Explaining the Resilience of Free Trade: The ‘Smoot-Hawley’ Myth and the Crisis
Gabriel Siles-Brügge
Department of Social Sciences
Oxford Brookes University
Gipsy Lane
Oxford, OX3 0BP
UK
[email protected]
Paper presented at the Inaugural Sheffield Political Economy Research Institute
Conference, 16-18 July 2012.
Work in progress. Comments welcome!
Abstract
Despite the onset of the current economic crisis there has been no significant move
towards protectionism amongst the world’s economies. Conventional, rational
institutionalist explanations would stress the role played by the constraining rules of the
World Trade Organisation, which prevent countries from reneging on their liberalisation
commitments without being subject to a powerful dispute settlement mechanism. In this
paper, I show that such explanations do not tell the full story as countries have remained
open in areas where they have not bound their liberalisation. Instead, I develop a
constructivist argument which emphasises how particular ideas about the global trading
system have become rooted in policymaking discourse. Trade policymakers have
contributed to constructing an ideational imperative for continued openness (and even
for concluding the Doha Round) by drawing on a particular reading of economic history
(what I refer to as the Smoot-Hawley myth); by continually stressing protectionism’s
role as one of the causes of the Great Depression non-liberal responses to the current
crisis have been all but ruled out.
I. Introduction
The Global Financial Crisis of 2008, and the ensuing economic recession, had a
considerable effect on world trade volumes. After almost a decade of practically
uninterrupted increases in world merchandise and commercial services exports these
peaked in 2008 at respectively $16.1 trillion and $3.8 trillion and subsequently (and
dramatically) declined in 2009 to $12.5 trillion and $3.4 trillion (WTO 2012a; see
Figure 1). This represented a shrinking of global exports of 22.4 per cent for goods and
11.9 per cent for services. What is more significant from a political economy
perspective is that this slump in world trade (which has subsequently recovered) has not
been accompanied by a significant increase in trade barriers. Tariff levels for the
world’s leading twenty economies (the so-called Group of G20 [G20]) have remained
fairly stable over the period of the crisis. Similarly, the share of world trade covered by
any restrictive measure imposed by the G20 has never exceeded 0.8 per cent since the
collapse of the Lehman Brothers investment bank in the autumn of 2008, which
heralded the beginning of the global financial meltdown (WTO et al. 2011: 10; WTO
2006, 2008, 2009c, 2010c, 2011b).
1
18
16
14
12
10
8
Merchandise
exports
6
4
Services exports
2
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: WTO (2012a).
Figure 1 – World Merchandise and Commercial Services Exports, 2001-2010
(USD trillion at current prices)
This development might surprise those who study trade policy from the perspective of
standard public choice models (e.g. Grossman and Helpman 1994; Hiscox 2002). Such
accounts usually involve a pluralist view of state-society relations in which the state is
the fighting ground for a large number of competing interests. Due to collective action
problems, protectionists are seen here to be more likely to mobilise and shape policy
than the ‘winners’ from liberalisation, due to the concentrated and more immediate
nature of the losses incurred and the greater diffusion of the benefits. However, the
resilience of free trade following the 2008 Financial Crisis has occurred despite
evidence that there has been increased domestic demand for protection (Gawande et al.
2011: 28). One possible explanation for this state of affairs is offered by what could be
termed a ‘rational institutionalist’ literature in the field of International Political
Economy (IPE). This focuses on the role played by the wider global trading ‘system’.
This argument is that international trading institutions – especially the World Trade
Organisation (WTO) and its system of judicialised dispute-settlement – have legally
‘locked-in’ trade liberalisation, incentivising compliance with global trading rules. This
explanation has also been commonly invoked in recent years to justify the conclusion of
the current Doha Round of multilateral trade talks. Despite the fact that it promises very
little in the way of additional market access, the idea is that Doha would allow for
additional policy binding to guard against the threat of protectionism (e.g. Hoekman et
al. 2010).
In this paper I show that such explanations do not tell the full story, as countries have
remained open in areas where they have not bound their liberalisation. Instead, I
develop a constructivist argument which emphasises how particular ideas about the
global trading system have become rooted in policymaking discourse. Trade
policymakers and a group of leading economists have contributed to constructing an
ideational imperative for continued openness (and even for concluding the Doha Round)
by drawing on a particular reading of economic history (what I refer to as the Smoot2
Hawley myth); by continually stressing protectionism’s role as one of the causes of the
Great Depression non-liberal responses to the current crisis have been all but ruled out.
My aim in doing so is two-fold. For one, I aim to challenge the dominant discourse
about the WTO found in scholarly circles, which uncritically accepts the institution’s
role in providing the supposed ‘public good’ of free trade. Secondly, I aim to show how
ideas, long neglected in the study of trade decision-making, are crucial determinants of
policy outcomes.
The remainder of this paper is structured as follows. In section II I review rational
instutitionalist explanations of free trade after the crisis, finding that their emphasis on
the legally constraining effect of institutions cannot explain why countries did not raise
tariffs or non-tariff barriers (NTBs) to trade when they had leeway to do so. In section
III, I therefore outline a constructivist account of trade policy which emphasises the
importance of discourses of external constraint, in particular the so-called SmootHawley myth. In section IV I then trace how this idea – that the Great Depression was
in large part caused and/or exacerbated by protectionism in the 1930s – has been
invoked since the collapse of Lehmman brothers in September 2008 by diverse actors
within the international trading system (in particular amongst the G20 and within the
WTO). This has significantly contributed to rendering a protectionist response to the
crisis unthinkable. In section V I then conclude, offering some thoughts on the future of
this potential discursive strategy.
II. Free trade after the crisis: looking beyond rationalist explanations
One possible explanation for the resilience of free trade after the crisis is found in the
standard neoliberal institutionalist literature that has been written about the WTO in
IPE. The theoretical foundations for this approach are taken from Robert Keohane
(1984), whose main point of contention was that international institutions (or ‘regimes’)
could mitigate the effects of international anarchy even in the absence of a hegemon.
