TWO GREAT TRADE COLLAPSES - NBER
Transcript of TWO GREAT TRADE COLLAPSES - NBER
NBER WORKING PAPER SERIES
TWO GREAT TRADE COLLAPSES:THE INTERWAR PERIOD & GREAT RECESSION COMPARED
Kevin Hjortshøj O'Rourke
Working Paper 23825http://www.nber.org/papers/w23825
NATIONAL BUREAU OF ECONOMIC RESEARCH1050 Massachusetts Avenue
Cambridge, MA 02138September 2017
Preliminary version of a paper prepared for IMF-BNM-IMFER Conference on Globalization in the Aftermath of the Crisis and the IMF Economic Review. The research on which this paper is based was in part funded by the European Research Council under the European Union’s Seventh Framework Programme (FP7/2007- 2013) / ERC grant agreement no. 249546. The paper draws on many collaborations, and I am extremely grateful to my co-authors: Miguel Almunia, Agustín Bénétrix, Roberto Bonfatti, Alan de Bromhead, Barry Eichengreen, Alan Fernihough, Ronald Findlay, William Hynes, David Jacks, Markus Lampe, Gisela Rua, and Jeffrey Williamson. The usual disclaimer applies. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
© 2017 by Kevin Hjortshøj O'Rourke. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
Two Great Trade Collapses: The Interwar Period & Great Recession ComparedKevin Hjortshøj O'RourkeNBER Working Paper No. 23825September 2017JEL No. F13,F14,N70
ABSTRACT
In this paper, I offer some preliminary comparisons between the trade collapses of the Great Depression and Great Recession. The commodity composition of the two trade collapses was quite similar, but the latter collapse was much sharper due to the spread of manufacturing across the globe during the intervening period. The increasing importance of manufacturing also meant that the trade collapse was more geographically balanced in the later episode. Protectionism was much more severe during the 1930s than after 2008, and in the UK case at least helped to skew the direction of trade away from multilateralism and towards Empire. This had dangerous political consequences.
Kevin Hjortshøj O'RourkeAll Souls CollegeUniversity of OxfordOxford OX1 4AL, UKand [email protected]
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1.Introduction
Economichistorianshavealwaysknownthatglobalizationisneithernewnor
irreversible:theworldeconomyhasseenmanywavesofintegrationand
disintegrationoverthecenturies.Whenglobalizationgoesintoreverse,thisis
typicallynotbecausetechnologiesareunlearned,althoughtherearesurely
exceptionstothis,astherearetoanyrule.Rather,allthatnewtechnologiescando
istodefinethelimitsofwhatisfeasible.Howclosesocietiesactuallygettothe
technologicalfrontierdependsonpolitics.Whenglobalizationunravels,thisis
typicallybecausesomeperturbationtothesystemhasdisturbedeitherexisting
domesticpoliticalequilibriafavoringopenness,orthegeopoliticalsystemasa
whole.Theseperturbationscanbelongdrawnoutaffairs–shiftsincomparative
advantage,creatingwinnersandlosers,orgrowthdifferentialsacrossnations,
upsettingtheinternationalbalanceofpower–ortheycanbeshortandsharp,asin
thecaseoffinancialcrises.
SoutheastAsiaisaparticularlygoodlocationinwhichtoreflectuponthe
ebbsandflowsofglobalizationoverthecourseofthecenturies.Therehavebeen
twotraditionaltraderoutesbetweenEastandWestEurasia.1Thefirstwent
overland,fromChina,throughtheTaklaMakandeserttoTransoxiana,andfrom
thereontoeitherEuropeintheWest,orIndiainthesouth.Andthesecondwentby
sea,inthreestages:fromChinatoSoutheastAsia,fromSoutheastAsiatoIndia,and
fromIndiatoArabia.ChinesegoodsmightbetransshippedacrosstheIsthmusofKra,
orshippedthroughtheStraitsofMalaccaortheSundaStrait.Asageneralrule,
1Foralengthydiscussionofthese,seeFindlayandO’Rourke(2007).
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tradebyseawascheaperandfasterthanoverlandtrade,althoughthelandroute
flourishedwhengeopoliticalstabilitymadeitpossibletotravelsafelyacrossCentral
Asia,notablyduringthepaxMongolicaofthe13thand14thcenturies.Anindication
ofthescaleofthetradeflowscomesfromthefamousBelitungshipwreckdating
fromaround830(Flecker,2001).ThiscontainedlargequantitiesofChineseceramics
andothertradegoods(about60,000itemsinall)withdesignsindicatingthatmany
ofthesehadbeenproducedspecificallyfortheMiddleEasternmarket.
Inaseriesofimportantpublications(e.g.Reid,1988and1993),AnthonyReid
haswrittenaboutSoutheastAsia's"AgeofCommerce",stretchingfromsometime
intheearly15thcenturytothemiddleofthe17th.SoutheastAsiantradewasgiven
amajorboostbytheMingvoyagesofdiscovery,whichtookplacebetween1405and
1433underthenavalleadershipofZhengHe.Theseledtoadramaticincreasein
Chineseimportsofgoodssuchaspepperandsandalwood,sufficienttohavelefta
traceintheEuropeanpricerecord.Asimportsintothemostimportantmarketof
theperiod,China,soared,theresidualsupplyofspicesavailabletotheperipheral
Europeanmarketfellsharply,leadingtoasharpspikeinprices(Figure1).
Figure1.EnglishandFlemishrealpepperprices,1400–1500
AlthoughtheMingvoyagesceased,SoutheastAsiantradecontinuedto
expandfortwocenturies,inpartduetothearrivalofnewtraders,particularlyfrom
EuropeandJapan,andinpartduetotheupturninglobaltradefuelledlargelyby
Americansilver.Thereafter,SoutheastAsiantradewentintosharpdecline.While
therewereseveralreasonsforthis,animportantonewastheestablishmentbythe
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DutchEastIndiaCompany,theVOC,ofaneffectivehegemonyinmuchoftheregion.
Theywereabletomonopolizenotjustthetradeincloves,buttheproductionas
well,withanimmediateandstrikingimpactonboththevolumeofexports,which
stagnated,andtheexportprice,whichcollapsed(Figure2).TheEuro-Asianprice
gapforclovessoared(Figure3):despitetheglobalreachofthegreatEuropean
tradingcompanies,insomecasestheyledtoadramaticdisintegrationofmarkets,as
measuredbythegapbetweenconsumerandproducerprices,withextremely
negativeconsequencesforSoutheastAsia.Globalizationhasnotbeenunidirectional,
inthisregionoranywhereelseintheworld.
