data for Australia,
Canada, EU and USA, 1980-1998, antidumping filings
– Focus: real exchange rate; find appreciation increases filings significantly.
– 3-year growth in real GDP insignificant multilateral effect, significantly negative in
bilateral.
• Feinberg (2005) finds similar results; more below
Protection Isn't Counter-Cyclic
13
Time for a Look
• Start with a long span of third-party data
• US Historical Statistics
– American tariff and unemployment
– Annual, starting in 1890 (unemployment)
– Updated through 2010 (USITC/BLS)
Protection Isn't Counter-Cyclic
14
Figure 1
60
American Tariff and Unemployment Rates
20
Tariff
40
Tariff
Unemployment
20 30 40 50 60
1890-1939
1933
0
0
1900
1950
2000
5
10
15
Unemployment
25
10 12 14
Tariff
0
20
4 6 8
60
Tariff
40
Correlation=.27
10
15
Unemployment
25
1950-2010
20
5
20
Correlation=.35
1890-2010
0
1932
2
4
6
8
Unemployment
10
Correlation=-.44
Duties, % Dutiable Imports (Sources: USHS, USITC); Unemployment, % Labor (Sources: USHS, BLS)
Protection Isn't Counter-Cyclic
15
Insensitive Result
• Annual data on American duties (as % dutiable
imports) from Census Bureau
• Annual real GDP
– NBER recessions marked
• De-trend both with univariate technique
(double-exponential)
– More techniques soon
– Adding 1946-49 increases contrast
Protection Isn't Counter-Cyclic
16
American Protection and Real GDP
1910
1960
40
20
Duties
0
Detrended Duties
GDP
1860
1854-1939
60
Duties/Dutiable Imports
11 12 13 14 15 16
Detrended GDP
2010
NBER recesssions marked
Correlation = -.22
After (Double Exponential) Detrending
1950-2010
Detrended Duties
Log Real GDP
Raw Data, 1854-2010
1860
Correlation = -.16
1910
1960
Detrended GDP
2010
Correlation = .00
Duties, % Dutiable Imports (Sources: USHS, USITC); Real GDP (Sources: USHS, BEA)
Protection Isn't Counter-Cyclic
17
Figure A1
(Non-Parametric Approach)
American Duties and NBER Business Cycles
Expansions, 1946-2010
0
0
.1
.05
.2
.1
.3
Expansions, 1854-2010
0
20
40
60
0
20
30
Contractions, 1946-2010
0
0
.2
.4
.02 .04
.6
.06
.8
1
.08
Contractions, 1854-2010
10
0
20
40
60
P-values for Equality=.00 (t-test); =.00 (KS-test)
0
10
20
30
P-values for Equality=.82 (t-test); =.80 (KS-test)
Histograms of Duties as percentage of Dutiable Imports (Source: Census Bureau)
Protection Isn't Counter-Cyclic
18
Figure A2
(Trade Restrictiveness Index)
TRI
GNP
1870
1869-1945
1890
1910
1930
.1 .2 .3 .4 .5 .6
Raw Data
Detrended TRI
Trade Restrictiveness Index
6
5
4
3
1898
1932
Detrended GNP
1950
NBER recesssions marked
Correlation = -.12
After (Double Exponential) Detrending
Detrended TRI
Log Real GNP
7
American Trade Restrictiveness Index and Real GNP
1946-1961
1946
1947
1948
1870
1890
Correlation = -.05
1910
1930
Detrended GNP
1950
Correlation = .31
Data Sources: Irwin, 2010 (TRI); Balke-Gordon/BEA (GNP).
Protection Isn't Counter-Cyclic
19
Widely Applicable?
• Figures share problems
1. Non-American data?
2. Non-tariff barriers?
• Hence world-wide filings of WTO disputes
– Imperfect: not all protectionism implies complaint
– Not all complaints equal in importance
– Non-random distribution across countries
– Note especially ‘Great Recession’ of 2009
Protection Isn't Counter-Cyclic
20
Figure 2
Global GDP Growth and Protectionism
6
80
6
-2
2
0
Growth
-2
0
2010
1980
1990
2000
2010
80
2000
4
60
40
20
4
2
NYT
-2
1990
NYT 'Protectionism' articles
1997
60
1995
40
1985
20
2009
0
50
40
30
20
10
0
2009
Growth
0
NYT articles
Growth
40
30
20
Disputes
1980
Disputes initiated
NYT 'Protectionism' articles
Growth
10
0
Disputes initiated
50
GATT/WTO Dispute Initiation
0
2
Growth
4
6
-2
Protection Isn't Counter-Cyclic
0
2
Growth
4
6
21
Other Measures?
• Examine trade and three trade barriers
• 1995 (start of WTO) through 2011
• TTBD (Bown): important, GATT-legal
– Anti-Dumping (much-analyzed) for 22 countries
– Safeguards for 48
– Countervailing duties for 9
– Trade
Protection Isn't Counter-Cyclic
22
Correlations:
One Strong, Most Weak
Global Trade, Barriers and GDP Growth, 1995-2011
A Dog that Barked in the Night, and Three that Didn't
400
0
300
2001
2009
0
2
World GDP Growth
4
-2
0
2
World GDP Growth
4
2002
1999
2009
2011
0
5
2000
10 15 20 25
Countervailing Duties (9 countries)
CV Duties
10 20 30 40
New Safeguards
Safeguards (48 countries)
2009
1999
2009
100
-10
-5
2001
-2
Anti-Dumping Actions (22 countries)
200
AD Cases
1995
5
World Trade Growth
10 15
Trade Growth (World)
-2
0
2
World GDP Growth
4
-2
Protection Isn't Counter-Cyclic
0
2
World GDP Growth
4
23
Note “Great Recession”!