Thus, Judith Goldstein et al. (2007) underscore how the General Agreement on Tariffs
and Trade (GATT) and its successor, the WTO, have increased trade by emphasising
their role in providing ‘institutional standing’ (i.e. establishing ‘rights and obligations’,
even for non-members) and ‘institutional embeddedness’ (in other words, the fact that
the GATT/WTO are embedded in a wider network of trade agreements and thus have
effects beyond their membership). Adding to this literature, Edward Mansfield and Eric
Reinhardt (2008) highlight how trade agreements – both preferential and multilateral –
reduce volatility in international trade flows by committing members to pursuing free
trade policies. This, they emphasise, increases trade flows between members of such
institutions which ‘constrain member-states from introducing new trade barriers [...]
[and, among other things,] foster policy transparency and convergence in expectations,
standards and policy instruments’ (Mansfield and Reinhardt 2008: 622). The wider IPE
literature on the role of international trading institutions similarly emphasises the
importance of a rules-based regime in constraining the policy options available to
policymakers, particularly in the face of a judicialised dispute settlement mechanism
(e.g. Bailey et al. 1997; Howse and Nicolaïdis 2003; Barton et al. 2012).1 As Lisa
Martin and Beth Simmons (1998: 746) highlight, international institutions ‘lock in a
particular equilibrium, providing stability’. In this manner, trade regimes are seen to
skew the preferences of states towards cooperation by providing an appropriate
1
This literature therefore also overlaps with the work of a number of international legal scholars writing
on the international trading system (e.g. Jackson 1997; Petersmann 1998)
3
institutional environment to overcome coordination or time-inconsistency problems (see
also Bagwell and Staiger 1999; Maggi and Rodríguez-Clare 1998) and by providing for
transparency mechanisms to monitor compliance (Abbott 2000; Collins-Williams and
Wolfe 2010).
Scholars have also applied such arguments to the current context in order to justify the
conclusion of the Doha Round of multilateral trading talks, which is widely seen to
offer little in the way of additional market access. Thus, economists such as Bernard
Hoekman et al. (2010: 505) argue that ‘[t]he Doha Round must be concluded not
because it will produce dramatic liberalisation but because it will create greater security
of market access’. Several IPE scholars have agreed with these conclusions,
underscoring the importance of concluding the Round as a means of resisting ‘murky
protectionism’ in the form of NTBs which are subject to far less extensive legal
constraints than tariffs (Capling and Higgott 2009: 314; on ‘murky protectionism’ see
Section V; for a similar argument, see also Collins-Williams and Wolfe 2010). This
theme is echoed in a related economic literature which has sought to underscore the
value of tariff and policy bindings in reducing trade volatility and trade protection,
formalising some of the arguments raised in the IPE literature regarding the importance
of international trading institutions. Bindings are seen to both ‘constrain the range and
variability of protection rates’ (Francois and Martin 2004: 676; see also Cadot et al.
2008) and increase trade flows by providing greater legal certainty to firms engaged in
international trade, even where tariffs are bound at rates that far exceed applied tariffs –
what is called ‘water’ in the tariffs or ‘binding overhang’ (Sala et al. 2010, as has indeed
been the case since the Uruguay Round, see Bchir et al. 2006). In this vein, one recent
econometric study has also concluded that despite binding overhang, tariff binding can
have a ‘taming’ effect on tariffs (Bacchetta and Piermantini 2011).2 That being said,
such approaches ultimately fall back on the legally constraining role of institutions as
explanatory factors. Joseph Francois and Will Martin, for instance, are forced to
concede in their conclusion that (2004: 676) they ‘characterise trade policy in the
presence of a tariff binding as generating uncertain rates of protection subject to the
limit imposed by the binding’. In this vein, Marc Bacchetta and Roberta Piermantini’s
(2011) study finds that the ‘taming’ effect of tariff bindings decreases with increasing
binding overhang.
Here lies the Achilles heel of such approaches when it comes to explaining the current
resilience of free trade. As Table 1 highlights, the difference between average applied
MFN tariffs and average bound tariffs (‘water’ or binding overhang) has remained fairly
constant for practically all economies that had such wiggle room in the first place over
the period of the crisis. Moreover, several countries have had consistently high ‘water’
levels. In the absence of a multilateral trade agreement, this implies that countries have
not made use of the considerable legal wiggle room that they have had to raise tariffs.
The absence of comprehensive data on NTBs before the crisis makes it difficult to come
to a similarly conclusive argument about their evolution since 2008. However, the
evidence here also suggests that there has been no significant increase in measures
imposed by states despite considerable legal wiggle room for imposing such measures
under the WTO. As noted above, over the period of October 2008 to April 2011 no
more than 0.8 per cent of imports into G20 countries were subject to any form of import
2
One (somewhat lonely) dissenting voice appears to be that of Andrew Rose (2005), who argues that
there is little evidence to suggest that the GATT/WTO has diminished the volatility of trade flows
(although he does argue that there are significant limitations to his model, see Rose 2005: 12).
4
restriction (WTO et al. 2011), while data from 2009-11 suggest that there has been no
fluctuation in the number of NTBs imposed of a non-fiscal/non-subsidy nature
(Gawande et al. 2011: 17). This challenges the neoliberal institutionalist and economic
accounts given above which attribute a legally constraining role to institutions; free
trade has been surprisingly resilient despite the (relative) absence of legal constraints.