Figure2.SoutheastAsiancloveexportsandprices,1500–1789
Figure3.Clovepricegaps,Amsterdam-SoutheastAsia,1580s-1880s
Since2008,journalists,politicians,andinsomecaseseconomistswhoshould
haveknownbetter,havewokenuptothepossibilitythatourownera'sglobalization
mightalsosomedaygointoreverse.Inahistoricalperspective,thiswouldnotbeso
surprising–wehavelivedthroughanadmittedlyshort,butverysharpglobal
economiccrisis(whichhasnotbeenparticularlyshortontheperipheryofthe
Eurozone),superimposeduponalongrunshiftincomparativeadvantagethathas
placedtraditionalmanufacturingcommunitiesintherichcountriesoftheworld
underconsiderablepressure.Thepoliticaldisastersof2016suggestthatweshould
taketheriskseriously,althoughitisimportanttopointoutthat,todate,therehas
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notbeenamajorreversaloftradepolicy,despitetheincreasingnumberof
governmentinterventionsdocumentedbySimonEvenettandcolleagues.2
Acomparisonthatisfrequentlymadeiswiththe1930s,acanonicaleraof
deglobalization,althoughtheinterwarperiodisusuallyusedprimarilyasa
bogeyman,ratherthananalyzedinanydetail.Inthispaper,Iwanttooffersome
preliminarycomparisonsbetweenthetradecollapsesoftheGreatDepressionand
GreatRecession.Whatissimilarbetweenthetwoepisodes,andwhatarethemajor
differences?Whywasthelatertradecollapsesomuchsharper,andwhywasthe
subsequentrecoverymoreimpressive?Whydidtheearlierepisodeleadtosomuch
moreprotectionism,andwhatwastheimpactofhigherbarrierstotrade?Andwhat
werethelongrunpoliticalimplicationsofthe1930scollapseintrade?
2.Twogreattradecollapses:somebasicfactsandcompositionalissues
PanelAofFigure4plotsindicesofthevolumeofworldtradeduringandafterthe
GreatDepressionof1929to1933,andtheGreatRecessionof2008-9.Bothseries
areplottedrelativetotheirvaluesinthemonthwhenworldindustrialoutputhitits
pre-crisispeak:June1929,andApril2008,respectively.Ascanbeseen,thetrade
collapseinthelatterepisodewasmuchsharperthanintheformer.Oneyearinto
theGreatRecession,inApril2009,thevolumeofworldtradewas18%belowitspre-
crisislevel,whereasworldtradewas"only"8%lowerinJune1930thanithadbeena
yearearlier.Thiswasbothstrikingandalarming,butalsopuzzling,giventhatayear
intothetwocrises,worldindustrialoutputhaddeclinedbyverysimilaramounts
2Seehttp://www.globaltradealert.orgSeealsoBown(2016).
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(Figure4,PanelB).Tryingtoexplainthisapparentlygreaterelasticityoftradewith
respecttooutputbecameamajorfocusofsubsequentappliedresearch,although
explicitcomparisonswereonlyrarelymadebetweentheGreatRecessionandthe
earlierepisode.3
Figure4.Twogreattradecollapsesandindustrialdepressions
Appealingtotheemergenceinrecentdecadesofglobalvaluechainsdoes
not,onitsown,resolvetheissue.Ifgrosstradeflowsarehigherrelativetonetflows
todaythantheywere80yearsago,thiscanexplainabiggerabsolutetradecollapse,
butitcannotonitsownexplainabiggerpercentagetradecollapse,sincethegross
flowsenterintoboththenumeratorandthedenominatorofthisfigure.However,if
importsofsomecategoriesofgoodsfallmorethanothersduringsharprecessions,
andifthecategoriesthatareparticularlybadlyaffecteddisproportionatelyinvolve
valuechains,thenyoucanindeedexpecttoseealargepercentagedeclineintrade
(O’Rourke,2009).Itisnotthevaluechainsinthemselves,buttheirinteractionwith
compositionaleffects,thatcanhelptoexplaintheveryhighelasticityoftradewith
respecttooutputandincomethatwasseenafter2008.
TherehasbeenagreatdealofworkexploringthecompositionoftheGreat
Recession’stradecollapse(e.g.Levchenkoetal.,2010;Bricongneetal.,2012;
Gopinathetal.,2012).Ifthosecategoriesofexpenditurethatfallthemostduring
economiccrises(investmentandexpenditureonconsumerdurables)areparticularly
3ExceptionsincludeEichengreenandO’Rourke(2009),Almuniaetal.(2010),andEatonetal.(2011).
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import-intensive,thiscanobviouslyhelptoexplaintheverysharpdownturnin
trade.Itturnsoutthattheseasymmetricfallsinexpenditureareveryimportantin
explainingthe2008-9tradecollapse,althoughtheexistencenotonlyofvertical
supplychains,butofinterindustrylinkages,complicatestheanalysis(Bemsetal.,
2010,2011,2013;Bussièreetal.,2013;Eatonetal.,2016).
Butthisstilldoesn'texplainwhytheelasticityoftradewithrespecttooutput
wassomuchgreaterduringtheGreatRecessionthanduringtheGreatDepression.
Afterall,expenditureoncapitalequipmentandconsumerdurablesfallsparticularly
sharplyduringalleconomiccrises.Weretheseexpenditureslessimport-intensive
duringthe1930sthantoday?Ifso,itshouldbethecasethatthecommodity
compositionofthetwotradecollapsesdifferedgreatly.Indeed,giventhatweare
talkingabouttwoeconomicepisodesseparatedbyeightdecades,itmightseem
strangeifthatwerenotthecase.
Whatwasthecompositionofthetradecollapseduring2008-9?Ina
particularlydetailedstudy,Levchenkoetal.(2010)divideUStradeflowsinto10
categories,dependingonsectorandend-use,anddistinguishingbetweendurable
andnon-durablegoods.Theseare:foods,feeds,andbeverages;industrialsupplies
andmaterials(bothdurable,andnon-durable);petroleumandproducts;automotive
vehicles,engines,andparts;otherconsumergoods(bothdurable,andnon-durable);
othercapitalgoods(aircraft,computers,andother);andothergoods.Theyfindthat
tradeinautomobilesdeclinedverysharply,onboththeexportandimportside;that
tradeinindustrialsupplieswasalsoparticularlybadlyhit;thatthevalueof
petroleumimports(therewerenoexports)fellmorethananyothercategory;and
thattradefellbymuchlessinthefoodandconsumergoodscategories(especially
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non-durableconsumergoods).Moregenerally,tradeingoodsfellbyalotmorethan
tradeinservices,whiletradeindurablegoodsfellbyalotmorethantradeinnon-
durables.4
WhatabouttheGreatDepression?Inon-goingworkwithAlandeBromhead,
AlanFernihough,andMarkusLampe(deBromheadetal.,2017a),Iexplorethe
commoditycompositionofthe1929-1931tradecollapseintheUnitedKingdom.This
wasroughlycomparabletothe2008-9tradecollapseintheUnitedStates,inthat
theUKmaintainedagenerallyfreetradepolicyduringtheperiod.Thecollapsein
BritishimportsthusreflectedcollapsingBritishimportdemand,justaswastruein
theUSduringthelaterepisode.WedivideBritishimportsandexportsintothesame
categoriesasusedbyLevchenkoetal.,excludingcomputersthatwerenotrelevant
duringtheearlierperiod.Wethencalculatedthepercentagedeclinesinthevalueof
UKimportsandexportsforeachoftheseninecategoriesduring1929-31,and
comparedthesewiththecorrespondingUSdeclinesduring2008-9.
Wefindastriking,positivecorrelationbetweenthecommoditycomposition
oftradeinbothepisodes:ontheimportside,therewereparticularlysmalldeclines
inimportsoffoodandconsumergoods,andparticularlylargedeclinesinimportsof
industrialsuppliesandautomobiles.Exportsofindustrialsupplieswereparticularly
badlyhitinbothepisodes,whileexportsofconsumernon-durablesdeclinedbya
comparativelysmallamount.Thesimilaritybetweenthetwoepisodesisimpressive,
especiallyforimports,andespeciallygiventhatwearecomparingthetrade
experiencesoftwodifferentcountriesseparatedbymorethaneightdecades.While
4SeealsoBricongneetal.,2012andGopinathetal.,2012.