• Most serious recession in generations coincides with
decline in AD and WTO trade disputes
– Similar to Eaton et al (2010), Kee et al (2011)
– But trade did collapse!
• Check with “Index of Trade Freedom”
– Component of Heritage Foundation’s “Index of Economic
Freedom”
– “a composite measure of the absence of tariff and nontariff barriers that affect imports and exports of goods and
services”
– Estimated annually, now available for 155 countries
• 0 (North Korea) to 100 (Hong Kong, Macau, Singapore and
Switzerland currently share the highest score of 90)
Protection Isn't Counter-Cyclic
24
Growth Rates
Average 2004-06; Corr=-.08
0
.5
20 40 60 80
0
15
100
Botswana
Djibouti
-30
2009-2004/06; Corr=.12
Libya
-20
-.1
0
.1
CF-detrended log real GDP
-15
2009; Corr=-.49
1
-15
0
15
2009-2004/06; Corr=.03
0
Libya
-20
-.1
0
.1
HP-detrended log real GDP
Djibouti
-.5
0
20 40 60
20 40 60
1
2009-2004/06; Corr=.17
0
Libya
0
-30
Libya
0
-1
2009-2004/06; Corr=-.00
Eq. Guinea
20
20
.1
1
80
80
60
0
Djibouti
20 40 60
-.1
.5
40
80
60
40
40
20
Djibouti
0
2009; Corr=-.23
80
100
2009; Corr=-.06
-.5
60
1
40
0
60
100
2009; Corr=-.44
-1
20
.1
20 40 60
0
Eq. Guinea
-20
Bahamas
-.1
20 40 60 80
Chad
100
Nigeria
100
Linear Time Trend
Average 2004-06; Corr=-.19
100
Christiano-Fitzgerald
Average 2004-06; Corr=-.08
100
Hodrick-Prescott
Average 2004-06; Corr=-.06
20 40 60 80
20 40 60 80
100
Annual data before and during the Great Recession, for 155 countries.
-20
Trade Freedom
Trade Freedom
Index of Trade Freedom against Business Cycle Deviations
-.5
0
.5
1
Time-detrended log real GDP
-30
ITF from Heritage Foundation; (log real) GDP from World Bank. SE of correlations=.08.
Protection Isn't Counter-Cyclic
-15
0
Growth real GDP
15
25
More Statistical Rigor
•
•
•
•
Graphs are bivariate
Dynamics ignored
Limited measures of protectionism
Limited measures of business cycle
Protection Isn't Counter-Cyclic
26
Panel Approach
LS Estimation (countries must have filed once):
Protectionit = {αi} + {βt} + γBCit + εit
• Fixed time, country effects always
– Controls to come
– Time effects unimportant (Table A2)
• γ: Coefficient of Interest
• Reduced Form
Protection Isn't Counter-Cyclic
27
Data
• 1995 (WTO starts) through 2010 (PWT7.1)
• EU countries aggregated
• BC: de-trend real GDP in five ways:
1.
2.
3.
4.
5.
Baxter-King filtering
Christiano-Fitzgerald filtering
Hodrick-Prescott filtering
Growth rates
Residuals from linear trend
Protection Isn't Counter-Cyclic
28
Ignore Simultaneity
• Larch and Lechthaler (2011) use Ghironi and Melitz (2005) model
– Show theoretically that various types of protectionism have small
(often negative) effects on output (real exchange rate appreciation)
– “While tariffs and non-tariff trade barriers increase domestic
production, they decrease exports through their effects on the real
exchange rate. The latter effect dominates the former and, thus, GDP
goes down.”
• Ostry and Rose (1992): theoretical effects of tariffs on output are
ambiguous theoretically and empirically negligible.
• Irwin (2011): “Throughout history, the business cycle has had a
greater impact on tariff policy than tariffs have had on the business
cycle. When the economy goes into a recession, politicians often
respond by raising tariffs… In sum, there are no strong theoretical
or empirical grounds for believing that higher average tariffs are the
principal case of business cycle downturns or explains.”
Protection Isn't Counter-Cyclic
29
Table 1: Responsiveness of
Protectionism to Business Cycles
BK
CF
HP
1D
Lt
Anti-Dumping
Cases (TTBD), 1978-
11.7
(12.9)
7.7
(12.2)
20.7
(11.5)
.03
(.09)
-3.8
(9.5)
Countervailing
Duties (TTBD), 1977-
-4.6
(2.8)
-14.9*
(6.7)
-3.8
(2.7)
.03
(.05)
-5.1
(4.7)
Safeguards (TTBD),
1995-
.3
(.3)
.6
(.3)
.3
(.3)
.003
(.002)
.1
(.1)
WTO Disputes Initiated
(WTO), 1995-
-1.6
(2.9)
1.2
(1.3)
-.7
(1.8)
.03
(.02)
.1
(.6)
Mean Weighted Applied
Tariff (WDI), 1988-
-7.5
(18.3)
-4.6
(12.1)
-8.3
(14.5)
-.02
(.03)
-4.5
(3.0)
Index of Trade Freedom
(IEF), 1995-
-7.8
(7.9)
-5.8
(6.8)
-6.9
(7.1)
.03
(.04)
7.4*
(3.5)
Protection Isn't Counter-Cyclic
30
Sensitive?