Table 1 – Water in the tariffs of developing countries (all products, simple
average), 2006-2010
Binding coverage
2006 2007 2008 2009 2010
(% in 2010)
Developing G20 economies
Argentina
20
20
20
19
19
100
Brazil
19
19
18
18
18
100
China
0
0
0
0
0
100
India
30*
36
36
36
N/A
74
Indonesia
30
30
N/A
30
30
96
Mexico
22
24
24
25
27
100
Saudi Arabia
7
7
7
6
N/A
100
South Africa
11
11
11
11
11
96
Turkey
19
18
19
N/A
19
50
Upper middle income countries (excluding G20 members)
Albania
1
2
2
2
2
100
Antigua & Barbuda
49
49
49
49
N/A
98
Botswana
11
11
11
11
11
96
Chile
19
19
19
19
19
100
Colombia
30
30
30
30
30
100
Costa Rica
37*
37
36
38
38
100
Cuba
11
11
11
11
11
31
Dominica
49
49
N/A
N/A
N/A
95
Dominican Republic
26
N/A
28
N/A
N/A
100
Ecuador
10
10
10
11
11
100
Gabon
3*
4
4
4
N/A
100
Grenada
47
47
47
N/A
46
100
Jamaica
42
42
N/A
42
42
100
Jordan
5
6
6
6
6
100
Malaysia
17
16
17
16
N/A
84
Maldives
17
N/A
17
17
16
97
Mauritius
90
90
91
93
93
18
Namibia
11
11
11
11
11
96
Panama
16
16
16
16
N/A
100
Peru
20
20
24
24
24
100
St Kitts and Nevis
70
67
67
67
67
98
St Lucia
53
53
N/A
N/A
N/A
100
St Vincent & the Grenadines
53
53
N/A
N/A
N/A
100
Thailand
18
16
N/A
18
18
75
5
Tunisia
31
N/A
36
N/A
41
58
Uruguay
21
21
21
21
21
100
Lower middle income countries (excluding LDCs and G20 members)
Armenia
6
N/A
6
N/A
N/A
100
Belize
47
47
47
47
47
98
Bolivia
32
32
32
30
29
100
Cameroon
62*
62
62
62
N/A
13
Cape Verde
N/A
N/A
5
5
6
100
Congo
9
9
N/A
N/A
N/A
16
Cote d'Ivoire
-1
-1
-1
-1
-1
33
Egypt
18*
20
20
19
N/A
99
El Salvador
31*
30
31
31
31
100
Fiji
32
N/A
30
30
29
51
Georgia
0
6
6
6
6
100
Ghana
N/A
80
80
80
80
14
Guatemala
37*
37
37
36
36
100
Guyana
46
N/A
46
N/A
46
100
Honduras
27*
27
27
26
N/A
100
Moldova
2
N/A
2
2
2
100
Mongolia
13
13
13
13
13
100
Morocco
17
18
20
23
23
100
Nicaragua
36*
36
N/A
35
35
100
Nigeria
106
N/A
106
108
107
19
Pakistan
46
46
46
46
46
99
Papua New Guinea
27
27
27
N/A
27
100
Paraguay
24
23
22
23
23
100
Philippines
19
19
19
19
19
67
Sri Lanka
19
19
19
19
20
38
Swaziland
11
11
8
11
11
96
Ukraine
-1
N/A
0
1
1
100
Vietnam
-5
-5
-5
-1
2
100
Angola
52
52
52
52
N/A
100
Bangladesh
148
155
154
N/A
N/A
16
Benin
16
16
16
17
17
39
Burkina Faso
30
30
30
30
30
39
Burundi
56
56
56
N/A
55
22
Least Developed Countries (LDCs)
Cambodia
5
5
5
N/A
N/A
100
Central African Republic
18
18
N/A
48
N/A
62
Chad
62*
62
N/A
62
N/A
14
DR Congo
84
84
84
81
85
100
Djibouti
13*
13
13
20
N/A
100
Gambia
N/A
83
83
84
89
14
Guinea
8*
8
8
9
9
39
6
Guinea Bissau
37
37
37
37
37
98
Haiti
16
16
16
16
14
89
Lesotho
71
71
71
71
71
100
Madagascar
14
15
15
16
16
30
Malawi
62
N/A
89
62
63
32
Mali
17
17
17
17
17
40
Mauritania
9
8
N/A
N/A
10
39
Mozambique
85
87
87
87
87
14
Myanmar
77
77
78
N/A
N/A
18
Nepal
12*
13
13
14
14
99
Niger
32
32
32
33
33
97
Rwanda
71
N/A
68
71
77
100
Senegal
18
18
18
18
18
100
Solomon Islands
65
69
69
N/A
69
100
Tanzania
107
107
107
107
108
13
Togo
68
68
68
68
68
14
Uganda
61
61
61
61
61
16
Zambia
93*
93
93
93
70
22
Sources: WTO (2006, 2008b, 2009c, 2010c, 2011b).
Notes: *Data is for 2005. Countries with data for fewer than two years are omitted, as are non-WTO
members. Income groupings are by World Bank criteria for 2012 (World Bank 2012), while the LDC
grouping is arrived at by UN criteria. The ‘water in the tariffs’ was calculated by subtracting the average
applied MFN tariff for all products from the average bound tariff rate.
One possible (and still rationalist) explanation for this state of affairs is offered by a
group of economists in a study published by the World Bank in October 2011. Noting a
similar pattern to that depicted in Table 1 of consistently high ‘water’ in the tariff rates
of a significant number of countries, Kishore Gawande and his colleagues (2011: 28)
argue that while institutional constraints have had some effect, the determining factor
has been ‘the position of domestic and foreign exporters in the global supply chain [...]