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itistoosoontogeneralizefromsuchresults,itseemsasthoughsimilarexpenditure
andcompositionaleffectsmayhavebeenatworkduringbothepisodes.
Iftheunderlyingeconomicforcesduringthetwotradecollapseswere
similar,whatexplainsthehigherelasticityoftradewithrespecttooutputduringthe
laterepisode?Themostplausibleexplanationrestsonthechangingstructureof
internationaltrademoregenerally,whichinturnreflectschangingpatternsof
comparativeadvantageandgrowth.ItistothesethatInowturn.
3.Thechangingstructureofinternationaltrade
Themostobviousdifferencebetweentheglobaleconomiesof1929and2008isthe
wayinwhichmodernmanufacturinghasspreadacrosstheglobeinrecentdecades.
Thisprocessbeganinthelate19thcenturyinLatinAmericaandEastAsia,butin
SoutheastAsiaonlybeganinearnestinthe1960s,despiteaprecociousstartinthe
Philippines(O’RourkeandWilliamson,eds.,2017).Manufacturing’sshareofGDP
waswellunder10%inMalaysiaaslateas1960,andwasonlyalittlehigherin
Indonesia.Bytheendofthecentury,rapidindustrialgrowthhadledtotheseshares
peakingataround30%inthosetwocountries,andat35%inThailand(Bassinoand
Williamson,2017).
SoutheastAsia’sdelayedindustrialstartwaslargelyduetopatternsof
comparativeadvantage:resource-andland-rich,andlaborscarce,unskilledwages
werehighthererelativetoinIndiaorChina,whilecolonialeducationalpolicies
meantthatskilledlaborwasrelativelyscarceaswell.Overtime,populationgrowth
loweredrelativewagesintheregion,whileindependentgovernmentsinvestedin
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education.ISIspurredsomeindustrialgrowth,butsmallmarketsmeantthatitwas
lesseffectivethanelsewhereintheperiphery.TradeliberalizationandFDIwould
eventuallyplaycrucialrolesinspurringfurthermanufacturingandaggregategrowth
intheregion(ibid.).
Asaresultofdevelopmentslikethisallaroundthedevelopingworld,the
internationaldivisionoflaborthathaddevelopedinthe19thcentury,andstill
appliedinthe1930s,graduallystartedtounravel.Despitetheearlyindustrialgrowth
inChina,Japan,andelsewherementionedearlier,itstillmadesensein1950tothink
oftheworldeconomyasbeingdividedintoanindustrializedNorthandanon-
industrializedSouth.In1937,primaryproductsaccountedfor96%ofmerchandise
exportsinAfricaandAustralasia,and98%inLatinAmerica(Yates,1959,pp.227-30).
Aslateas1953“developedeconomies”(excludingJapan)accountedfor90.6%of
worldmanufacturingoutput,slightlymorethanin1913(Bairoch,1982,p.304),and
forover90%oftheworld’smanufacturedexports(Yates1959,p.228).5Aslateas
themid-1960s,manufacturesaccountedforlessthan10%ofSouthernexportsto
theindustrializedeconomies:North-Southtradestilllargelyconsistedofan
exchangeofNorthernmanufacturesforSouthernprimaryproducts.
Allofthishaschangedbeyondrecognition.ThankstoindustrializationinAsia
andelsewhere,asubstantialmajorityofSouthernexportstotheNorthnowconsist
ofmanufacturedgoods.Andastheworldasawholehasindustrializedandbecome
richer,amuchgreatershareofworldtradeingeneralnowinvolvesmanufactured
goods.In1929,manufacturesaccountedfor44%ofglobalmerchandisetrade;by
2007,thisfigurehadincreasedto70%(Almuniaetal.,2010,p.228).Thismattersfor
5ThelattercalculationexcludesSovietbloccountries.
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thevolatilityofinternationaltrade,forthesimplereasonthatmanufacturingoutput
andtradeismorevolatilethanprimaryproductionandprimaryproductstrade.
Between1929and1932,worldmanufacturingoutputfellby30%,whileagricultural
primaryproductionremainedconstant;worldmanufacturingtradefellbyover40%
between1929and1933,whilenon-manufacturingtradefellbylessthan7%(Figure
5).Similarly,worldmanufacturingoutputfellby10%between2008and2009,while
agriculturaloutputactuallyrose;worldmanufacturingtradefellby15%between
2008and2009,ascomparedwithdeclinesofjust2%and5%foragricultural
productsandfuelsandminerals,respectively(Figure6).
Figure5.WorldoutputandtradeduringtheGreatDepression
Figure6.WorldoutputandtradeduringtheGreatRecession
Clearly,thefactthattheworldeconomyisnowmoreheavilyconcentratedin
volatilemanufacturingcanhelptoexplainwhytradefellmoresharplyduringthe
GreatRecessionthaninthefirstyearoftheGreatDepression.Indeed,whenthe
focusislimitedtomanufacturingtradealone,thedeclinesexperiencedduring1929-
30and2008-9wereidentical(15%inbothcases:Figure7,PanelA).Thedifferenceis
thatmanufacturingtradewasaminorityoftotaltradeintheearlierepisode,anda
majorityinthelaterone.PanelBofFigure7takesthesectoraltradeindicesinFigure
5,PanelB,andcalculatestwoweightedaveragesofthese.Thefirst,whichisthe
serieslabeled“GreatDepression”,uses1929weightsformanufacturingandnon-
manufacturing(44%and56%respectively),andyieldsaone-yeardeclineintrade
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between1929and1930of6%,closetothe7.5%declineactuallyexperiencedduring
theGreatDepression.Thesecond,labeled“GreatDepressionwithGreatRecession
weights”,uses2007weights(70%and30%),andproducesaone-yeardeclineof
10%,notsofarfromthe12%declineexperiencedduringtheGreatRecession.It
seemsasthoughcompositionaleffectscanplausiblyexplainwhytradefellsomuch
moreviolentlyduringtheGreatRecessionthanithaddoneduringthefirstyearof
theGreatDepression,andtheymayhavealsoplayedsomeroleintherelatively
rapidrecoveryoftradefrom2009onwards.
Figure7.Thechangingcompositionofworldtrade1929-2007andtheGreatTrade
Collapse
4.Regionalimpacts
Thespreadofmanufacturingacrosstheworldalsohadimplicationsfortheregional
compositionoftheGreatTradeCollapseof2008-9,ascomparedwiththetrade
collapseoftheinterwarperiod.Thevolumeofexportsfellinanalmostidentical
mannerinbothadvancedandemergingeconomiesafter2008,althoughthis
averagetrendfortheemergingeconomiesdisguisessomeregionalvariation,with
exportsfromAfricaandtheMiddleEast,andespeciallyLatinAmerica,fallingless
thenelsewhere(Figure8).Insharpcontrast,whilethevolumeofexportsfrom
Europe,includingtheUSSR,fellby31.5%between1929and1932,andwhilethey
fellby41.5%fromNorthAmericaduringthesameperiod,theyfellbyonly4.5%
fromtherestoftheworld.Ontheotherhand,thevalueofexportsfromthevarious
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regionsoftheworldfellbyquitesimilaramountsoverthesameperiod(Findlayand
O'Rourke2007,p.450).
