My Conversation with Douglas Irwin, audio and transcript

by on December 1, 2017 at 8:11 am in Books, Economics, Film, History, Law, Political Science, Web/Tech | Permalink

Doug’s new book Clashing over Commerce: A History of US Trade Policy is the greatest book on trade policy ever written, bar none. and also a splendid work of American history more generally.  So I thought he and I should sit down to chat, now I have both the transcript and audio.

We covered how much of 19th century American growth was due to tariffs, trade policy toward China, the cultural argument against free trade, whether there is a national security argument for agricultural protectionism, TPP, how new trade agreements should be structured, the trade bureaucracy in D.C., whether free trade still brings peace, Smoot-Hawley, the American Revolution (we are spoiled brats), Dunkirk, why New Hampshire is so wealthy, Brexit, Alexander Hamilton, NAFTA, the global trade slowdown, premature deindustrialization, and the history of the Chicago School of Economics, among other topics.  Here is one excerpt:

COWEN: Here goes. The claim that 19th century American growth was driven by high tariffs. What’s your take?

IRWIN: Not really true. If you look at why the US economy performed very well, particularly relative to Britain or Germany or other countries, Steve Broadberry’s shown that a lot of the overtaking of Britain in terms of per capita income was in terms of the service sector.

The service sector was expanding rapidly. It had very high productivity growth rates. We usually don’t think as that being affected by the tariff per se. That’s one reason.

We had also very high productivity growth rates in agriculture. I’ve done some counterfactual simulations. If you remove the tariff, how much resources would we take out of manufacturing and put into services or agriculture is actually pretty small. It just doesn’t account for the success we had during this period.

COWEN: Is there any country where you would say, “Their late 19th century economic growth was driven by tariffs?” Argentina, Canada, Germany, anything, anywhere?

IRWIN: No. If you look at all those, once again, in late 19th century, they were major exporters, largely of commodities, but they did very well that way. You know that Argentina was one of the richest countries in the world in the late 19th century. It really wasn’t until they adopted more import substitution policies after World War I that they began to fall behind.

Definitely recommended, and here is Doug’s Wikipedia page.

1 shrikanthk December 1, 2017 at 8:24 am

Very nuanced interview. Thanks.

But it’s interesting how the free trade argument is no longer strongly positivist – as in the effort is no longer to demonstrate that low tariffs boost growth, but rather to suggest that there is no great growth story that can be attributed to a protectionist high tariff regime.

In that sense, the Free traders have taken a step back and gone on the defensive since the emergence of Trumpian discourse.

On top of the lack of positivism in the pro-trade arguments, Irwin’s explicit denial that Smoot Hawley caused the Great Depression suggests that even the leading Free trade proponents in the Economics profession now believe that the causal link between Free trade and economic growth is overrated.

Fair?

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2 Tanturn December 1, 2017 at 10:56 am

+1

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3 Todd K December 1, 2017 at 11:53 am

“… even the leading Free trade proponents in the Economics profession now believe that the causal link between Free trade and economic growth is overrated.”

The first article I read by Paul Krugman was one where he pointed out U.S. trade then in 1995 wasn’t that important for growth (or that it was over emphasized) because it was a small percentage of GDP. I thought he was crazy at first…

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4 Harun December 1, 2017 at 3:22 pm

I wonder if its simply that Trade is good, but trade with foreigners is often smaller than all other trade going on.

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5 shrikanthk December 1, 2017 at 3:47 pm

Every economic transaction is a trade. So in the absence of trade, there is no economy.

What we are referring to here is specifically inter-border trade and the barriers to it, and the impact of those barriers on economic growth.

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6 M December 2, 2017 at 8:38 am

Trump is a specific manifestation of a general malaise; part of the logic behind NAFTA and the European Single Market was that the growth at the technological frontier was constrained by market size, and thus There Is No Alternative but to join, to experience continued growth.

Yet we find Tyler’s “Great Stagnation” of technological growth in line with globalization, and the “Great Stagnation” as a primary factor in why living standards in the developed world do not show growth. Catchup growth has working well for China from export based models, yet increased market size and market access seem to resolutely fails to move the technological frontier and so fails to significantly move median nominal Western GDP/capita (and fails to move welfare and economic complexity even more).