[which] exert[ed] countervailing pressure against protectionism’. In other words, the
increasing degree of vertical specialisation in global production – which has fragmented
production chains – has meant that downstream producers and exporters have had the
political and economic clout to lobby successfully for continued trade openness against
the pressure of import-competing firms. Such an explanation bears some similarity to
‘Listian’ political economy arguments (e.g. Chang 2002; Wade 2003; Weiss 2005)
which would similarly point to country’s levels of economic development as correlating
with their support for free trade. This fits with Gawande et al.’s (2011) choice of tariff
data, which is drawn from seven emerging economies (Argentina, Brazil, China, India,
Mexico, Turkey and South Africa) which may well have developed to the point where
they see free trade as being in their interest. The problem with such an explanation is
that the data compiled in Table 1 suggest that the phenomenon of continued ‘high
water’ levels is not unique to emerging economies that are members of the G20, rather
also characterises developing countries at all levels of the spectrum (from LDCs to
upper-middle income countries; see Table 1). This conundrum is underscored by the
fact that Gawande et al’s (2011) modelling – albeit largely yielding results that fit their
7
theory – has a number of counterintuitive results, which the authors cannot satisfactorily
account for.3
This is not to say that the authors of this study are fundamentally wrong in pointing to
the changing nature of the domestic politics of trade liberalisation wrought by
globalised supply chains. Indeed, there is evidence that to suggest that pro-liberalisation
interest groups have gained significant influence in trade policymaking, such that the
process need not necessarily privilege protectionist interests as in the standard public
choice literature. Recent studies have pointed not only to the importance of exporter
interests (e.g. Dür 2010), but also to the role of importers in pushing for trade
liberalisation (e.g. Heron 2007; De Bièvre and Eckhardt 2011) – echoing the arguments
made by Gawande and his colleagues. Rather, what the findings in this section suggest
is that we need to look beyond such rationalist explanations to understand the nature of
the global trading system. My theoretical argument in this paper is that they neglect the
important dimension of ideas.
III. Deconstructing trade discourse: the bicycle metaphor and the Smoot-Hawley
myth
In this vein, my aim in this section is to map out a constructivist alternative to
explaining the resilience of free trade after the crisis, pointing to the important role of
ideas in structuring social reality. Using the term constructivism inevitably evokes a
tradition in IR theory mostly associated with the writings of Alexander Wendt (1999) or
John Ruggie (1982). Indeed, scholars have recently sought to reconceptualise the
international trade regime in terms of an ‘intersubjective communication among
participants’ (Wolfe 2005: 340; see also Lang 2006, 2007). But such approaches, while
adding an ideational ‘layer’ to neoliberal institutionalism, are still caught up in IR
constructivism’s excessive emphasis on international institutions – ‘the trade regime’
says Lang (2006: 85) ‘does not regulate actor behaviour, it also partly constitutes it’ –
and neorealist-inspired state-centrism (for a similar critique of IR constructivism, see
Parsons 2007). As such, it is still caught up in the puzzle that the post-crisis resilience of
free trade poses for ‘regime-based’ approaches in IPE.
My aim here, therefore, is to recast constructivism as a framework that takes on the role
of agency. This is based on an intuitive and persuasive ontological position, which has
informed a growing literature in IPE: the belief that social and political reality is
constructed by agents through ideas rather than being fixed by particular material (or
what could be called ‘structural’) constraints, as in rationalist accounts. In this vein, I
contend that a powerful reason why ideas matter in the international political economy
is that they are treated by actors as though they were material straightjackets. The
3
For example, in their model of the determinants of trade protectionism for 2006-2009, the coefficient on
the intra-industry trade variable (which according to their theory should be negative, indicating that
protectionism declines as intra-industry trade increases) is positive for Argentina, Brazil and South
Africa. A similar result is reported again for Argentina and Brazil for the coefficient on one the variables
measuring the degree of vertical specialisation (Gawande et al. 2011: 22-4, 46ff). Although the authors
attempt to explain these results in terms of these countries’ supposedly ‘weak tax systems’ which are
heavily reliant on customs revenue, they acknowledge that their model works for other countries (China,
India, Mexico and Turkey) which ‘also have weak tax systems’ (Gawande et al. 2011: 23). This
inconsistency of explanation is subsequently not resolved. In fact, the only variable whose coefficient
always has the predicted sign is that for the degree of tariff binding, which is the factor the authors are
ostensibly aiming to downplay!
8
argument is that neoliberal tenets are increasingly treated as ‘normalised’, that is, as
reflections of a reality in which the rational homo economicus is the main determinant
of social outcomes, rather than as a ‘normative’ framework, advocating policies seen as
desirable (Hay 2004). In contrast, the key point I wish to stress at this juncture, in
keeping with my constructivist ontology, is that the rational-actor assumptions
neoclassical economic models are premised on are ultimately constructed and
contingent, rather than given and fixed. As Charles Maier (1988: 4-6), puts it (critical)
political economy ‘interrogates economic doctrines to disclose their sociological and
political premises... in sum, [it] regards economic ideas and behaviour not as
frameworks for analysis, but as beliefs and actions that must themselves be explained.’
This suggests that it may be fruitful to consider a literature that has concerned itself with
the discursive construction of globalisation as such an economic constraint. This takes
as its point of departure the debate between advocates of the ‘hyperglobalisation thesis’
and its skeptics. Rather than accepting the parameters of this rationalist argument – that
is to say, entering into a debate over whether globalisation is an empirically verifiable
material process that restricts the choices facing political actors – such writers adopt the
constructivist view that it is the ideas that agents hold (and invoke) about ‘globalisation’
that are key (see, among others, Rosamond 1999, 2002; Hay and Rosamond 2002; Hay
and Smith 2010; Watson and Hay 2003). In a seminal article, Colin Hay and Ben
Rosamond (2002: 148, emphasis in the original) quite effectively condense the central
argument of this approach, noting that ‘policymakers acting on the basis of assumptions
consistent with the hyperglobalisation thesis may well serve, in so doing, to bring about
outcomes consistent with that thesis, irrespective of its veracity and, indeed, irrespective
of its perceived veracity.’ The perceived material rationality of the hyperglobalisation
thesis becomes meaningful in shaping outcomes only because it is internalised by
actors, in other words, because it is treated by them as though it were a real, material
constraint rather than just a (contestable) economic framework. The key to
understanding this process is a study of what this literature terms ‘globalisation
discourse’, tapping into a very Foucauldian understanding of knowledge. Here
discourse is defined as ‘a broad[…] matrix of social practices that gives meaning to the
way that people understand themselves and their behaviour. […] More precisely, a
discourse makes “real” that which it prescribes as meaningful’ (George 1994: 29-30,
emphasis in the original). Analysing discourse thus becomes the study of the process of
social construction, focusing on the nexus between power and knowledge. Such a
framework problematises economistic understandings of IPE in the sense implied by
Maier (1988) above. It also stresses the fact that power is being exercised when such
discourses are invoked, borrowing from the critical approach of Robert Cox (1981). The
power of such rhetorics thus resides in that they present a (politically) contingent
phenomenon as immutable (economic) fact.