Figure8.RegionalexportvolumesduringandaftertheGreatRecession
Thecontrastbetweentheseinterwarvalueandvolumefiguresreflectsthe
catastrophicdeteriorationinthedevelopingworld'stermsoftradeduringtheGreat
Depression.Itsoutputmaynothavedeclinedtoanygreatextent,butfallingexport
pricesledtoadepressioninthedevelopingworldanyway.Totakejusttwo
examples:between1929and1931,thegoldpriceofrubberfellbyanastonishing
84%inMalaysia,whilethepriceofteafellby62%(FindlayandO'Rourke2007,p.
449).
Thistermsoftradecollapseacrossthedevelopingworldhadavarietyof
politicalimplications.InLatinAmerica,decliningexportearningsmadeitincreasingly
difficulttoservicecountries'internationaldebtobligations,andEichengreenand
Portes(1986)findthatthesizeofthetermsoftradeshockexperiencedbyindividual
countrieshelpstopredictwhetherornottheydefaultedonthosedebts.Elsewhere,
plantationeconomiessufferedgreatly,despitetheeffortsofcolonialgovernments
toprotectplantationowners.AnthonyReid(2015,p.320)considersthistohave
beenthebeginningofanecessaryandhealthyrebalancingofSoutheastAsian
economies,awayfromanartificialdependenceoncashcropexports,organizedby
thecolonizers,towardsamorenaturalsituationinwhichAsianpeasantsand
manufacturers,andintra-Asiantradeflows,playedagreaterrole.
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Insomecountries,however,itwasthepeasantsthemselveswhoproduced
thecashcropsforexportwhosepriceswerenowplummeting,andtherethepolitical
consequencesoffallingcommoditypriceswereoftensevere–especiallywhen
colonialadministratorsinsistedoncontinuingpaymentoftaxes,particularlypoll
taxes.InBurma,awidespreadpeasantrevoltbrokeoutinDecember1930,andwas
onlysuppressedaftertwoyearsoffighting,whileVietnamalsosawapeasantrevolt
atthesametime.InAfrica,therewaspoliticalunrestinNigeria,riotinginTogo,and
outrightrebellionintheBelgianCongo.Inthisway,thetermsoftradeshock
associatedwiththe1930stradecollapsehelpedtopavethewayforpost-1945
nationalistmovementsthatwouldeventuallysweepawaytheEuropeanempires
thatstilldominatedvastareasoftheworldinthe1930s.
Thenewlyindependentcountriesthatwouldemergeasaresultof
decolonizationinmostcasespursuedimportsubstitutionpolicies,atleastinitially.
Theinterwarperiodhelpedtopromotepost-warprotectionisminthisandmany
otherways.Andwherecountrieshad,inthe1930s,thepoliticalindependence
requiredinordertomaketheirownchoicesabouttradepolicy,theytypicallyused
thatindependencetoerectavarietyoftradebarriers.Itistotheriseofinterwar
protectionthatInowturn.
5.Interwartradepolicy:causes
Figure9comparestheevolutionoftariffsduringtheGreatDepressionandGreat
Recession.Intheformercase,theseriesistheunweightedaverageoftheaverage
tariffratein32countries,providedbyClemensandWilliamson(2004).The
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individualcountryseriesareconstructedbydividingimportdutiesbythevalueof
imports,andarethustrade-weightedaveragetariffs.Inthelattercase,theseriesare
thefiguresprovidedbytheWorldBank’sWorldDevelopmentIndicators,forthe
worldasawhole,ofthesimplemeanoftheappliedtariffrateswithingivenproduct
categories.Sincetheinterwardataarebasedonweightedaveragetariffs,whilethe
GreatRecessiondataarebasedonunweightedaverages,theseriesarenotstrictly
comparable.Giventhatweightedaveragetariffstendtobedownwardbiased(since
goodswithhighertariffsareaccordedlowerweights)thecomparisonprobably
understatestherelativeheightofaveragetariffsduringtheearlierepisode
(AndersonandNeary,2005).
Figure9.AveragetariffsworldwideduringandaftertheGreatDepressionand
GreatRecession
Ascanbeseen,therewasnogeneralincreaseintariffsfollowingtheGreat
TradeCollapseof2008-9.Averagetariffsifanythingfellslightly,remainingwithina
bandofbetween6and7%.Insharpcontrast,interwaraveragetariffsrosefrom
14.5%in1928toover22.5%in1932.Thisgreatlyunderstatestheincreasein
interwarprotection,sincetariffswerefarfrombeingtheonlyprotectionistpolicy
deviceusedduringtheperiod–andtheywerecertainlynotthemostrestrictive.The
1930ssawthewidespreadintroductionofquotasandotherquantitativerestrictions
ontrade,includingthewidespreadadoptionofexchangecontrols.Multiple
exchangerateswerealsousedinmanycases,biasedagainstimports.Eventhe
UnitedKingdom,thetraditionalchampionoffreetrade,switchedtowardsa
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protectionistpolicyinlate1931,followingastrongshowingbytheConservative
partyinthegeneralelectionwhichtookplaceinOctoberofthatyear.6Despitethe
increaseinprotectionistinterventionssince2008documentedbyGlobalTradeAlert,
therecentcrisishasclearlyseennothingevenremotelycomparabletothe
worldwideincreaseinprotectionofthe1930s.
Whywerethetwoexperiencessodifferent?Effectivepost-warinternational
institutions,preventingbackslidingonpreviousagreementstoliberalizetrade,are
surelyanimportantpartoftheexplanation.However,itshouldberememberedthat
theinterwarperiodalsohadaninternationalinstitution,theLeagueofNations,
whichattemptedtoliberalizetradeduringtheperiod.Thefactthatthisinstitution
provedineffectivewassurelyinlargepartendogenoustootherpoliticalforces
operatingbothwithincountriesandbetweenthem.Economichistorianshave
tendedtoemphasizethedeepercausesofthefailureofinterwareconomic
cooperationingeneral,andthefailuretopreventthewholesaleerectionoftariff
barriersinparticular.Tosomeextent,thesedeepercauseshadtodowiththe
underlyingsourcesofpoliticaltensionduringtheperiod,mostlyrelatedtothe
aftermathofWorldWarI.Buttheyalsohadtodowithflawedmacroeconomic
policiesandinstitutions.
Noseriouseconomichistorianbelievesthatinterwarprotectioncausedthe
GreatDepression,butthetwophenomenawerelinkedinthesensethatthey
shared,toalargeextent,acommoncause,namelythegoldstandard(Temin,1989;
Eichengreen,1992).Incombinationwiththeopeninternationalcapitalmarketsof
6TheConservativeswerethetraditionalprotectionistpartyinBritain:tothatextent,today’sToryBrexiteersaremerelyrevertingtotype.
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the1920s,thegoldstandardimpliedthatnegativemonetaryshockswererapidly
generalized,asinthecaseoftheinfamous1928decisiontoraiseinterestratesin
theUnitedStates.Worse,whencountriesasaresultfoundthemselvesinrecession,
theyhadnomacroeconomicpolicyinstrumentswithwhichtorespond.Stayingon
goldruledoutactivistmonetarypolicy,whilecountriesdidnotfeelabletouse
activistfiscalpolicyeither.Indeed,theircommitmenttofiscaldisciplinemeantthat
inmanycasestheyengagedinpro-cyclicalausterity,inanefforttokeepbudget
deficitsundercontrol.Andinmanycases,tobefair,itseemedasthoughtheyhad
littlealternative,asnewlendingdrieduponinternationalcapitalmarkets.Itwas
onlyoncecountrieshadshakenoffthe"goldenfetters"ofthegoldstandard,and
regainedmacroeconomicpolicy-makingindependence,thattheystartedtorecover
–theUnitedKingdomin1931,theUnitedStatesandGermanyin1933,andthelast
holdoutsintheso-calledGoldBlocaslateas1935oreven1936.
