J. Lawrence Broz

We provide a formal model that revises and extends Irwin’s (Irwin, D. A. 2020. “Trade Policy in American Economic History.” Annual Review of Economics 12: 23–44.) interpretation of US trade policy history from the Civil War to current period. Trade policy is set by domestic political bargaining between globalists and protectionists, representing owners of factors specific to export- and import-competing sectors, respectively. Treating the party in power as the agenda setter, and given the status quo tariff policy, we make several observations. Consistent with the post-Civil War Era of Restriction, protectionists implement high tariffs when status quo tariffs are low. When status quo tariffs are high, reciprocal free trade combined with domestic transfers to protectionists are implemented, explaining the 1930s Era of Reciprocity with Redistribution. Consensus emerges for Retreat from free trade when imports are high and domestic transfers are low, suggesting that US protectionist turn in the late 2010s was in part due to low levels of social transfers.

A major contributor to the crisis at the World Trade Organization is the decline in support for multilateralism in the United States. Three key problems with the organization’s design precipitated the decline. First, incomplete rules related to trade remedies are interpreted by the organization’s Appellate Body in ways that conflict with a narrow set of sensitive US domestic priorities. Second, existing organization rules do not sufficiently account for non-market economies, such as China. Third, remediation of these problems is infeasible due to consensus-based decision-making in the World Trade Organization. These problems represent more fundamental challenges induced by increased economic integration—loss of sovereignty and erosion of democracy. To alleviate these problems in multilateral agreements we suggest: (1) a narrow solution that carves out a special process for handling trade remedy disputes; (2) a broad solution that relaxes the requirement of consensus for the organization’s reform, adopting some form of supermajority voting or a sunset clause; (3) the reform of domestic consensus-building institutions within the US that directly address the political-economy sources of voter discontent.

A populist backlash to globalization has ushered in nationalist governments and challenged core features of the Liberal International Order. Although startling in scope and urgency, the populist wave has been developing in declining regions of wealthy countries for some time. Trade, offshoring, and automation have steadily reduced the number of available jobs and the wages of industrial workers since at least the 1970s. The decline in manufacturing employment initiated the deterioration of social and economic conditions in affected communities, exacerbating inequalities between depressed rural areas and small cities and towns, on the one hand, and thriving cities, on the other. The global financial crisis of 2008 catalyzed these divisions, as communities already in decline suffered deeper and longer economic downturns than metropolitan areas, where superstar knowledge, technology, and service-oriented firms agglomerate. We document many of these trends across the United States and Europe, and demonstrate that populist support is strongest in communities that experienced long-term economic and social decline. Institutional differences in labor markets and electoral rules across developed democracies may explain some of the variation in populists’ electoral success. Renewed support for the Liberal International Order may require a rejuvenation of distressed communities and a reduction of stark regional inequalities.

J. Lawrence Broz. KJIS 2015;13:323-51. https://doi.org/