Whereas much work on discourses of economic constraint has focused on the
invocation of current processes as constraining policy choices – e.g. globalisation or
indeed the necessity to meet competitiveness objectives (see also Siles-Brügge 2011;
Menz 2009) – what is interesting in the case of trade policy is that similar discourses
have often had a historical dimension. In other words, rather than just stressing the
inevitability of contemporaneous process, such discourses have drawn on a contestable
historical interpretation to draw an analogy to the present. One such discourse is
perhaps first highlighted by Susan Strange (1985: esp. 239-42), who seeks to expose it
as a ‘myth’. This is the idea, common among liberal economists and scholars of IPE,
9
that the global Great Depression of the 1930s was, if not caused by trade protection,
certainly exacerbated by it as countries short-sightedly pursued ‘beggar-thy-neighbour’
policies. These, so the conventional argument, led to a significant decline in world trade
in manufactures with dire consequences for the global economy. This could be termed
the ‘Smoot-Hawley myth’, in ‘honour’ of the two US legislators who attached their
names to the infamous protectionist bill passed by the Congress in 1930. Strange
challenges this myth by invoking the evidence collected by several economic historians,
arguing that the collapse of world trade and the rise of protectionism was symptomatic
rather than a cause of worldwide economic collapse. To this effect she cites not only the
perhaps more heterodox development economist Arthur Lewis (1949) but also one of
the doyens of the realist school of IPE Charles Kindleberger (1973), both of whom
argued that tariffs had a ‘minimal’ effect on ‘the volume of world trade or to its
direction’ (Strange 1985: 239-40). One other influential (albeit ahistorical) ‘myth’ that
Strange (1985: 241-2) tackles is what she refers to as the ‘bicycle theory’, the idea that
‘if you do not keep up the momentum of trade liberalization [of multilateral trade
rounds], disaster will follow’.
This particular discourse has also been critiqued more recently by Rorden Wilkinson
(2009, 2012), although he uses the term ‘metaphor’ to convey the manner in which such
ideas are used to inculcate a discursive ‘common sense’. Wilkinson’s aim, not unlike
Strange’s, is to expose this metaphor as false. But more importantly than that, he also
seeks to explore ‘the way in which the discourse has been deployed as a means of
reframing trade negotiations in such a way that the likelihood of their continuation and
ultimate conclusion increases’ (Wilkinson 2009: 597). These ideas are thus powerful
instruments used by trade policymaking elites – in particular those with close ties to the
US – in order to further their interest in concluding the Doha Round of multilateral trade
talks. Although Strange (1985: 234) also acknowledges a strategic dimension in her
discussion of ‘crisis discourse’ – in that it serves those with a ‘vested professional or
ideological interest in it’ to warn of its imminent collapse – her underlying argument is
that ‘the system of rules which people (still, alas) refer to as a regime is of little
moment’. The Smoot-Hawley myth and the bicycle theory, in her views, are red
herrings, which distract from the underlying features of the global political economy. In
this paper, unsurprisingly, however, I take a view closer to Wilkinson’s approach in
highlighting the power that such ideas hold, whether we see them as instruments or
repositories of political power (i.e. whether we take a view of discourse as, respectively,
‘strategic’ or ‘reflexive’).
From the discussion above, we arrive at two particular discourses that may be of
particular relevance today in legitimating free trade outcomes in the face of protectionist
pressures: the Smoot-Hawley myth – which attributes the cause of the Great Depression
to trade protectionism – and the bicycle metaphor – which argues that sustained
multilateral liberalisation is necessary to avoid a descent into protectionism. To a large
extent both discourses are, of course, entwined. Indeed, the argument expounded in the
conventional economic/IPE literature on value of concluding the Doha Round in terms
of its ability to bind current levels of trade openness in the context of an economic
recession (e.g. Hoekman et al. 2010) clearly resonates on both counts. Wilkinson (2009:
602-6) indeed writes of a ‘crisis discourse’ which underpins the bicycle metaphor –
taking hold during the postwar period – and which drew on the memory of SmootHawley to spur liberalisation against domestic and international pressure.
10
In this paper, however, I choose to differentiate between both for two interrelated
reasons. From a more abstract, analytical perspective it makes sense to draw distinctions
between both discourses as they have served different functions and have originated in
different discursive contexts (depending on whether they are seen to take a ‘reflexive’
or ‘strategic’ dimension). Thus, the Smoot-Hawley myth had its origins in the
immediate aftermath of the Great Depression in US trade policymaking circles; as
Goldstein (1988: 187) notes of this myth, which she herself accepts as fact, ‘[t]he failure
of the Smoot-Hawley tariff of 1929-30 to deal with economic decline set up a
policymaking crisis. The delegitimization of protectionism forced the political
community to search for an alternative theoretical approach to explain past errors and
provide guidelines for future behavior’. The bicycle metaphor, for its part, had its
origins in the 1970s ‘after serious impediments to further liberalization began to
emerge’ in the form of an increasingly intricate GATT and negotiating agenda, and
given the economic crises of the period (Wilkinson 2009: 605). Secondly, and applying
this analytical insight to the puzzle at hand – why free trade has been so resilient in the
wake of the crisis – it makes sense in this paper to focus on the latter form of discourse.