AsEichengreenandIrwin(2010)argue,thegoldstandardalsoplayedakey
roleinpromotingtheprotectionismoftheinterwarperiod.Inpart,thiswassimply
becauseanythingthatprolongedthedepressionnecessarilyheighteneddemands
forprotectionfromimportcompetition.Andinpart,thegoldstandardmatteredfor
protectionbecausewhengovernmentswereunabletocombatthedepressionwith
eitherfiscalormonetarypolicy,theyinevitablyturned,eventually,tothosepolicy
instrumentsthatwereattheirdisposal,notablytariffs,quotas,andinmanycases,
exchangecontrols.
Butthegoldstandardalsomatteredforprotectionbecauseofthewayin
whichitwasdismantled.AsEichengreenandIrwinpointout,thefirstbestsolution
wouldhavebeenforallcurrenciestodevalueagainstgoldsimultaneously.Thisisnot
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whathappened–instead,somedevaluedearlierthanothers,intheprocessstealing
acompetitivemarchontheirrivals.Countriesremainingongoldfoundthemselves
withovervaluedcurrencies,andtheresultingbalanceofpaymentsdifficultiesthat
theyfaced,exacerbatedbythefactthatinternationalborrowingwasnolonger
possible,ledthemtoprotecttheirdomesticmarkets.Ascontemporary
commentatorspointedout,resorttoprotectionwasgreatestinthosecountries
stayingongoldthelongest:anirony,giventhatadherencetogoldwassupposedto
signalacommitmenttoarules-basedinternationaleconomicorder.Anditwasoften
whencountriesfinallydecidedtoabandongoldthattheystartedtopursuetrade
liberalization.Thus,theUnitedStatesleftgoldin1933,andthefollowingyear
enactedtheReciprocalTradeAgreementsAct,whichDouglasIrwin(1998a)
considerstobethemomentwhentheUSpivotedtowardsitspost-warroleas
defender-in-chiefofthemultilateralinternationaltradingsystem.
Seenfromthisperspective,thebigdifferencebetweenthetradecollapsesof
theGreatRecessionandGreatDepressionwasthemacroeconomicresponsestothe
twocrises.By2009,centralbanksandgovernmentsaroundtheworldwereengaging
inmonetary,andinsomecases,fiscal,stimulus.Whilemanycommentatorshave
sincethendecriedthelackofambitionshownbygovernmentswhenitcametofiscal
stimulus,therecanbenodoubtthatthemacroeconomicresponsetotheGreat
Recessionwasincomparablysuperiortothepoliciespursuedduringthe1930s.This
obviouslyexplainswhytheGreatTradeCollapseof2008-9wassoshortlivedin
comparisonwiththetradecollapseof1929-33,butitalsoexplainswhytherewasso
muchlessprotectionduringthelatercrisisthanwasexperiencedduringtheearlier
one.
18
6.Interwartradepolicy:consequences
Whatwastheimpactofinterwarprotectionism?Ifitwaseffective,thenit
shouldhavedisintegratedinternationalcommoditymarkets,drivingwedges
betweenproducerpricesinexportingcountriesandconsumerpricesinimporting
countries.Economichistorianshavespentconsiderableenergytryingtodocument
theevolutionoftheseinternationalpricegapsinpreviousperiods,asawayof
gauginglong-runtrendsinglobalization.Comparativelylittleworkhasbeendone
exploringtheimpactofinterwarprotectiononglobalmarkets(andIamunawareof
anyworkattemptingtodothesamefortheperiodsincetheGreatRecession,
perhapsbecausethereisnoreasontobelievethatinternationalcommoditymarkets
haveinfactbecomelesswellintegrated).However,whatworkhasbeendonefor
theinterwarperiodsuggeststhatprotectiondidimpedeinternationalcommodity
marketintegration.
Whenusingpricesinordertoaccuratelymeasuretrendsincommodity
marketintegration,ordisintegration,itisimportanttocomparelikewithlike.Hynes
etal.(2012)thereforeusepricedataextractedfromtheInternationalYearbookof
AgriculturalStatistics,publishedannuallybytheInternationalInstituteof
Agriculture,theforerunneroftheFAO.Theyearbookscontained374weeklyprice
seriesforagreatvarietyofcommoditiesandlocations.Fromthesepriceseries,we
wereabletoextract27pairsgivingpricequotationsforidenticalcommoditiesintwo
differentcities–forexample,"Danish,creameryforexport"butterquotedinboth
19
CopenhagenandLondon,or"No.2winter,American"wheatquotedinbothChicago
andLiverpool.
Armedwiththesepairsofpriceseries,wewereabletocalculatecommodity
andcity-pairspecificpricegaps,annually.Wedidsointwoways.First,weestimated
thresholdauto-regressions(TARs),annually,allowingustocalculatethetradecosts
(asapercentageofdestinationprices)abovewhichpricegapshavetorisebefore
arbitragetakesplace.Second,weaveragedtheweeklypricestogetannualaverages,
anddirectlycalculatedtheresultingpercentagepricegaps.Bothmethodstella
consistentstory.InternationalpricegapshadincreasedsharplyduringWorldWarI,
butfellthereafterastheinternationaleconomygraduallyreturnedtonormal.On
average,forthosecommoditiesforwhichcity-pairpricedatawereavailablefor
1913,theTARmethodologyindicatedthattradecostswere60%higherin1922than
theyhadbeenbeforethewar.By1929,theywereonly42%higher,butin1933they
were159%higher.Aslateas1938,marketswerestillmuchlesswellintegratedthan
theyhadbeenin1929:averagetradecostswere168%higherthantheyhadbeenin
1913.Thesefindingsareconsistentwiththeincreaseinaveragetradecostsbetween
1929and1933estimatedbyJacksetal.(2011),whofollowHeadandRies(2001)and
usegravitytechniquesanddataonbilateralaggregatetradeflows.
Thesehigherpercentagetradecostsweremoretheresultofchangesinthe
numerator(tradecosts)thaninthedenominator(prices).Higherfreightrateswere
nottoblame,since,contraEstevadeordaletal.(2003),theyfellinrealterms
between1925-29and1930-34.Tradepolicyseemslikeamuchmoreplausible
candidate:comparisonsbetweenpricegapsinvolvingtheUKandcountriesinside
theEmpiresuchasCanada(whichfacednoagriculturaltariffswhenexportingtothe
20
UK)andcountriesoutside,suchasArgentina,whichdidfaceagriculturaltariffswhen
exportingtoBritain,clearlyindicatethattradepolicywasanimportantfactordriving
highertradecostsduringthisperiod.However,thereisalsoanecdotalevidence
suggestingthatscarcecreditanduncertaintymayhavebeenincreasingtradecosts
duringtheperiod,evenbetweencountriessuchasCanadaandtheUK.