• Event Study Approach
– Focus on Deep Recessions
• Many other protectionist measures on LHS
– Many from WDI
• Can substitute unemployment on RHS
Protection Isn't Counter-Cyclic
31
Event Study: Serious Recessions
Protectionism around Deep Recessions
Means with (5,95) confidence interval
10
0
0
5
20
40
15
Countervailing Duties
60
Anti-Dumping Cases
-5
0
5
5
0
5
20 40 60 80
10 15 20 25
0
Trade Freedom
100
Applied Weighted Tariff
-5
-5
0
5
-5
0
5
327 Transitions from (growth>0, GDP above HP-trend) to (growth<-2%, GDP<2% below trend)
Protection Isn't Counter-Cyclic
32
Table 2: Other Measures of
Protectionism
Business Cycle De-trending:
Binding Coverage,
% products (WDI), 1995Mean Bound Rate,
all products (WDI), 1995% tariff lines at internat’l
peaks (WDI), 1988Customs Duties % GDP
(WDI), 1990Exports Taxes % Taxes
(WDI), 1990RTAs initiated/completed
(Moser-Rose), 1969AD+CVD+SA (TTBD),
1977-
BK
CF
HP
1D
Lt
-1.0*
(.4)
1.2
(1.4)
25.3
(13.6)
1.8
(1.5)
2.8
(4.6)
.1
(.1)
-5.0
(6.1)
-.8**
(.3)
3.8
(2.4)
16.9
(11.8)
1.8
(1.0)
-.4
(3.4)
.2
(.1)
-2.0
(3.4)
-.7*
(.3)
4.2
(2.4)
18.2
(11.0)
1.8
(1.3)
-.5
(4.6)
.1
(.1)
-3.2
(5.2)
-.001
(.002)
.02**
(.01)
-.03
(.08)
.02**
(.01)
-.03
(.04)
.001
(.001)
-.00
(.02)
-.1
(.1)
2.3*
(1.1)
3.9
(5.5)
1.5
(1.8)
2.5
(2.8)
.02
(.08)
-.7
(2.2)
Protection Isn't Counter-Cyclic
33
Table A7: Responsiveness of
Protectionism to Unemployment
Anti-Dumping
Cases (TTBD), 1978Countervailing
Duties (TTBD), 1977Safeguards (TTBD),
1995WTO Disputes Initiated
(WTO), 1995Mean Weighted Applied
Tariff (WDI), 1988Index of Trade Freedom (IEF),
1995-
Unemployment
Lagged
Unemployment
.5*
(.2)
-.0
(.2)
.03**
(.01)
-.04
(.03)
-.03
(.04)
.01
(.09)
.03
(.2)
-.17
(.15)
.02*
(.01)
.01
(.03)
-.01
(.04)
.01
(.08)
Protection Isn't Counter-Cyclic
34
Results Very Insensitive
•
•
•
•
•
•
•
Fixed Effects
Split by Country Income
Split by Country Size
Split by Time
Drop Outliers
Different Estimators
Lags
Protection Isn't Counter-Cyclic
35
Sensitivity: Appendix Table A1
No Time Effects (Global BCs)
BK
CF
HP
1D
Lt
Anti-Dumping
Cases (TTBD), 1978-
-13.4
(13.1)
5.3
(6.1)
-1.2
(10.7)
-.06
(.05)
3.7
(4.1)
Countervailing
Duties (TTBD), 1977-
-21.8
(25.1)
-11.0
(11.9)
-17.8
(20.2)
-.09
(.05)
-1.0
(3.0)
Safeguards (TTBD),
1995-
.1
(.3)
.4
(.4)
-.1
(.3)
.001
(.001)
-.01
(.09)
WTO Disputes Initiated
(WTO), 1995-
-1.2
(1.6)
1.5
(1.4)
.0
(1.1)
.02
(.02)
.9
(.5)
Mean Weighted Applied
Tariff (WDI), 1988-
-16.0
(17.5)
-2.8
(10.3)
-11.7
(12.5)
-.02
(.02)
-2.6
(3.2)
Index of Trade Freedom
(IEF), 1995-
8.8
(7.8)
-16.5
(6.6)
-12.9
(6.8)
-.03
(.05)
13.3
(5.3)
Protection Isn't Counter-Cyclic
36
Appendix Table A2
No Rich Countries
BK
CF
HP
1D
Lt
Anti-Dumping
Cases (TTBD), 1978-
18.6
(27.6)
4.1
(15.6)
22.2
(22.0)
.1
(.1)
14.1
(14.4)
Countervailing
Duties (TTBD), 1977-
-1.2
(5.8)
.1
(6.8)
.1
(5.7)
-.03
(.02)
2.0
(2.0)
Safeguards (TTBD),
1995-
.3
(.4)
.6
(.5)
.3
(.4)
.002
(.002)
-.1
