Ideas, Interests, and American Trade Policy

Reciprocity, U.S. Trade Policy, and the GATT Regime

Authors Judith Goldstein and Carolyn Rhodes both use historical perspectives of the origin, evolution, and use of U.S. trade laws as a means of enhancing our understanding of trade policy making in the 1990s and beyond. WhileGoldstein attributes historical inefficiency in policy choices to the influence of "ideas" on policy makers' decisions, Rhodes accepts the economic inefficiency of certain policy choices as necessary to the reinforcement of cooperation in international trade through "reciprocal" arrangements. Both conclude that U.S. policy will continue on its current liberal path, guided by the predominance of liberal norms and the tools that enhance those norms.

In Ideas, Interests, and American Trade Policy, Goldstein provides an excellent historical account of the evolution of U.S. trade policy, linking together periods of time that have been dealt with by other authors, such as Taussig (The Tariff History of the United States, 1914), Schattschneider (Politics, Pressures, and the Tariff, 1935), and Bauer, Pool, and Dexter (American Business and Public Policy, 1972), and providing a comprehensive and rich picture of U.S. trade policy making. Her historical account revolves around a central theme that "ideas" matter in policy making. Contributing to the existing diffuse literature (e.g. Derthick and Quirk, The Politics of Deregulation, 1985; Quirk, "Deregulation and the Politics of Ideas in Congress" in Beyond Self-Interest, 1990; Kingdon, Agendas, Alternatives, and Public Policies, 1984; Baumgartner and Jones, Agendas and Instability in American Politics, 1993) on the notion that ideas are important in public policy formation, Goldstein argues that ideas provide "strategies" and "road maps" which policy makers use to maximize their interests. Her criticism of existing trade literature is that two currently popular approaches to understanding trade policy, interest group models in which interaction among domestic political forces drives policy outcomes and structural approaches in which a nation's stance on trade is determined by its relative international power, are inadequate to explain the numerous "idiosyncratic" outcomes that she sees throughout the history of U.S. trade policy. She maintains that interest maximization may motivate policy makers' choice of goals, but in a world of uncertainty decision makers must still make choices about how to achieve those goals. Ideas, she claims, as predictors of policy direction, are "at least as powerful as are simple calculations of interest" (p.3).

Unfortunately, while Goldstein's book is rich in historical content, her central unifying theory, that ideas can explain variations in policy decisions that (she claims) cannot be explained with conventional theories, is lacking in clarity and empirical support. A major weakness here, as in other literature on the idea of "ideas," lies in the hazy distinction between self-interest and ideas. For example, Goldstein attributes periods of market closure in U.S. history to the dominance of the idea of protectionism. From 1870 to 1934, Goldstein claims policy makers "remained wedded to an economic strategy that deviated markedly from one that would maximize economic prosperity," which "can only be explained by the power of the idea of protectionism" (p. 131). This apparent contradiction that protection was chosen over free trade even when the self-interest of policy makers should have led them to the opposite choice fails to take into account the difference between net gains from trade for the nation and distributional factors. Individual members of Congress chose to maximize their self-interest by serving their districts' interests; the emerging concensus among economists that free trade was economically efficient and welfare maximizing for the nation could not convince individual congressmembers to abandon the benefits of protection for their own narrow interest groups.

Furthermore, what she describes as "great analytic mysteries," which she claims can only be explained by the importance of ideas, often have simple self- interest explanations. For example, the under-use of the escape clause (pp. 208- 215) is likely due to the fact that nations can retaliate if they are not compensated for damages under this law; thus the government has shied away from its use. In addition, her evidence of continued liberalism in trade illustrated by the low acceptance rate of antidumping and countervailing duty petitions (Table 5.6, p. 217) is grossly distorted by her failure to account for the numerous informal bilateral protectionist settlements of these cases which dominated policy decisions in the 1980s (see Prusa, "Why Are So Many Antidumping Petitions Withdrawn?, Journal of International Economics, 1992).

While Goldstein maintains that in recent years the "idea" of free trade has kept the U.S. from returning to its protectionist past, Carolyn Rhodes attributes this to the continued success of reciprocity in trade relations. In Reciprocity, U.S. Trade Policy, and the GATT Regime, Rhodes argues that reciprocity, which incorporates a notion of fair play between trading partners with an expectation of mutual gain or equivalent loss, has contributed to the maintenance of a liberal trade regime. Two contradictory perspectives on the use of reciprocity provide the impetus for Rhodes' study: critics contend that reciprocity often leads to retaliation that is protectionist and discriminatory, resulting in reduced trade and heightened international conflict; proponents contend that reciprocity is necessary to discourage imbalances in market access and free riding on the international system, both of which are detrimental to cooperation and maintenance of international regimes such as GATT. Rhodes concludes that reciprocity has led to less protectionist policies despite countries' deviations from GATT norms and principles. In the wake of renewed protectionist pressures, Rhodes contends that reciprocity allowed U.S. policy makers to adopt solutions that were less restrictive than what was demanded by protectionist forces, thus concluding that the use of reciprocity has acted as a constraint on our protectionist tendencies in recent years.

Rhodes' theory about the usefulness or value of reciprocity to trade relations is an important contribution to our understanding of trade policy and provides hope that deviations from GATT will not lead to its destruction or the destruction of its goals, as others have claimed (e.g. Bhagwati, Protectionism, 1988; Cline, Reciprocity: A New Approach to World Trade Policy, 1982). Her argument is soundly supported with several case studies in which she provides a detailed account of policy making and the use of reciprocity. However, Rhodes concludes that the policy outcomes under reciprocity were successful by comparing them to what might have been if protectionist forces had their way and if "true" trade wars had broken out, rather than mild forms of tit for tat. The underlying cause and effect relationship is questionable. One could easily argue that reciprocity has been strategically and wisely employed in a self-interested manner by politicians and policy makers in their attempts to satisfy competing domestic interest groups in the new global, more interdependent economic system. In other words, the maintenance of a liberal trading system may have little to do with reciprocity per se, but more to do with the changing nature of trade in the world. In her automobile and steel industry examples, there were domestic forces opposed to protection, which may have been the reason for a negotiated middle-ground solution. General Motors was concerned about its ability to import cars from its transplant production facilities abroad and joint venture operations, while big users of steel in the U.S. were concerned about being out- priced in the international market for final goods because of higher input prices. This does not diminish Rhodes' claim about the importance of reciprocity as an international bargaining tool, but does lead one to wonder about a cause and effect relationship. Furthermore, one might wonder about the liberalizing effects of reciprocity in other dimensions, such as in the relationship between developed and developing nations. Can the same conclusions be drawn about reciprocity's success in U.S. trade disputes with countries such as India and Brazil; or, harking back to the 1800s, is reciprocity discriminatory, as critics contend, when used in disputes between more economically and politically unequal trading partners? At least among developed nations, Rhodes makes a strong argument for the continued use of reciprocity as a means of resolving trade disputes. Despite fears that reciprocity and bilateralism weaken the GATT, alternative preferable strategies that satisfy political interests on both sides have not emerged to take its place.

Despite some shortcomings, both books offer an in-depth analysis into the complex and multi-faceted area of trade policy and are welcome additions to the literature that will further the discussion of the politics of international trade.

Wendy L. Hansen
University of New Mexico