Itseemsasthoughcommoditymarketsdisintegratedduringthe1930s.What
weretheimplicationsofinterwarprotectionismfortradeflows?Thecurrent
consensusisprobablythat,whileprotectionismdepressedtradeflowsoverall,its
impactwasminorrelativetotheenormouscollapseofoutputandincomes
experiencedduringtheperiod.7Inanearlycontribution,Irwin(1988b)usedpartial
equilibriumtechniques(andeconometricallyestimatedelasticities),andfoundthat
evenintheabsenceofanychangeintariffrates(butaccountingfortheincome
declinesoftheperiod),USimportswouldhavedeclinedby31.9%between1930:II
and1932:III,ascomparedwiththe41.2%reductionthatactuallytookplace.Evenin
theabsenceoftheSmoot-Hawleyrevisionstotariffschedules(butaccountingfor
theimpactofincomedeclinesanddeflation),USimportswouldhavefallenby38.3%
overtheperiod,orbyalmostasmuchasactuallyoccurred.Thefindingistherefore
thattradedeclineswereprimarilyduetofallingincome,withdeflationalsoplaying
animportantrole(byraisingtheadvaloremequivalentofspecifictariffs),and
Smoot-Hawleybeingarelativelyunimportantplayerintheprocess.8
7Madsen(2001)isanexception.8Estevadeordal,FrantzandTaylor(2003)estimateagravitytrademodelusingpooleddatafor1913,1928and1938.Theyfindlargenegativecoefficientsonaveragetariffs,althoughtheseareoftenstatisticallyinsignificantatconventionallevels.Theyalsofindthatworldtradecouldhavebeenabout50%higherinthe
21
Perhapsitisnotsosurprisingthatprotectionhasemergedinthecliometric
literatureasarelativelyminorcontributortotheworldtradecollapseof1929-33–
worldincomeandoutputfellbysomuchduringthisperiodthatitcanplausibly
accountforthemajorityofdecliningtrade,leavingrelativelylittleforrisingtrade
barrierstoexplain.Butthequantitativeliteraturehasalsotendedtodownplaythe
impactoftradepolicyonasecondstrikingfeatureofworldtradeduringthisperiod
–itsdecreasinglymultilateralnature.
FolkeHilgertwroteparticularlyfrequentlyonthesubject.Asearlyas1935,
henotedthatthetraditionalmultilateralpaymentssystem,whichhadbeen
establishedinthenineteenthcentury,hadbrokendown(Hilgerdt,1935).Rapidly
industrializingeconomiesinContinentalEuropeandtheUnitedStatestraditionally
paidfortheirincreasingimportsoffoodandrawmaterialsbyrunninganexport
surplusinmanufacturinggoodsvis-à-vistheUK.TheUK,initsturn,financedthis
manufacturingdeficitinlargepartwiththeincomeitmadeonitsenormous
overseasinvestments,butalsobymeansofamanufacturingexportsurplustoits
colonialempire.Debtorcountriesfinancedtheirdebtsbyexportingprimary
products,bothtoBritainitself,andtoContinentalEuropeandNorthAmerica.
Allthischangeddramaticallyduringthe1930s:“Wemaycharacterizethe
changethatoccurredasadisintegrationofworldtrade:whilepreviously
internationalsettlementtookplacewithinaworld-widenetworkofmultilateral
1930sthanitactuallywasifworldtariffshadstayedattheir1913levels.However,theircounterfactualdoesnotaddresstheissueofwhattheimpactwasoftheincreaseinprotectionafter1929onworldtradebetween1929and1932.Similarly,Jacksetal.(2011)donotaddresstheissueofwhatcausedthetradecollapseof1929-33,althoughtheyfindthatfortheentire1921-39period,risingtradecostsfullyoffsettheimpactofGDPgrowthonworldtradeflows.
22
transactions,therewasinthe‘thirtiesatendencytoachievesettlementeitherin
bilateralexchangebetweentwocountries,orwithinthelimitedrangeofcountries
attachedtoeachotherbypoliticalorotherties”(LeagueofNations,1942,pp.90-1;
citedinEichengreenandIrwin1995,p.1).Table1givestheLeagueofNation'sdata
ontheshareofmajorcountries'exportsgoingto,orimportscomingfrom,their
empiresorspheresofinfluence.Ascanbeseen,thesesharesincreased
systematicallyafter1929.TheincreaseoccurredduringtheDepressionyearsinthe
casesofBritain,France,theUnitedStates,andPortugal;itoccurredafter1932inthe
casesofGermany,Italy,andJapan.TheshareofItalianexportsgoingtohercolonies
andEthiopiarosefrom2to23%between1929and1938,whiletheshareofGerman
exportsgoingtosoutheastEuroperosefrom5to13%,andtheshareofJapanese
exportsgoingtoKoreaandTaiwanrosefrom17to33%.Therewerealsolarge
increasesinimperialtradesharesinbothBritainandFrance.
Table1.Theshareofformalandinformalempiretrade,1929-1938
Inapioneeringpaper,EichengreenandIrwin(1995)downplaytheroleof
tradeblocsincreatingthetradebalkanizationoftheperiod.UsingtheLeagueof
Nation’sdataonbilateraltrade,theyfindthatpairsofcountriesthatbothbelonged
totheBritishCommonwealthtradedmoreheavilywitheachotherinthe1930s.
However,theyalsofindthatthiseffectwasalreadypresentin1928,beforeBritain
movedtoprotection,andbeforethe1932Ottawaagreementssetinplace
preferentialtradepolicieswithintheEmpire.Theyconcludethat“thetendency
towardregionalisationcommonlyascribedtotheformationoftradeandcurrency
23
blocswasalreadyevidentpriortotheregionalpolicyinitiativesofthe1930s;toa
considerableextentitisattributabletoongoinghistoricalforcessuchascommercial
andfinanciallinkagesbetweencountriesforgedovermanyyears.”Subsequent
literature(WolfandRitschl2011,GowaandHicks2013),alsousingdataon
aggregatetrade,hascometosimilarconclusions,althoughGowaandHicks(2013)
findthattradepolicymayhaveboostedtradebetweentheUKandherDominionsin
ahubandspokemanner(thoughnotbetweentheDominions).
Inarecentpaper,co-authoredwithAlandeBromhead,AlanFernihough,and
MarkusLampe,Irevisitthequestionofwhethertradepolicywasresponsibleforthe
shifttowardsintra-imperialtrade,butadoptanentirelydifferentempiricalapproach
intacklingtheissue(deBromheadetal.2017b).Ratherthanexploringthe
relationshipbetweenbilateralaggregatetradeflows,ontheonehand,andjoint
membershipofanimperialbloc,ontheother,weexploreingranulardetailthe
changingtradepoliciespursuedbytheUnitedKingdom,andaskwhetherthesecan
helptoexplaintheincreasingshareofUKimportscomingfromtheEmpire.Tothis
end,weconstructadatabaseofUKimportsof258productcategories
(commodities),from42countries,between1924and1938.Wealsocalculate
commodityandcountry-specifictariffrates,andcodeaseriesofdummyvariables
indicatingwhetherquantitativerestrictionsofvariouskindsappliedtoimportsof
particularcommoditiesfromparticularcountriesinparticularyears.Thisallowsusto
computeelasticitiesofsubstitutionbetweenvarietiesofthesamegoodcomingfrom
differentcountries(forexample,wheatcomingfromFranceandCanada).
