Douglas Irwin debunks trade-policy myths.

See A historian on the myths of American trade Douglas Irwin agrees that trade policy is important. But all manner of powers are wrongly laid at its door. Book review from The Economist. 

Clashing over Commerce: A History of US Trade Policy. By Douglas Irwin. University of Chicago Press; 832 pages; $35.
Excerpts:

"As Mr Irwin spins this grand narrative, he also debunks trade-policy myths. During recessions, tariffs have often been assigned more of a role than they really had, low ones for inflicting American producers with excessive competition (as in 1818) and high ones for stimulating domestic production (as in 1893). But tariff changes were often too small or too late to have these purported results; monetary policy and other factors are more often to blame.

Political dynamics would lead people to see a link between tariffs and the economic cycle that was not there. A boom would generate enough revenue for tariffs to fall, and when the bust came pressure would build to raise them again. By the time that happened, the economy would be recovering, giving the impression that tariff cuts caused the crash and the reverse generated the recovery.

Mr Irwin also methodically debunks the idea that protectionism made America a great industrial power, a notion believed by some to offer lessons for developing countries today. As its share of global manufacturing powered from 23% in 1870 to 36% in 1913, the admittedly high tariffs of the time came with a cost, estimated at around 0.5% of GDP in the mid-1870s. In some industries, they might have sped up development by a few years. But American growth during its protectionist period was more to do with its abundant resources and openness to people and ideas.

Even the Smoot-Hawley tariff bears less responsibility for worsening the Depression than people often think. The Depression was well under way before it came into force. The tariff changes themselves played less of a role than deflation; because the tariffs were set in dollar terms, they loomed larger as prices and wages fell. And the collapse of global trade had more to do with widespread capital controls than a tit-for-tat tariff race."

"But Mr Irwin does think that trade policies have consequences, just not the ones usually trumpeted. Such policies transfer wealth, sometimes by sizeable amounts. In 1885 an average tariff of 30% reshuffled around 9% of America’s GDP from foreign exporters and domestic importers to domestic producers and the government. Trade policies also generate costs. In 1984, economists found that consumers were forking out more than $100,000 in the form of higher prices for each job protected in the clothing industry, where the average wage was around $12,000 per year."

"In 1824, Henry Clay, one of America’s great senators, proposed an “American system” of tariffs, a national bank and “internal improvements” like roads and canals to strengthen the economy of the young country. He saw tariffs as a no-lose deal: raising money from foreigners, promoting American industry and creating a balanced, self-sufficient economy. The tariffs passed, but Clay failed to deliver on infrastructure, or on a plan for American industry. It is hard to see his rather less illustrious successors pulling off this tempting but difficult trick.

Of all the clashes Mr Irwin describes, the most important today is not between political parties, or between friends and foes of trade. It is between policymakers and the forces such as technology reshaping the global economy, in the process destroying many manufacturing jobs. At most, protectionism could shelter some of those jobs temporarily. But those jobs already lost are unlikely to come back."