(.1)
WTO Disputes Initiated
(WTO), 1995-
.3
(2.1)
1.4
(1.6)
-.1
(1.7)
.01
(.01)
.5
(.8)
Mean Weighted Applied
Tariff (WDI), 1988-
9.7
(7.4)
6.6
(6.5)
7.3
(6.4)
.06
(.04)
-2.6
(3.4)
Index of Trade Freedom
(IEF), 1995-
-2.8
(9.2)
-4.5
(8.3)
-5.9
(8.6)
-.01
(.05)
3.9
(4.2)
Protection Isn't Counter-Cyclic
37
Appendix Table A3
Only Large Countries
BK
CF
HP
1D
Lt
Anti-Dumping
Cases (TTBD), 1978-
18.8
(15.4)
16.6
(16.0)
29.5*
(13.6)
-.0
(.1)
-.3
(13.9)
Countervailing
Duties (TTBD), 1977-
-5.0
(3.7)
-16.4
(7.9)
-3.6
(3.5)
.03
(.07)
-5.1
(5.4)
Safeguards (TTBD),
1995-
2.1
(1.5)
2.1
(1.3)
1.9
(1.3)
.02
(.02)
.4
(.5)
WTO Disputes Initiated
(WTO), 1995-
-5.4
(6.3)
.5
(3.0)
-1.9
(3.6)
.04
(.05)
-.2
(1.0)
Mean Weighted Applied
Tariff (WDI), 1988-
19.2
(22.6)
4.5
(19.8)
7.0
(18.6)
-.0
(.1)
-10.6
(6.7)
Index of Trade Freedom
(IEF), 1995-
-2.0
(16.2)
2.3
(13.9)
2.2
(14.9)
.1
(.1)
20.3
(5.4)
Protection Isn't Counter-Cyclic
38
Appendix Table A4
Sample Ends 2008
BK
CF
HP
1D
Lt
Anti-Dumping
Cases (TTBD), 1978-
17.0
(18.6)
9.5
(17.9)
20.2
(17.4)
-.0
(.1)
-2.5
(5.0)
Countervailing
Duties (TTBD), 1977-
-5.3
(21.6)
-13.6
(20.0)
-1.7
(19.8)
.0
(.1)
-9.8
(9.0)
Safeguards (TTBD),
1995-
.2
(.4)
.3
(.3)
.1
(.3)
.000
(.002)
.0
(.1)
WTO Disputes Initiated
(WTO), 1995-
-.2
(2.6)
1.3
(2.4)
.2
(2.4)
.02
(.02)
-.2
(.7)
Mean Weighted Applied
Tariff (WDI), 1988-
-6.4
(6.1)
-4.7
(5.4)
-6.9
(5.4)
-.01
(.03)
-4.1**
(1.5)
Index of Trade Freedom
(IEF), 1995-
-4.9
(6.5)
-5.4
(6.1)
-6.7
(6.1)
.02
(.04)
2.8
(1.9)
Protection Isn't Counter-Cyclic
39
Appendix Table A5
Drop >|2.5σ| Outliers
BK
CF
HP
1D
Lt
Anti-Dumping
Cases (TTBD), 1978-
11.6
(12.4)
12.3
(13.7)
23.6
(11.6)
.04
(.07)
-4.2
(4.6)
Countervailing
Duties (TTBD), 1977-
1.9
(3.4)
-.6
(3.4)
1.1
(3.1)
-.03
(.03)
1.2
(1.8)
Safeguards (TTBD),
1995-
-.0
(.1)
-.1
(.1)
-.1
(.1)
.000
(.001)
-.01
(.03)
WTO Disputes Initiated
(WTO), 1995-
.4
(1.8)
1.9
(1.0)
1.3
(1.1)
.01
(.01)
.6
(.5)
Mean Weighted Applied
Tariff (WDI), 1988-
10.6*
(5.2)
7.2
(3.8)
4.9
(3.8)
-.01
(.02)
-2.2
(1.2)
Index of Trade Freedom
(IEF), 1995-
-7.0
(6.1)
-7.9
(5.5)
-8.3
(5.3)
-.00
(.04)
7.0*
(3.5)
Protection Isn't Counter-Cyclic
40
Appendix Table A6
Different Estimators (Poisson/Tobit)
BK
CF
HP
1D
Lt
Anti-Dumping
Cases (TTBD), 1978-
1.8*
(.9)
1.2
(1.0)
2.5**
(.9)
.01
(.01)
1.1
(1.0)
Countervailing
Duties (TTBD), 1977-
.1
(1.5)
-1.3
(1.3)
.4
(1.3)
-.05**
(.02)
-.4
(2.3)
Safeguards (TTBD),
1995-
12.0
(7.3)
10.9*
(4.8)
9.8*
(4.7)
.06*
(.03)
1.9
(1.5)
WTO Disputes Initiated
(WTO), 1995-
-.7
(3.5)
4.3
(2.9)
-.2
(2.8)
.04
(.03)
.0
(.8)
Mean Weighted Applied
Tariff (WDI), 1988-
-8.6
(6.8)
2.5
(1.8)
-7.7
(5.7)
-.01
(.03)
-3.7**
(1.3)
Index of Trade Freedom
(IEF), 1995-
-7.8
(8.0)
-6.8*
(3.1)
-7.9
(7.1)
.02
(.04)
6.8**
(1.7)
Protection Isn't Counter-Cyclic
41
Appendix Table A8
Lagged Output
BK
CF
HP
1D
Lt
Anti-Dumping
Cases (TTBD), 1978-
21.0
(13.0)
17.5
(12.0)
29.0*
(13.3)
.1
(.1)