WethenplugthoseelasticitiesintoasimplemodeloftheUKeconomy,and
calculatecounterfactualimportflows,foreachcommodityandtradingpartner,
24
assumingthattheshifttoprotectionin1931hadnottakenplace(thatis,holdingthe
structureofprotectionfixedatits1930levelinsubsequentyears).Havingdonethis,
wecancalculatecounterfactualImperialsharesofUKimports;bycomparingthese
counterfactualshareswiththeactualshares,weobtainestimatesoftheimpactof
protectionontheshareoftheBritishEmpireintheUK’simports.
Thatimpactwaslarge.Iftradepolicyhadremainedfrozenatits1930level,
theEmpirewouldhaveaccountedforbetween30%and32%ofUKimportsin1935,
whereasinfactitaccountedfor39%.Onaconservativeestimate,tradepolicy
accountedfor70%oftheshiftbetween1930and1933,and60%oftheshift
between1930andeither1934or1935.Discriminatorytradepolicymaynothave
beenthemajorfactorreducingtradeflowsduringthisperiod,butithadamajor
impactonthedirectionofthoseflows.
Atradetheorist,impressedbytheextenttowhichimportsfromsomeparts
oftheworldwereabletosubstituteforimportsfromelsewhere,mightconclude
thatthewelfareimpactofinterwartradepolicieswasnotthatgreat–atleast,ifit
turnsoutthattheresultsobtainedforBritaincanbegeneralized.Butthatwouldbe
tomissthepoliticalcontextoftheperiod,andtherealsignificanceofthese
discriminatorytradepolicies,andtheformationofimperialorquasi-imperialtrade
blocs.Contemporariesandsubsequenthistorians,lookingbackattheexperienceof
theinterwarperiod,wereinlittledoubtthatthemoveawayfrommultilateralism
wasoneofthemostdestructiveanddangerousfeaturesoftheinterwareconomy.It
obviouslyreflectedthegrowingpoliticaltensionsoftheperiod,butobserversfelt
thatitalsocontributedtothem.Writingin1941,J.B.Condliffewrotethat"itisnow
soobviousastohardlyneedstatementthatbilateraltradetookonaggressiveand
25
destructiveaspectsasinternationalrivalriesweresharpenedintheeraofwhatis
nowknownaspre-belligerancy"(Condliffe,1941,p.287).
Bilateraltradecouldbeparticularlyworryingwhencountrieswereheavily
dependentonimportedrawmaterials,sinceitinevitablyledtoconcernsinsome
casesaboutfutureaccesstosuchitems.In1935,Hilgerdtwrotethat"Asbilateralism
particularlyrendersthesupplyofrawmaterialstocertaincountriesdifficult,it
threatenstoleadtoanintensifiedfightforinfluenceupon(orthedominationof)the
undevelopedcountries,andtherebytopoliticalcontroversies,whichmayadversely
affectallformsofpeacefulcollaborationbetweennations”(Hilgerdt,1935,p.188).
Inparticular,countrieswhichfinancedtheirimportsofrawmaterialsfromthe
tropics,or“regionsofrecentsettlement”,byexportingmanufacturedgoodstothe
UKandotherrichcountries,mightfindthemselvesfacing"theproblemof
commercialaccesstorawmaterialswhichovershadowedcommercialandpolitical
relationsduringthethirties"(Hilgerdt1943,p.404).Efficientspecializationrequired
multilateraltrade;"Failingthis,therewillalwaysbeastrongincentiveforeach
countrytoincreasetheefficiencyofitseconomybyincludingforeignareasunderits
domination.Toascertainthefunctioningofthemultilateraltradingsystemis
thereforenotonlyaneconomictask,itisalsoanobjectofgeneralpolicy,asit
reducestensionsofthekindthatareinstrumentalinbringingaboutwar"(ibid,p.
405).
Inarecentpaperco-authoredwithRobertoBonfatti(BonfattiandO'Rourke,
forthcoming),Idevelopamodelthathelpstoelucidatethewaysinwhichsuch
tensionsmightindeedbringaboutwar.Weconsideraworldinwhichafolloweris
catchinguponanestablishedleader,andinwhichthefollowercannotcrediblypre-
26
committonotuseitsgreaterpowerinthefuture.Inthistypeofmodel,thetypical
predictionisthattheleadermaythereforepre-emptivelyattackthefollower,locking
inthebenefitsofitsexistingstrongpositionbeforeitistoolate.However,itwas
JapanthatattackedtheUnitedStatesin1941,notviceversa.Inordertoexplainthis
andvariousothercases,weintroducetwonewassumptionsintothestandard
model.First,weassumethatthefollowerneedstoimportincreasingamountsof
rawmaterialsfromtherestoftheworld,asitundergoesstructuralchange;and
second,weassumethattheleader,astheestablishedhegemon,maybeableto
blockadethefollower’strade.
Theestablishedleadermaywellbelosingouttothecatching-upfollowerin
termsofpotentialmilitarypower.However,industrialcatchingupisadouble-edged
swordforthefollower–whileitmakesitsmilitaryapparatuspotentiallymore
powerful,rapidgrowthandstructuralchangealsomakesitmoredependenton
importedrawmaterials.Iftheleaderhasthecapacitytoblockadetheseimportsin
caseofwar,thefollowermayactuallybecomemilitarilyweaker,ratherthan
stronger,overtime.Inthiscase,itmaybethefollowerthatlaunchesapre-emptive
warontheleader,andnottheotherwayaround.Thefollowermayalsodecideto
attackresource-richperipheralareasinanattempttobecomemoreself-sufficient,
orentirelyself-sufficient,inrawmaterials,evenifbydoingsoitrunstheriskthatthe
leaderwillrespondbydeclaringwaronit.WorldWarIIobviouslyhadmanydifferent
causes,butequallyobviouslyadesiretoachievestrategicself-sufficiencyhelpsto
explainJapan'sinvasionsofManchuria,China,andSoutheastAsia,aswellas
Germany'sinvasionsofPoland,and,especially,theSovietUnion(Barnhart1987,
Tooze2006).ThebreakdownofthemultilateraltradingsystemcannotexplainHitler,
27
ortheoutbreakofWorldWarII,butitwassurelyonefactoramongseveralmaking
theworldamuchmoredangerousplaceduringthe1930s.
7.Afinalthought
LetmeendwhereIbegan,inSoutheastAsia,attheheartoftheoldsea
routeslinkingEastandWest.OneofthemostobviousfeaturesofSoutheastAsian
geographyisthenaturalbottlenecksorchokepointsthroughwhichtradehasto
passonitswayineitherdirection:inparticulartheMalaccaStraits,butalsothe
IsthmusofKraandtheSundaStraits.Whateverpowerwasincontrolofthese
bottleneckscouldpotentiallyearnlucrativerents,basedontaxingthetradepassing
throughthem.Betweentheseventhandeleventhcenturies,astateknownas
Srivijaya,basedinPalembanginsouth-easternSumatra,establishedaprosperous
andpowerfultradingempirebasedoncontrolofthestraits.Araidin1025bythe
CholadynastyofsouthernIndiaendedSrivijayanhegemony,butthestrategic
importanceofthestraitsneverdiminished.APortugueseapothecarynamedTomé
PiresstayedinMalaccabetween1512in1515,shortlyafterthePortuguese
conqueredit.InhisSumaOriental,writtenduringhisstaythere,hewrote
enthusiasticallythat"theLordofMelakahashishandonthethroatofVenice"–
sincebycontrollingthestraits,PortugalcouldchokeoffthesupplyofSoutheast
AsianspicesgoingtoherVenetianrival.Halfamillenniumlater,theChinaYouth
28
Dailywrotethat"ItisnoexaggerationtosaythatwhoevercontrolstheStraitof
MalaccawillalsohaveastrangleholdontheenergyrouteofChina".9
Iftheexperienceofthe1930stradecollapseisanythingtogoby,
discriminatoryprotectiondistortingthepatternoftradecanbeaverydangerous
thing.IftheveryfirstarticleoftheGATTprohibiteddiscriminatorytradepolicies,this
wasforagoodreason.Geographymeansthatwewillalwaysliveinaworldinwhich
somecountriesaredependentonimportedfoodandrawmaterials,sometimes
uncomfortablyso.Therewillalwaysbestrategicvulnerabilitiesfacingsomestates,
andgeographicalchokepointstoexacerbatethese.Despitesomeprotectionist
backsliding,theruleoflawhasgenerallyheldsince2008.Maintainingarules-based,
multilateral,internationaltradingsystemwillbecrucialgoingforward,notjuston
economicgrounds,butinordertokeepthepeace.