Indeed, the fact that protectionism has not been brought about despite the advent of the
crisis and despite the stagnation of the Doha Round – bicycle metaphor notwithstanding
– suggest why this latter discourse may be more prevalent (see also Wilkinson 2012: 4).
Table 2 – The bicycle metaphor and the Smoot-Hawley myth
Smoot-Hawley myth
Bicycle metaphor
Primary purpose/context
Advocacy of trade liberalism
and
a
rejection
of
protectionism.
Historical origins/use
Origins in the immediate
post-Depression period, but
takes hold strongly postWWII (see Goldstein 1988).
Spur on multilateral trade Origins in the 1970s, in the
liberalisation in the context of era of the ‘new protectionism’
a flagging Round.
(see Wilkinson 2009).
Source: author’s elaboration.
My aim in this paper is thus to map the Smoot-Hawley myth in contemporary
discussions of trade policy and to begin to consider its wider effect on participants in
international trade discussions. Clearly, this raises questions as to whether such
discourses are being invoked strategically or simply being internalised by actors, as this
has some bearing on the nature of ideas (in other words, they may be either instruments
used to exercise power or repositories of power, or both). This is beset by what Hay and
Rosamond (2002: 165) term and ‘inherent’ and ‘intractable’ dilemma in the study of
public discourses. The problem, in a nutshell, is that one cannot determine from an
actor’s pronouncement per se whether a particular idea is being invoked strategically, as
they could be simply repeating an idea they have internalised (without any ulterior
motive). Whereas some authors have carried out in-depth empirical work to determine
the strategic nature of such uses of discourse (e.g. Hay and Smith 2010; Siles-Brügge
2011), this is unfortunately beyond the scope of this paper (although this is clearly what
should be studied in future research). Moreover, it is clear that the idea itself has had an
effect on the behaviour of actors (what I refer to above as the ‘reflexive’ dimension to
discourse) even if we cannot – at least at this stage – entirely disentangle this from the
‘strategic’ invocation of such ideas. Similarly, whereas there is no space here to fully
deconstruct this myth and to challenge the validity of its historical interpretation –
11
although Strange and Wilkinson suggest there are clear grounds for doing so – the term
is still apt to describe this discourse for two reasons. Firstly, it conveys the quasireligious character of the idea in trade policymaking circles, where it remains
unchallenged. For another, the idea has shown considerable endurance, having
originally taken shape in the mid-1930s. As a result, the using the term myth serves to
highlight the power that this particular idea ultimately holds in the international trading
system.
IV. The Smoot-Hawley myth in action (2008-2012)
The Smooth-Hawley myth has played a key role in legitimating free trade policies
following the Financial Crisis, with near universal acceptance among leading world
economic decision-makers in the G20 and WTO. What is interesting is that prior to the
crisis, such actors invoked very different ideas about the multilateral trading system.
The communiqué from the 2006 G20 summit in Melbourne, for instance, appeared to
echo the bicycle metaphor when it stressed that ‘[t]he success of the Doha Development
Round is essential to securing freer, more open trade, reducing the risk of economic and
financial instability and achieving faster economic growth [etc...]’ (G20 2006: 1). In a
similar vein, Pascal Lamy’s interventions as Secretary General during the period
immediately preceding the crisis (2005-7) tended to invoke the bicycle metaphor (e.g.
Lamy 2005a,b; Lamy 2006; Lamy 2007).
The discourse, however, was to change among policymakers, especially following the
collapse of the Lehman Brothers investment bank – widely seen to be the point at which
the brewing subprime mortgage crisis in the US escalated to become a worldwide
financial meltdown (Germain 2010: 70-72). Among the G20, metaphorical alarm bells
were rung as early as November 2008 (only two months after the collapse of Lehman)
when the leaders of the world’s leading economies4 met for their first summit in
Washington, DC. Among the issues on the agenda was the issue of ‘committing to an
open global economy’. The final summit communiqué was very explicit in this regard,
with G20 members
underscor[ing] the critical importance of rejecting protectionism and not turning
inward in times of financial uncertainty. In this regard, within the next 12
months, we will refrain from raising new barriers to investment or to trade in
goods and services, imposing new export restrictions, or implementing World
Trade Organization (WTO) inconsistent measures to stimulate exports (G20
2008).
This statement is quite significant for two reasons. First of all, rejecting protectionism
was argued to be of ‘critical importance [...] in times of financial uncertainty’, clearly
echoing the experience Great Depression of the 1930s, which itself had roots in the
financial turmoil experienced at the time. In this vein, Table 3 shows how the SmootHawley discourse has become a common feature of G20 summit declarations. There has
been at least an implicit reference to protectionism in the context of the Depression in
most, if not all of the leaders’ communiqués. Moreover, some of the references have
been quite explicit. Thus, at the London summit, leaders agreed that they ‘[would] not
repeat the historic mistakes of protectionism’ (G20 2009a). Secondly, the excerpt from
4
Previous G20 summits had been among Finance Ministers and Central Bank governors.
12
the Washington summit communiqué cited above contained a formal commitment from
policymakers – from practically from the beginning of the worldwide economic
recession we should not forget – to not implement new trade barriers. This ‘standstill
pledge’ would be extended until the end of 2010 at the London G20 summit in April
2009. It was then reaffirmed at Pittsburgh (in September 2009) and subsequently
extended until the end of 2013 at Toronto (in June 2010), with the latter pledge being
reaffirmed at Seoul (in November 2010) and Cannes (in November 2011). Moreover, at
London it was expanded to include a commitment to ‘rollback’: G20 members pledged
to ‘rectify promptly any such measures’ that they imposed (G20 2009a).