-4.5
(9.5)
Countervailing
Duties (TTBD), 1977-
-1.2
(4.6)
-16.1
(8.1)
1.1
(4.5)
.01
(.02)
-6.2
(6.5)
Safeguards (TTBD),
1995-
.1
(.2)
.1
(.4)
-.0
(.3)
.001
(.002)
.01
(.09)
WTO Disputes Initiated
(WTO), 1995-
-3.6
(2.7)
-.5
(1.5)
-2.0
(1.9)
.02
(.01)
-.3
(.8)
Mean Weighted Applied
Tariff (WDI), 1988-
-6.0
(9.9)
-3.8
(6.3)
-7.2
(8.7)
-.04
(.04)
-4.3
(2.9)
Index of Trade Freedom
(IEF), 1995-
.4
(8.0)
.8
(7.6)
4.4
(8.0)
.09
(.05)
7.1*
(3.4)
Protection Isn't Counter-Cyclic
42
Graphically
Protectionism scattered against detrended Output
Hunting for Counter-Cyclic Protectionism
Safeguards
157 countries, 1995-, Corr=-.01
-.2
-.1
0
.1
10
.2
0
0
5
75
0
50
150
Countervailing Duties
16 countries, 1977-, Corr=-.06
100
Anti-Dumping Cases
43 countries, 1978-, Corr=.01
-.2
-.1
0
.1
.2
-.4
-.2
0
.2
.4
Trade Freedom
157 countries, 1995-, Corr=-.00
176 countries, 1988-, Corr=-.05
177 countries, 1995-, Corr=-.04
-.4
-.2
0
.2
.4
0
50
0
10 20
0
100
Applied Tariff (weighted)
100200
WTO Disputes Initiated
-.6
-.4
-.2
0
.2
.4
-.6
-.4
-.2
0
.2
.4
Duties, %GDP
RTAs Started
134 countries, 1990-, Corr=.02
190 countries, 1969-, Corr=.01
0 5
10
0
0
50
20 40
100
Binding Coverage, %
149 countries, 1995-, Corr=.04
-.6
-.4
-.2
0
.2
.4
-.6
-.4
-.2
0
.2
.4
-.6
-.4
-.2
0
.2
.4
Annual national data through 2010 (with gaps); log real GDP detrended via HP-filter
Protection Isn't Counter-Cyclic
43
Controls do Not Help
• Add Macro Controls
– a) population, b) real per capita income, c) current
account/GDP, d) trade /GDP, e) PPP-deviation, and
f) REER
• Mostly from WDI
• Separately add Reinhart-Rogoff exchange rate
regime
Protection Isn't Counter-Cyclic
44
Table 3a
Macro Controls
BK
CF
HP
1D
Lt
Anti-Dumping
Cases (TTBD), 1978-
-7.4
(29.0)
8.3
(22.4)
6.0
(24.1)
.1
(.1)
-49.0
(11.5)
Countervailing
Duties (TTBD), 1977-
30.1
(39.9)
29.7
(36.2)
31.2
(36.9)
.0
(.1)
-45.8
(53.4)
Safeguards (TTBD),
1995-
-.3
(.8)
.1
(.7)
-.5
(.6)
-.002
(.003)
-.1
(.2)
WTO Disputes Initiated
(WTO), 1995-
-.1
(2.5)
3.3
(2.9)
-.4
(2.0)
.05
(.04)
-.5
(1.3)
Mean Weighted Applied
Tariff (WDI), 1988-
9.3
(15.3)
-1.9
(13.1)
5.1
(12.3)
-.1
(.1)
.6
(5.7)
Index of Trade Freedom
(IEF), 1995-
-27.2
(20.5)
-14.5
(13.3)
-23.5
(17.1)
-.2*
(.1)
1.1
(9.5)
Protection Isn't Counter-Cyclic
45
Table 3b
Exchange Rate Regime Controls
BK
CF
HP
1D
Lt
Anti-Dumping
Cases (TTBD), 1978-
-3.7
(25.0)
-11.9
(21.4)
4.5
(25.6)
-.1
(.1)
-11.0
(13.2)
Countervailing
Duties (TTBD), 1977-
5.2
(13.9)
9.0
(16.6)
7.8
(16.4)
.02
(.08)
-3.2
(3.4)
Safeguards (TTBD),
1995-
.3
(.4)
.7
(.4)
.3
(.4)
.001
(.002)
-.0
(.1)
WTO Disputes Initiated
(WTO), 1995-
-1.2
(3.0)
1.2
(1.7)
-.7
(2.4)
.03
(.02)
-.2
(1.2)
Mean Weighted Applied
Tariff (WDI), 1988-
-7.5
(18.3)
-4.7
(12.1)
-8.3
(14.5)
-.02
(.03)
-4.5
(3.0)
Index of Trade Freedom
(IEF), 1995-
-7.8
(7.9)
-5.8
(6.8)
-6.9
(7.1)
.03
(.04)
7.4*
(3.5)
Protection Isn't Counter-Cyclic
46
Was There a Regime Switch?