9ChinaYouthDaily,June15,2004.
29
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Inim
ports
Inexports
Trad
eof
Shareof
1929
19
32
1938
19
29
1932
19
38
UnitedKing
dom
BritishCom
mon
wealth
,colon
ies,protectorates,
etc.
30.2
36.4
41.9
44.4
45.4
49.9
UnitedStates
Phillippine
s2.9
6.1
4.8
1.6
2.8
2.8
Fran
ce
Fren
chcolon
ies,protectoratesand
man
dated
territo
ries
12
20.9
25.8
18.8
31.5
27.5
Belgium
BelgianCo
ngo
3.9
3.8
8.3
2.6
1.3
1.9
Nethe
rland
sNethe
rland
soverseasterritories
5.5
58.8
9.4
5.9
10.7
Italy
Italiancoloniesand
Ethiopia
1.5
1.1
1.8
2.1
3.6
23.3
Portug
al
Portug
ueseoverseasterritories
7.9
10.4
10.2
12.7
13.9
12.2
Japa
nKo
reaan
dForm
osa
12.3
26.2
30
16.8
21.6
32.9
Kw
antung
6
41.6
4.8
6.8
13.7
Man
churia
1.9
2.7
92.5
1.5
8.1
Re
stofC
hina
5.8
44.4
10.9
7.3
8
TotalJap
anesesphe
reofinfluen
ce
26
36.9
45
35
37.2
62.7
German
yBu
lgaria,G
reece,Hun
gary,R
oman
ia,Turkey,
Yugo
slavia
4.5
5.5
12
53.9
13.2
Latin
America
12.2
11.2
15.6
7.8
4.3
11.5
To
talG
erman
sphe
reofinfluen
ce
16.7
16.7
27.6
12.8
8.2
24.7
Table1.The
shareoffo
rmaland
inform
alempiretrad
e,192
9-1938
Source:LeagueofNations(1
939,pp.34-5).
38
Figure1.EnglishandFlemishrealpepperprices,1400–1500
Source:O’RourkeandWilliamson(2009).
0
50
100
150
200
250
300
350
400
1400 1410 1420 1430 1440 1450 1460 1470 1480 1490 1500
1500=100
Antwerp England
39
Figure2.SoutheastAsiancloveexportsandprices,1500–1789
Source:Bulbecketal.(1998,table2.15,pp.58–59).
0
200
400
600
800
1000
1200
0
50
100
150
200
250
300
350
400
450
500
1500 1550 1600 1650 1700 1750 1800
Dollarsperton
Tons
Exports(lefthandscale) Price(righthandscale)
40
Figure3.Clovepricegaps,Amsterdam-SoutheastAsia,1580s-1880s
Source:O’RourkeandWilliamson(2002),basedondatainBulbecketal.(1998).
0
5
10
15
20
25
30
1580 1630 1680 1730 1780 1830 1880
Amsterdamprice/SoutheastAsianprice
41
PanelA.Worldtrade
PanelB.Worldindustrialoutput
Figure4.Twogreattradecollapsesandindustrialdepressions
Source:EichengreenandO’Rourke(2009),updatedusing
http://www.cpb.nl/en/figure/cpb-world-trade-monitor-april-2017
40
50
60
70
80
90
100
110
120
130
1
6
11
16
21
26
31
36
41
46
51
56
61
66
71
76
81
86
91
96
101
106
111
June1929=100 April2008=100
40
50
60
70
80
90
100
110
120
1
6
11
16
21
26
31
36
41
46
51
56
61
66
71
76
81
86
91
96
101
106
June1928=100 April2008=100
42
PanelA.Worldoutput
PanelB.Worldtrade
Figure5.WorldoutputandtradeduringtheGreatDepression
Source:Almuniaetal.(2010).
60
70
80
90
100
110
120
130
1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939
1929=100
Agriculturalprimary Non-agriculturalprimary
Semi-manufacturedrawmaterials Manufacturing
50
60
70
80
90
100
110
1928 1930 1932 1934 1936 1938 1940
1929=100
Manufacturing Non-manufacturing
43
PanelA.Worldoutput
PanelB.Worldtrade
Figure6.WorldoutputandtradeduringtheGreatRecession
Source:WorldDevelopmentIndicators,WTO
90
95
100
105
110
115
120
125
2008 2009 2010 2011 2012 2013 2014 2015 2016
2008=100
Agriculture Manufacturing Services
80
85
90
95
100
105
110
115
120
2008 2009 2010 2011 2012 2013 2014 2015
2008=100
Agriculturalproducts Fuelsandminingproducts
Manufactures
44
PanelA.Worldmanufacturingtradeduringtwocrises
PanelB.Theimpactofcompositionalshiftsonthevolumeofworldtrade
Figure7.Thechangingcompositionofworldtrade1929-2007andtheGreatTrade
Collapse
Sources:PanelA:asforFigures6,7;PanelB:Almuniaetal.(2010),updated.
50
60
70
80
90
100
110
120
1 2 3 4 5 6 7
1929or2008=100
GreatDepression(1929=100) GreatRecession(2008=100)
60
70
80
90
100
110
120
1929 1929.5 1930 1930.5 1931 1931.5 1932 1932.5 1933
1929=100
GreatDepression
GreatDepressionwithGreatRecessionweights
GreatRecession
45
PanelA.Advancedversusemergingeconomies
PanelB.Regionalexportdeclines
Figure8.RegionalexportvolumesduringandaftertheGreatRecession
Source:http://www.cpb.nl/en/figure/cpb-world-trade-monitor-april-2017
70.0
80.0
90.0
100.0
110.0
120.0
130.0
140.0
Apr-08 Aug-09 Dec-10 May-12 Sep-13 Feb-15 Jun-16
April2008=100
Advanced Emerging
75.0
80.0
85.0
90.0
95.0
100.0
105.0
110.0
115.0
Apr-08 Oct-08 May-09 Nov-09 Jun-10
April2008=100
Advanced EmergingAsia CEE
LatinAmerica MENA
46
Figure9.AveragetariffsworldwideduringandaftertheGreatDepressionand
GreatRecession
Source:ClemensandWilliamson(2004),WorldDevelopmentIndicators.
0
5
10
15
20
25
2007 2008 2009 2010 2011 2012 2013 2014 2015
Percent
Now:allproducts Now:manufacturedproducts
Now:primaryproducts GreatDepression(2007=1928)