The dynamics of negotiated protectionism

TitleThe dynamics of negotiated protectionism
Publication TypeJournal Article
AuthorsAggarwal, VK, Keohane, RO, Yoffie, DB
Contribution: 

Trade protectionism has often been thought of as a unilateral act by a sovereign state. Yet much protectionism during the 1970s and 1980s has been negotiated rather than unilaterally imposed. Voluntary export restraints (VERs) and similar arrangements have become the preferred means by which the US has sought to cartelize industrial sectors threatened by imports.

Previous Literature: Most research on protectionism has
• sought to uncover why governments impose trade barriers and how those barriers affect the economy (Bauer, Pool, and Dexter 1972; Cline 1983; Destler 1980; Pastor 1980; Strange1985).
• explaining the height and impact of trade barriers (Baldwin 1986; Lavergne1983); others have looked at the ideological and political roots of protectionist policies (Goldstein 1986s 1986a; Schattschneider1935);
• looked at how restrictions such as VERs-quantitative measures negotiated with selective exporters-are different from other forms of protection, such as tariffs and global quotas(Bergsten 1975;Yoffie1981).

This article, by contrast, examines what happens to negotiated protectionism in the US after agreements have been reached. Casual observers often assume that trade barriers persist automatically, that once a country begins down the slippery slope of protection, there is nothing to do but slide further. Yet this generalization is false for the US over the last quarter century.

We have identified three different pattersn of negotiated protectionism involving the US during this period.
1. Temporary Protectionism: the US negotiates agreements with one or several exporters but allows them to lapse after some initial period
a. Restrictiveness of protection is generally not very high
b. Color TV and footwear
2. Institutionalized Protectionism: protectionist agreements expand over time, becoming more complex and gradually encompassing larger numbers of exporting countries and more categories of products, persisting across administrations.
a. Textiles and apparel since mid-1950s
3. Sporadic: initial agreements lapse, but protectionism is subsequently renegotiated
a. Steel industry

Puzzle: How do we account for the varying patterns exhibited by negotiated US protectionism?

Argument: We are interested in evolution rather than origins, so we begin at point when protection as first been implemented on sectoral basis. To account for patterns of change, we sketch an interpretive model that emphasizes th:
1. Size of industry
2. The height of economic barriers restricting entry of foreign producers into an industry
3. The exit or adjustment strategies of domestic firms.
The last 2 are not often stressed in discussions on protectionism.
Five industry cases:
1. Textile and apparel
2. Steel
3. Color televisions
4. Footwear
5. Automobiles.

Difference Between Negotiated Protectionism and Tariffs or Auctioned Quotas:
1. Unilateral forms of protectionism attempt to shift the burden of adjustment from an importer to an exporter, while VERs constitute cross-national cartel agreements that seek to allocate market shares between exporters and importers, thereby sharing the benefits and burdens of protectionism.
2. VERs restrict exports from specific countries in specific product categories are generally negotiated on a country-by-country basis.

Model:

1. High barriers to entry should produce a relatively stable cartel. Conversely, low barriers to entry should vitiate the effectiveness of a VER because unrestrained foreign producers will immediately begin exporting the US and bid away any economic rents.

If low barrier to entry:
2. If protectionism fails to raise profits for a domestic industry, then, ceterus paribus, firms will increase the intensity of their demand for future trade barriers and the U.S. government will generally be sympathetic towards supplying additional protection
3. On the other hand, if trade barriers improve an industry's economic health, then firms in that industry will reduce the intensity of their lobbying efforts, and the U.S. government will be less receptive to those pleas.
4. Irony for producers: the more profits domestic firms generate as a result of trade barriers, the most difficult it becomes to justify those restrictions.

If high barrier to entry: n short, we expect protection to be temporary in initial round. If firms can exit, protection will not be renewed. In industries with high barriers to exit: if they do not adjust, will lead to renewed proeectionism.