• Poor quality data before WWII
• Use Mitchell International Historical Statistics
– Customs Duties, Imports, National Income
– 18 countries, back to 1850 (with gaps)
• Some evidence of regime change
– Data too weak to show strong signs of pre-WWII
counter-cyclic protectionism
Protection Isn't Counter-Cyclic
47
Table 4: Pre-WWII Results:
Responsiveness of Customs
Duties/Imports to Business Cycles
Business
Cycle Detrending:
3-year
averages
Annual
3-year avgs,
interwar
Baxter-King
ChristianoFitzgerald
HodrickPrescott
FirstDifferencing
Linear in
Time
-.39**
(.12)
-.06
(.07)
-.23
(.14)
-.31**
(.12)
.01
(.05)
-.28
(.16)
-.33**
(.12)
-.01
(.05)
-.17
(.15)
-.001
(.001)
.0007*
(.0003)
.0015*
(.0006)
-.35**
(.04)
-.22**
(.02)
.05
(.07)
Protection Isn't Counter-Cyclic
48
Variation across Time & Countries
• Why might there have been a regime change?
• First ask: Why might protectionism be
counter-cyclic at all?
Protection Isn't Counter-Cyclic
49
Five Rationalizations of
Counter-Cyclic Protectionism
1. Counter Incentives to Manipulate Terms of
Trade
2. Maintain Budget Balance
3. Second-Best Strategy in Fixed Exchange Rate
4. Response to Pressure from Import
Competitors
5. Search Frictions in the Labor Market
Protection Isn't Counter-Cyclic
50
1: Counter Incentives to Manipulate
the Terms of Trade
• Bagwell and Staiger (2003)
• Incentives to improve Terms of Trade fluctuate
with cycle
– Fact: Fluctuations in trade volume are cyclic
– Intuition: expected future loss from trade war highest
during boom, so reduce protection during boom
• Test by comparing large and small countries
• Can control for/interact business cycle with trade
volume and GATT/WTO membership
Protection Isn't Counter-Cyclic
51
2: Maintain Budget Balance
• “For most of American history … tariffs were instruments of
revenue … Through most of the history of the republic, tariffs
and taxes were virtual equivalents… Until the Civil War … the
U.S. treasury derived about 90 percent of its revenues from
customs duties… the tariff was the leading source of
government funds until World War I, when the newly
approved federal income tax eclipsed it.” To keep the budget
balanced, “the governing party will raise tariffs when the
treasury is in deficit and will lower duties when it is in
surplus.”
– Hansen (1990)
• Budgets cyclic
• Relevant in world of substantive budget imbalances, NTBs?
• Test with fiscal factors (government budget/revenue
Protection Isn't Counter-Cyclic
52
3: Second-Best Strategy in Fixed
Exchange Rate Regime
• “the exchange rate regime and economic
policies associated with it were key
determinants of trade policies of the early
1930s. Countries that remained on the gold
standard, keeping their currencies fixed
against gold, were more likely to restrict
foreign trade.”
– Eichengreen and Irwin (2009)
• Test with exchange rate regime data
Protection Isn't Counter-Cyclic
53
4: Response to Pressure from
Import Competitors
• Rent-seeking pressures grow
disproportionately during recession; Cassing
et al (1986)
– Relies on regional differences in the composition
of immobile production factors
– Surprisingly hard to model this political economy
• Test with size/dispersion data
– Challenging to explain a regime switch in
cyclicality of protectionism with this theory
Protection Isn't Counter-Cyclic
54
5: Search Frictions in the Labor Market
• Jobs have rents which depend on the level of
trade protection
– Costinot (2009)
• Recessions reduce rents and entry, increase
incentives of incumbents to lobby for
protectionism
– Gallarotti (1985), McKeown (1984)
• Theories always operative
– Evidence against the counter-cyclicality of
protectionism rejects them
• Test via labor share of income
Protection Isn't Counter-Cyclic
55
How to Test?
• Split the data by fundamentals
– These vary by country/time
• Use 9 fundamentals
– Population, Tariffs/Revenue, Exchange Regime, …
– Compare cyclicality of protectionism by
top/bottom quartiles
– HP-filtered GDP throughout
• Also GATT/WTO Membership
Protection Isn't Counter-Cyclic
56
What Determines the Cyclicality of Protectionism?
Protectionism scattered against detrended Output: Three Splits of the Data
0
.2
G20
-.1
-.05
0
.05
101520
.1
<4
>25
.2
-.2
-.1
0
.1
40
20
40
-.1
-.05
0
.05
.1
Float
-.2
0
.2
Float
Fix
<4
-.1
-.4
-.2
0
Float
.2
Fix
0
0
G20
Fix
Fix
-.4
.2
>25
<1m
0 5
.15
60
.1
60
0
20
0
>25
10 20 30 40
0
<1m
-.1
Tariff
<4
Float
0
-.2
>25%
100
20 40 60 80
G20
<4%
Exchange Rate Regime
0
100
20 40 60 80
Trade Freedom
G20
<1m
-.4
012345
0 5
<1m
Tariffs, % Gov't Rev
100
20 40 60 80
101520
WTO Disputes
Population
-.05
0
.05
.1
-.2
-.1
0
.1
.2
.3
Log real GDP detrended via HP-filter
Protection Isn't Counter-Cyclic
57
What Determines the Cyclicality of Protectionism?