And this is wholly consistent with the broad view from economic history: https://medium.com/@MarkKoyama/could-rome-have-had-an-industrial-revolution-4126717370a2

“First, there those who tend to think that market expansion is sufficient for sustained economic growth. Call them group 1. They will be inclined to favorably quote Adam Smith from his lectures on jurisprudence that “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice”. Many libertarian-learning economists are in this category but few active economic historians.”.

Market expansion – and trade across borders specifically – does not really usefully explain economic growth at the technological frontier.

So we find bellicist, or more broadly state competition, and culture of growth arguments gaining currency in the West… And these are inevitably somewhat anti-free trade arguments as “National security arguments” really are key *across* trade, not just in agriculture, as the major real rejoinder towards free trade. You concentrate, for example, steel production in your country not because it delivers the most efficient Smithian growth, but because it means you have weapons when the Russians come, etc. or you maintain barriers to migration to maintain a consciousness of your culture as a separate, competing culture.

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7 clockwork_prior December 1, 2017 at 8:27 am

Of course, looking at the 20th Century, Japan seems to have done quite well by ensuring trade barriers remained in place while taking advantage of those countries that believed in a free market.

Of course, who really cares about manufacturing TVs or VCRs, right? Americans certainly don’t.

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8 dan1111 December 1, 2017 at 8:38 am

Ha ha, Americans don’t care about manufacturing VCRs at all, and your point about Japan is about as timely:

https://www.theneweconomy.com/technology/japanese-brands-exit-the-global-television-market

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9 JWatts December 1, 2017 at 9:02 am

Wow, that was really a swing and a miss by prior.

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10 Albert December 1, 2017 at 11:06 am

How so? I don’t get it. Didn’t Japan dominate the electronics industry and grow greatly because of it? It currently has economic problems, but I think most Americans would prefer the Japanese economy to the American one (I know I would).

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11 Al December 1, 2017 at 11:27 am
12 JWatts December 1, 2017 at 12:23 pm

“but I think most Americans would prefer the Japanese economy to the American one (I know I would).”

Japan is both poorer than the US and has slower growth.

The swing and the miss is that trade barriers did help Japan in the short run, but in the long run their economy hasn’t been very flexible and their consumer electronics industry is in poor shape.

Reference:
“CNet NOVEMBER 9, 2012 The era of Japanese consumer electronics giants is dead

Once venerable names in consumer electronics such as Sony, Panasonic, and Sharp have been besieged by competition from rivals in the U.S., South Korea and, increasingly, China.

These days, the Japanese consumer-electronics giants have largely been reduced to also-rans, many of which struggle just to turn a profit. Today, Sony’s debt was downgraded for the second time in a month to one notch above junk status by Moody’s. Sharp, a massive loser in the stock market this year, is already at junk status and is seeking a bailout from the Japanese government.

This collapse marks a dramatic change for companies that once stood on top of the consumer electronics world. It also largely marks the end of an era in which these Japanese companies thought they could operate in a myriad of different businesses.”
https://www.cnet.com/news/the-era-of-japanese-consumer-electronics-giants-is-dead/

13 clockwork_prior December 1, 2017 at 10:08 am

Here I was, thinking that one would have pointed out that both TVs and VCRs are obsolete technology (which they are – who buys CRTs or cassettes anymore, much less manufactures them for the consumer market), to which the reply would have been that the fact that Japan was able to protect its market while making huge amounts of money in the consumer electronics market (among others, such as automobiles or construction equipment) over at least a generation would have been a concrete example of a country enjoying enviable growth while protecting domestic industries.

Of course, South Korea and China are further examples of countries that fiercely defend their own markets, so what I thought had been the actual point – that Japan was able to grow quite well while protecting its own domestic market – has been been extended to two other examples.

Thanks for the help in showing how easy it is to find examples of countries with notable growth that have also been notable in protecting their markets during our lifetimes.