What is interesting about this pledge is that, at first sight, it would appear to substantiate
an institutionalist argument about the resilience of free trade. Not only was this pledge a
form of international cooperation but it also entailed a quasi-legal pre-commitment to
liberal trade policies that was to be monitored by the WTO (as agreed at the London
G20 summit). However, although Terry Collins-Williams and Robert Wolfe (2010:
551) credit this ‘[e]nhanced monitoring and surveillance of emergency measures [as]
[…] central to the international effort to mitigate the effects of the financial crisis’, their
own paper reports that the WTO’s overall monitoring record is patchy at best. This is, in
large part, due to the reliance on self-reporting, with only those bodies within the WTO
having clearly defined reporting arrangements yielding promising outcomes (CollinsWilliams and Wolfe 2011: 572-4). This problem also besets the specific reporting
arrangements for the G20 pedge, as they are governed by nothing more than a pledge to
‘notify promptly the WTO of any such measures’ (G20 2009a). Indeed, CollinsWilliams and Wolfe (2011: 577) note that these reports ‘are hampered by the failure of
governments to notify more’. In this paper I therefore suggest that what matters is not so
much the quasi-legal pledge itself, and its role in shaping the rational expectations of
actors, but rather the discursive context of which it is symptomatic, where free trade is
seen as the only possible response to the crisis.
Illustrative of this interpretation is the case of Argentina, which has (since 2008)
increasingly made use of non-automatic import licensing in an effort to address a falling
trade surplus. Although this has featured in previous WTO reports on the G20 antiprotectionism pledge (e.g. WTO et al. 2010: 35; WTO et al. 2011: 50), the policy has
persisted. In this vein, in January 2012 it also introduced a policy of requiring
companies to file affidavits for prior import authorisation by the government, with the
issuing of such permits being delayed. When these policies, however, were roundly
condemned in a statement issued by 14 WTO delegations (including the US, EU, Japan,
Mexico, Thailand, Turkey and a number of other G20 delegations) in April, Argentina
did make significant moves to facilitate the issuing of such licenses (ICTSD 2012). In
their statement, these delegations had highlighted that ‘[i]n light of the shared goal of
making every effort to sustain global economic growth, Argentina’s measures, which
clearly limit the growth-enhancing prospects of trade, are particularly troubling’ (cited
in ICTSD 2012). Although there were clearly material factors at stake – in that
Argentina may have feared retaliation from such states if it did not relax its import
policy – the fact remains that such statements appear to have gained considerable
legitimacy (as, indeed, they were widely endorsed) by appealing to a shared
13
Table 3 – ‘Resisting protectionism’ and the Smoot-Hawley myth: G20 pronouncements on trade policy after the crisis
Summit
Washington,
(November 2008)
London (April 2009)
Title of heading
DC ‘Commitment to an Open
Global Economy’
‘Resisting Protectionism and
Promoting Global Trade and
Investment’
Text on protectionism under relevant heading
‘We underscore the critical importance of rejecting protectionism and not turning inward in
times of financial uncertainty.’
‘World trade growth has underpinned rising prosperity for half a century. But it is now falling
for the first time in 25 years. Falling demand is exacerbated by growing protectionist pressures
and a withdrawal of trade credit. Reinvigorating world trade and investment is essential for
restoring global growth. We will not repeat the historic mistakes of protectionism of previous
eras’.
‘Continuing the revival in world trade and investment is essential to restoring global growth. It
is imperative we stand together to fight against protectionism.’
‘While the global economic crisis led to the sharpest decline of trade in more than seventy years,
G20 countries chose to keep markets open to the opportunities that trade and investment offer. It
was the right choice.’
Pittsburgh
(September ‘An Open Global Economy’
2009)
‘Fighting Protectionism and
Toronto (June 2010)
Promoting
Trade
and
Investment’
‘Fighting Protectionism and ‘Recognizing the importance of free trade and investment for global recovery, we are committed
Seoul (November 2010)
Promoting
Trade
and to keeping markets open and liberalizing trade and investment as a means to promote economic
progress for all and narrow the development gap. The importance of free trade and open markets
Investment’
Cannes (November 2011)
‘Avoiding Protectionism and
Reinforcing the Multilateral
Trading System’
is illustrated by the joint report of the OECD, ILO, World Bank and WTO on the benefits of
trade liberalization for employment and growth. These trade and investment liberalization
measures will help achieve the G20 Framework objectives for strong, sustainable and balanced
growth, and must be complemented by our unwavering commitment to resist protectionism in
all its forms.’
‘At this critical time for the global economy, it is important to underscore the merits of the
multilateral trading system as a way to avoid protectionism and not turn inward.’
Sources: G20 (2008, 2009a,b, 2010a, b, 2011).
14
narrative about the ultimate necessity of free trade (with the Smoot-Hawley myth
lurking in the background). This exercise of publicly ‘naming and shaming’ Argentina
was thus far more effective than the institutionalised procedures of the WTO, pointing
to the importance of communicative discursive practice over institutional incentives.
The G20 summits have been perhaps the most high profile instance of the prevalence
(and potentially, use) of this discourse among trade policymaking circles. However, it is
also commonplace in the statements of key WTO figures, first and foremost among
them, the Director-General Pascal Lamy. As noted above, prior to the economic crisis,
Lamy’s speeches tended to feature the ‘bicycle’ metaphor. Following the collapse of
Lehman brothers in September 2008, Lamy was to make a series of four speeches in
quick succession (24 September, 27 October, 29 October and 3 November) in which he
explicitly invoked the ‘Smoot-Hawley’ myth (Lamy 2008a,b,c,d). Thus, on 24
9
8
7
6
Total references to
'Depression'
5
4
Number of speeches in
which mentioned
3
2
1
0
2006
2007
2008
2009
2010
2011
Source: compiled from Lamy’s public speeches and statements, 2006-2011, available from WTO
(2012b), excluding audio files.
Note: Includes references only to the term ‘Depression’ when used to denote the 1930s Great
Depression.