Protectionism scattered against detrended Output: More Splits of the Data
.2
.3
High
-.4
-.2
0
.2
-.05
0
.05
.1
.15
101520
Parity
Unlimited
0
-.4
0
0
Low
>19
<11
-.1
-.2
0
.2
-.4
<11
>19
-.1
0
.1
.2
-.2
0
.2
60
0
0
Parity
40
-.1
-.2
0 5
4 6
High
0
100
20 40 60 80
Tariff
-.4
Parity
Unlimited
20
Low
-.2
.2
>19
Unlimited
100
20 40 60 80
0
>19%
<11
100
20 40 60 80
20 40 60 80
High
-.2
<11%
0 2
Low
-.4
Trade Freedom
High
Executive Constraints
0
0 5
Low
Gov't Cons, % GDP
20 40 60 80
101520
WTO Disputes
Real GDP per capita
-.05
0
.05
.1
Unlimited
Parity
-.1
0
.1
.2
Log real GDP detrended via HP-filter
Protection Isn't Counter-Cyclic
58
What Determines the Cyclicality of Protectionism?
Protectionism scattered against detrended Output: Even More Splits of the Data
-.1
0
101520
.05
.1
>.85
0
.2
-.1
-.05
0
.05
40
20 40 60 80
-.1
0
.1
.2
<.72
>.85
0
0
<25%
>60%
-.4
.1
60
-.2
=0
>.15
-.2
0
.2
>.15
=0
0
<.72
0
0
-.4
Tariff
-.05
>.85
GL3>.15
-.1
-.05
0
.05
.1
-.4
-.2
0
.2
=0
>.15
0
>60%
<25%
<.72
GL3=0
0 5
4 6
.2
>.85
100
20 40 60 80
0
100
20 40 60 80
100
20 40 60 80
>60%
-.2
<.72
Grubel-Lloyd Index
20 40 60 80
<25%
-.4
Trade Freedom
>60%
0 2
<25%
Value Added/Exports
20
0 5
101520
WTO Disputes
Imports/GDP
-.2
-.1
0
.1
.2
.3
Log real GDP detrended via HP-filter
Protection Isn't Counter-Cyclic
59
What Determines the Cyclicality of Protectionism?
Protectionism scattered against detrended Output: Final Splits of the Data
-.4
101520
0
.2
0
.2
-.1
0
.1
-.2
0
.2
<40
>60
0
0
>30
<6
>60
-.4
10 20 30
20 40 60 80
-.2
.2
-.2
-.1
<4
0
.1
.2
.3
<4
>10
0
0
>30
<40
>10
>10
-.2
-.1
-.05
0
.05
.1
.15
-.1
0
.1
.2
.3
.2
.3
>10
<4
0
<6
-.4
Tariff
-.2
<4
0 5
101520
.2
>60
100
0
>60%
<40
20 40 60 80
100
20 40 60 80
<6
-.2
<40%
100
20 40 60 80
>30
-.4
Trade Freedom
>30%
Tariff Rate
20 40 60 80
0 5
<6%
Services, % GDP
0 5
101520
WTO Disputes
Agriculture, % GDP
-.2
-.1
0
.1
Log real GDP detrended via HP-filter
Protection Isn't Counter-Cyclic
60
Figure 9
.1
0
Non-Member
.2
-.2
-.1
0
.1
60
40
20
Non-Member
Member
0
-.4
-.2
.2
80
0
Applied weighted Tariff
80
60
40
Member
Member
Non-Member
20
Member
100
Non-Member
0
Trade Freedom
Member
Non-Member
50
80
60
40
20
-.1
100
-.2
150
Member
Countervailing Duties
Non-Member
0
Anti-Dumping
100
Protectionism, Business Cycles and GATT/WTO Membership
0
.2
-.2
-.1
0
.1
.2
.3
Log real GDP detrended via HP-filter
Protection Isn't Counter-Cyclic
61
Statistical Analogue: Table 5
Protectionit = {αi} + {βt} + γBCit + δDFunditBCit + εit
Dfund is lowest/highest quartile of Fund
Ho: γ=δ=0:
WTO
Disputes
.96
Trade
Freedom
.49
Applied
Weighted Tariff
.12
Tariff, % Gov’t Rev
.97
.33
.34
Exchange Rate Reg
.97
.78
.41
Real GDP per capita
.96
.56
.17
Gov’t (% GDP)
.63
.08
.35
Agriculture (% GDP)
.89
.98
.04*
Imports (% GDP)
.93
.98
.17
Val Add (% Exports)
.71
.54
.15
Grubel-Lloyd Index
.96
.42
.66
Population
Protection Isn't Counter-Cyclic
62
Changing Responsiveness of Protection to Business Cycles
Effect of log real GDP deviation on Trade Freedom
-2
-1
-3 -2 -1
0
1
0 1 2 3
Christiano-Fitzgerald
2
Baxter-King
1970
1980
1990
2000
1970
1990
2000
Growth Rates
-1
-2
-1
-.5
0
0
1
.5
1
2
Hodrick-Prescott
1980
1970
1980
1990
2000
1970
1980
1990
Slope and 95% C.I. from cross-sectional regressions (up to 128 countries); series break in 2005.