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14 dan1111 December 1, 2017 at 11:05 am

What was that loud noise I heard? I think it must have been the sonic boom from your goalposts achieving supersonic speed.

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15 JWatts December 1, 2017 at 11:33 am

“Here I was, thinking that one would have pointed out that both TVs and VCRs are obsolete technology (”

That’s precisely what dan1111 did point out. And yes, once again, you attempt to move the goal posts instead of just admitting your post was weak.

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16 Pshrnk December 1, 2017 at 2:21 pm

I care that someone on earth makes TVs and VCRs. (OK blue ray, Roku)

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17 A Truth Seeker December 1, 2017 at 8:29 am

So that is it: Americans don’t need to biuild things anymore. They will prosper by giving each other haircuts and selling each other apps and reverse swaps. Meanwhile, a hollowed America watch China finlandize the rest of Asia and, lkke a Dickensian character, all it has to say about borrowing money from the enemy is, “Please, sir, I want some more”. Is it for that that the brave men who struggled in Lexington, Concord, Iwo Jima and Seoul have consacrated, hallowed those grounds, far beyond our poor power to add or detract?! Somehow, I doubt it!!

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18 Real Talk December 1, 2017 at 12:22 pm

You’re a sad clown.

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19 A Truth Seeker December 1, 2017 at 2:23 pm

I am a sad clown.

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20 Alan Goldhammer December 1, 2017 at 8:35 am

Excellent interview and some points were made that I long felt were counter intuitive. I agree about how China is moving to pass the US as an economic power and the current administration seems to be asleep at the wheel regarding this (as well as many other things).

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21 JWatts December 1, 2017 at 8:37 am

“China is moving to pass the US as an economic power and the current administration seems to be asleep at the wheel regarding this ”

Precisely how did the last administration do better on this topic?

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22 dude December 1, 2017 at 8:40 am

I would hope that we could all agree that the “administration” current or otherwise is never really “at the wheel” at all under our current system.

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23 msgkings December 1, 2017 at 12:24 pm

Thank you, +1

It’s not “Obama’s economy” or “Trump’s economy” or “Clinton’s market” or “Bush’s market”. A U.S. president has nothing to do with China’s growth story.

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24 chuck martel December 1, 2017 at 8:50 am

Do citizens of New Zealand or Belgium open their eyes in the morning and think to themselves, “Gee, if only this were America, I’d be living in an economic power. I’d have better television, more fashionable clothing and beige wall-to-wall carpeting in the house”? When the Chinese, that billion+ monolith that hasn’t changed an iota in years and certainly won’t change in the future, overtakes the US in cosmetic surgery, orthodontics, and romance novel publishing, probably Americans will just throw in the towel and quit mowing their lawns and driving the kids to soccer practice. The East-West economic battle will be worse than the New England Patriots crushing the 49ers.

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25 Pshrnk December 1, 2017 at 2:25 pm

The last administration was the last administration. Learn from their and your mistakes and move forward instead of making wimpy excuses.

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26 dan1111 December 1, 2017 at 8:41 am

Calling Trump “asleep at the wheel” on the China issue is absurd. Whatever you think of his approach to trade (I don’t like it), he has given U.S.-China economic competition much more attention than any recent president

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27 Thor December 1, 2017 at 11:07 am

It is for precisely this reason that I will now regard subsequent postings by Mr Goldhammer with a skeptical, and perhaps even a jaundiced, eye.

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28 msgkings December 1, 2017 at 12:25 pm

LOL hear that? That’s Mr. Goldhammer crying pitifully in the corner hearing this news.

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29 TMC December 1, 2017 at 1:57 pm

He’s been doing that for over a year now.

30 Butler T. Reynolds December 1, 2017 at 2:03 pm

I was thinking the same. The more a president sleeps at what he perceives to be the wheel, the better for the rest of us.

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31 JWatts December 1, 2017 at 8:35 am

“COWEN: . But today, as you know, there are numerous research papers which look pretty hard to find any gains at all. You may be able to find small gains from NAFTA. But it’s unclear what the payoff from NAFTA really has been. If you look at the Mexican economy, there doesn’t appear to be convergence.”