Figure 2 – References to the (Great) Depression in Pascal Lamy’s public speeches,
2006-2011
September Lamy (2008a), addressing the WTO Public Forum, was to stress that ‘one of
the important lessons of the Great Depression, which we must not forget, is that
“protectionism” and economic isolationism do not work’. On 27 October, the reference
to the Smoot-Hawley myth was even more explicit in a speech Lamy was to give at
Stanford University:
The notorious Smoot-Hawley Act sharply raised already high US tariffs,
triggered retaliatory measures by trading partners and led to a two-thirds
contraction in the value of global trade. This trade contraction deepened the
Great Depression which pushed the US jobless rate to 25%. It also shaped the
thinking of the visionaries who created the post-World War II system of
multilateralism. Never again would the world lurch toward blinkered beggar-
15
thy-neighbour trade policies that did so much to destabilise the world in the
1930s (Lamy 2008b).
The same can be said of a speech he subsequently gave on 29 October, where Lamy
(2008c) stressed how ‘Smoot-Hawley touched off a domino effect of retaliation and
counter-retaliation among trading partners which provoked a severe contraction of
international trade, depressed growth and rising unemployment [sic] around the
industrial world’. Figure 2 suggests how references to the Great Depression – and by
extension to the Smoot-Hawley myth – have become a consistent feature of the
discourse of the Secretary-General since 2008 (there were a total of 8 references that
year to the ‘Depression’ in his public speeches, all occurring after the collapse of
Lehman in September), after not featuring whatsoever in his pronouncements in either
2006 or 2007.
The Smoot-Hawley discourse has, at the same time, also been prominent in more dayto-day WTO discussions. Delegations in the WTO General Council were quick to
invoke the spectre of the Great Depression after the crisis took on a global (and
increasingly hysterical) dimension in the autumn of 2008. At the first General Council
meeting held since the collapse of Lehman in October 2008, many delegations explicitly
invoked the memory of Smoot-Hawley to call for the continued maintenance of free
trade (WTO 2008a). Several delegations also turned out to be keen to endorse the
standstill and rollback commitments of the G20. At the May 2009 General Council
meeting of the WTO a number of members – largely from non-G20 developed and
emerging economies – called on their fellow WTO members to also take on the G20
commitments, invoking the spectre of the Great Depression to legitimate their policy
prescription (WTO 2009a).5 In the subsequent discussion within the General Council,
the initiative was widely welcomed with current G20 members and the Least Developed
Country group (led by Tanzania), among others, stressing the importance of continued
rejection of protectionism on the grounds that this threatened the recovery (WTO
2009b).6
At an even lower level of policymaking, the trade policy review process of the WTO –
whose aim is to review the trade policies of WTO members for consistency with WTO
rules and principles – has been the venue for the consistent repetition of this myth by
delegations of both developed and developing nations. For instance, in reviewing the
EU’s trade policy response to the crisis in September 2011, the St Lucian delegation
was echoing the sentiments of very many other delegations when it highlighted that ‘the
difficult lessons of the great depression have been learnt and that the EU has not
engaged in wholesale tit-for-tat protectionism’ (WTO 2011a: 53; see also WTO 2010a:
17; WTO 2010b: 1). Although the St Lucian delegation went on to subsequently
criticise the EU for its system of agricultural subsidies under the Common Agricultural
Policy (as did indeed other developing countries), this does not detract from the
argument that the Smoot-Hawley discourse appears to be strongly embedded in trade
policymakers discourse when discussing the recent crisis. Thus, even though the Trade
Policy Review process has often been derided by participants as largely a ‘talking
shop’7 – simply leading to the reproduction of rehearsed policy positions and beset by
5
This submission was endorsed by Colombia, Costa Rica, Hong Kong, Malaysia, Mexico, New Zealand,
Norway, Pakistan, Peru, Singapore, Switzerland, Turkey and Uruguay.
6
The only dissenting voice was that of the Cuban delegation.
7
Interviews with members of WTO delegations, Geneva, March 2010.
16
the more general problem’s of WTO surveillance mechanisms (Collins-Williams and
Wolfe 2010) – the fact remains that it is a venue for the repetition of a discourse of
considerable staying power and near universal acceptance.
V. Conclusion
In this paper I began with a puzzle, how to explain the resilience of free trade despite
the onset of the 2008 Financial Crisis. I then challenged the dominant, rational
institutionalist account of mainstream IPE scholars and economists, who (in large part)
argued that the resilience of free trade is a product of the constraining role of the global
trading regime largely embodied by the WTO. My argument was that it made little
sense to point to policy ‘lock-in’ when many leading economies have had considerable
legal leeway to raise tariffs and NTBs and have not done so. In contrast, I made a
constructivist argument that pointed to the important role played by ideas, as articulated
by distinct actors, in structuring social reality – in particular so-called discourses of
external constraint. I focused on the role of the so-called Smoot-Hawley myth – the idea
that the Great Depression was caused and/or exacerbated by global protectionism in the
1930s that had been initiated in the US – in ruling out any non-liberal response to the
Global Financial Crisis among trade policymaking elites (especially among the G20 and
within the WTO).
The conclusions I have reached in this paper are still tentative and naturally still in need
of further refinement. However, I have been able to deconstruct this discourse – and the
idea in scholarly circles that it is largely the institutional mechanisms of the WTO
which guarded against protectionist pressures. In this vein, I have been able to advance
the cause of those who argue that we need to take ideas more seriously in the study of
the international trading system without necessarily subscribing to a form of IR-based
constructivism (e.g. Wilkinson 2009). Indeed, ideas-based explanations may also hold
the key to understanding the future of the international trading system in a world where
austerity and economic pain are widespread of the landscape in much of the
industrialised world. Selling free trade to the public may, after all, be a more contingent
proposition if the crisis continues biting. Future research is thus paramount if we are to
understand the full scope and limitations of this process of discursive legitimation.
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