Protection Isn't Counter-Cyclic
2000
63
Changing Responsiveness of Protection to Business Cycles
Effect of log real GDP deviation on Customs Duties/Imports
2
0
-2
-4
-2
-1
0
1
4
Christiano-Fitzgerald
2
Baxter-King
1860
1875
1890
1905
1860
1890
1905
1
0
-1
-2
-2
-1
0
1
2
Growth Rates
2
Hodrick-Prescott
1875
1860
1875
1890
1905
1860
Slope, +/- 2se from cross-sectional regressions.
Protection Isn't Counter-Cyclic
1875
1890
1905
64
Why?
• Similar cyclicality of protectionism for
GATT/WTO members and outsiders
• No support for any rationalization of why
protectionism is no longer counter-cyclic
– Large/small, rich/poor, open/closed, fixed/float, …
Protection Isn't Counter-Cyclic
65
Is Rise of Economics the Reason?
• More economists, and advocates of free-trade
(e.g., The Economist)
• Deeper understanding of the dangers of
protectionism could, in principle, be
responsible for fact that protectionism no
longer responds to the business cycle.
Protection Isn't Counter-Cyclic
66
BIG Caveat
• No direct test of idea
• Arrive indirectly and tentatively, after
eliminating testable, hypotheses
– “Diagnosis of exclusion” reached by process of
elimination
• Still, plausible hypothesis
Protection Isn't Counter-Cyclic
67
Surveys consistently show Most
Economists are Free Traders
“Tariffs and Import Quotas Usually Reduce General Economic Welfare"
Year
Generally Agree
Agree w provisions (%) Reference
1976
81%
16%
Kearl et al (1979)
1981/82
79%
16%
Frey et al (1984)
1981/82
27%
44%
Frey et al (1984)
1981/82
70%
24%
Frey et al (1984)
1981/82
44%
42%
Frey et al (1984)
1981/82
47%
40%
Frey et al (1984)
1990
2000
71%
21%
Alston et al (1992)
73%
20%
F-G-S (2003)
2000
87% (58% strongly)
n/a
W-H (2005)
2000
96% (75% strongly)
n/a
W-H (2005)
2005
2007
88%
n/a
Whaples (2006)
83% (37% strongly)
n/a
Whaples (2009)
2012
Protection Isn't Counter-Cyclic
85% (29% strongly)
n/a
IGM (2012)
68
The Famous
• Blinder: “For more than two centuries economists
have steadfastly promoted free trade among nations
as the best trade policy.”
• Krugman: "If there were an Economist's Creed, it
would surely contain the affirmations 'I understand
the Principle of Comparative Advantage' and 'I
advocate Free Trade‘.”
• Mankiw: “Few propositions command as much
consensus among professional economists as that
open world trade increases economic growth and
raises living standards.”
Protection Isn't Counter-Cyclic
69
Many Manifestations
• Textbooks (Marshall, Samuelson, McConnell,
Mankiw, …)
• Popular magazines (Atlantic, Economist)
• Think-tanks (PIIE, Brookings, Heritage
Foundation, AEI, Adam Smith Institute,
Bruegel, Fraser Institute, CD Howe Institute …)
• Blogs: VOX, Project Syndicate
• Dedicated websites: Global Trade Alert
Protection Isn't Counter-Cyclic
70
Hearing Voices
1500
Anti-Protectionist Chatter is Counter-Cyclic
0
500
1000
Query: 'now is not the time for protectionism' 20xx
2004
2008
2012
2008
2012
Query: 'protectionism is a bad idea' 20xx
10000
15000
20000
2000
2000
2004
Annual Google Search Total Results
Protection Isn't Counter-Cyclic
71
Strong Consensus Exists
• Serious, honest disagreement in economics
profession about whether/how to use
conventional macroeconomic tools like
monetary and/or fiscal policy for countercyclic stabilization policy
– But no legitimate analogue for protectionism!
Protection Isn't Counter-Cyclic
72
This Consensus Matters
• Provides strong guidance for policy-makers,
intellectual bulwark against populism
• Hard to find a serious policy-maker that urged
protectionism as response to Great Recession
Protection Isn't Counter-Cyclic
73
Summary
• Protectionism has not been counter-cyclic
since WWII
• Protectionism probably counter-cyclic earlier
– Hard to be definitive (data quality, quantity)
Protection Isn't Counter-Cyclic
74
Summary, continued
• Little success in explaining why protectionism is no
longer counter-cyclic
– No support for testable hypotheses
• Before WWI: 1) Tariffs fiscally important; 2) No
GATT/WTO; 3) Gold standard
• Postwar, cyclicality of protectionist policies of countries
similar, even if characteristics diverge:
–
–
–
–
–
Large/small budget deficits, tax bases
Inside /outside GATT/WTO
Fixed/floating exchange rate regimes
Small/large
Open /closed, etc …
Protection Isn't Counter-Cyclic
75
Conclusion
• Perhaps switch in the cyclicality of protectionism
(if true) a triumph of modern economics
– Strong consensus among economists that
protectionism is generally bad for welfare.
– Economists actively involved in combating countercyclic protectionism; Global Trade Alert and Great
Recession
– So …. do we deserve a collective pat on back?
• Or a kick in the rear?
– If economists helped reduce cyclicality of
protectionism, perhaps we should focus on simply
reducing protectionism?
Protection Isn't Counter-Cyclic
76