“IRWIN: I spoke to one trade negotiator about this once. They said NAFTA is not a good trade agreement. NAFTA is an effing great trade agreement. And I agree. It’s a great trade agreement. Once again, US barriers towards Mexican products were already pretty low. So it’s not like we’re getting some big consumer surplus gains from taking down pretty big barriers.

What it did was solidify the US-Mexican relationship. Here you’re appealing to foreign policy a little bit.

I think it’s, on net, been very good for Mexico.

There is an attitudinal shift in Mexico, a much greater openness towards the world. That’s been all to the better. We’ve seen the basically one-party state dissolve into a competitive democracy. So I think NAFTA and the greater openness that it’s brought about have been very good for Mexico.”

So, NAFTA’s is foreign policy more than a trade treaty. Wouldn’t that indicate it’s failed in its primary purpose?

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32 dan1111 December 1, 2017 at 8:48 am

That’s a weird way to summarize what you have quoted above.

He never said that it failed in terms of trade, only that the potential impact was fairly small due to already-low trade barriers.

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33 JWatts December 1, 2017 at 9:16 am

NAFTA was sold to the American public as a Trade treaty that would make significant economic gains to America. Instead the economic gains have been small and a subject matter expert is defending it on foreign policy grounds.

I’m not saying it was worthless. But I think it’s fair to say, it’s not a good trade deal from an American perspective. It might be an acceptable Foreign policy agreement.

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34 Brian Donohue December 1, 2017 at 9:44 am

Small gains to the US are gains nonetheless.

But is it really a foreign policy issue when you are talking about a (at the time) largish, poor country — arguably, a one-party petro-state — that you share a long border with.

When illegal aliens come to the US, it’s a domestic policy issue. As Mexico has climbed to middle-income status, the number of illegals they send our way has dropped.

Don’t you want a neighbor like that to be functional as a matter of domestic policy? Especially if the “cost” to you is “small gains overall”.

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35 JWatts December 1, 2017 at 10:07 am

“Don’t you want a neighbor like that to be functional as a matter of domestic policy? Especially if the “cost” to you is “small gains overall”.”

Yes. That being said, it does make me believe that Trump has a point, when he says that the US should negotiate a better deal. It seems as if nearly all the gains are accruing to Mexico and, as you say, the primary benefit to the US is that Mexico is no longer so bad that all of it’s citizens want to flee to the US.

So, I’m not arguing to remove NAFTA. I’m arguing for a NAFTA 2.0, probably one where the further gains to Mexico are small, but the gains to the US are large. Perhaps, adding an additional foreign policy agreement ensuring that Mexico has a commitment with incentives to reduce the large number of illegal immigrants traveling through Mexico on their way to the US from Central and South America.

36 TMC December 1, 2017 at 12:21 pm

You see this as well in Tyler’s question:

“COWEN: When the United States, and indeed the West more generally, let China into the WTO, many people are now saying, “It turns out, looking back, we gave up too much leverage. We had a lot of leverage at the time. We didn’t use it. “

37 Harun December 1, 2017 at 3:29 pm

There could also be gains like…US companies could invest in Mexico vs. in non-NAFTA they might just become importers and buy products from China.

There might be national security and other positives from this.

38 Butler T. Reynolds December 1, 2017 at 2:06 pm

Small gains are better than no gains, so why would that be a bad deal? If Mexico did gain more from it because their previous trade barriers were higher, then it helps confirm the argument that the country with more trade restrictions will be worse off.

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39 Oleg December 1, 2017 at 2:13 pm

They’re not only better than no gains, they are also much better than a loss, and much, much better than a big loss. Protectionist policies would push us towards the latter. I’m all for small gains, particularly where all the alternatives are worse (which, by extension, makes NAFTA the best).

40 JWatts December 1, 2017 at 4:03 pm

“Small gains are better than no gains, so why would that be a bad deal? ”

Absolutely. We renegotiate NAFTA offering Mexico a small gain!

41 sort_of_knowledgable December 1, 2017 at 8:05 pm

The are absolute and relative gains. If the US gains $20 billion and Mexico gains $10 billion on the deal that is about 1% of Mexico GDP and 0.1% of US GDP. The US gained more in absolute terms, yet the gains might not be noticeable.

42 Pshrnk December 1, 2017 at 2:28 pm

How are trade and foreign policy different things?

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43 Harun December 1, 2017 at 3:30 pm

NAFTA wasn’t sold as a foreign policy deal of “let’s make Mexico better!”

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44 dan1111 December 1, 2017 at 3:54 pm

As if this is only beneficial to Mexico. A better-governed, more prosperous neighbor is good for us, too.

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45 Oleg December 1, 2017 at 8:37 am

“Doug’s new book Clashing over Commerce: A History of US Trade Policy is the greatest book on trade policy ever written, bar none. and also a splendid work of American history more generally.”

And yet, somehow unworthy of your “must-reads” list for 2017 published in your Bloomberg View column

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46 Tyler Cowen December 1, 2017 at 8:45 am

It makes my longer list, coming tomorrow, which has more academic books on it.

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47 Oleg December 1, 2017 at 9:00 am

Redemption!

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48 shrikanthk December 1, 2017 at 9:30 am

Tyler’s list was for Fiction.

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49 Oleg December 1, 2017 at 10:18 am

I didn’t realize that books like Victor Davis Hanson’s “The Second World Wars: How the First Global Conflict Was Fought and Won” and a Gorbachev biography, among various other histories, were considered works of fiction. My bad.

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50 shrikanthk December 1, 2017 at 10:47 am

Oh sorry. My bad. I thought you were referring to the blog post on the best fiction of the year, which was published a few hours back

51 A Truth Seeker December 1, 2017 at 8:45 am

So America really invented a working self-driving car? Will it crash and burn?

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52 Albert December 1, 2017 at 9:42 am

Argentina went from being the second-wealthiest country in Latin America (behind Chile) to, in the modern-day… being the second-wealthiest country in Latin America, behind Chile.

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53 A Truth Seeker December 1, 2017 at 10:15 am

Yet, Brazil crushed it at the battlefield.

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54 Tanturn December 1, 2017 at 10:42 am

And Japan has always been richer than Upper Volta, doesn’t tell you much does it? A comparison to the nations of southern Europe is much more informative.

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55 Albert December 1, 2017 at 10:48 am

Why? If the Argentinian model was so crappy, why did it develop the same as Chile and the other countries of Latin America? Argentina has defaulted way more times than other Latin American countries, and yet it continues right along the same as them.

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56 Tanturn December 1, 2017 at 11:12 am

Chile was also a relatively poor performer, there were some very bad policies under Allende and Pinochet was no miracle worker:

https://medium.com/@pseudoerasmus/to-explain-myself-on-twitter-my-view-of-chile-is-simply-this-fc44ddd93ce3

Nevertheless if you see the graph in the link it is clear that Chile did better than Argentina. Brazil did a lot better in keeping pace with the economic growth rate of the USA. Compare Argentina to Italy and Spain and the disaster becomes clear.

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57 A Truth Seeker December 1, 2017 at 10:53 am

Maybe Upper Vota would have got more respect if it had organized more Death Marches

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58 Thor December 1, 2017 at 11:11 am

Oh I’m sure the Upper Volta has had death … and marches. It just wasn’t savvy enough to combine them.

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59 A Truth Seeker December 1, 2017 at 12:17 pm

So they never earned the esteem of the people whose youngersters they murdered.

60 Dots December 1, 2017 at 12:27 pm

Is MX political history since nafta so good? The gangs seem to b wilding out. I think MX would have benefited hugely if China didnt supplant them as cheap laborer in cheap

I dislike the Washington Consensus on ag policy in poor countries. I also think we miss the intellect/tech output from some of the corporations and gov offices that shrunk to the end of efficiency

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61 Harun December 1, 2017 at 3:35 pm

When NAFTA was being discussed, China was already a big deal.

One of the arguments for NAFTA was that it would keep jobs in North America and allow American firms to compete with Chinese ones.

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