David R. Henderson  

I Take (Some of) It Back

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In my recent post praising Krugman's popular writing on international trade, I highlighted the following quote from one of his essays:

the United States is not now and may never be as open to trade as the United Kingdom has been since the reign of Queen Victoria.

This view is widely held. Indeed I held this view until a few days ago. Its falsity would not undercut anything substantive in Krugman's case for free trade, but it is false. The place to see why is in this article by George Mason University economist John Nye. Check out his eye-popping graph of the average tariff rates for Britain and allegedly protectionist France. The whole article is worth reading. Here's his book on the topic.

H/T to Lauren Landsburg.


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CATEGORIES: International Trade



COMMENTS (9 to date)
Grant Gould writes:

Um, I don't think that graph says what you mean. According to the graph, UK tariff rates fell under Victoria, dropping below France's half way through her reign and staying there.

Lauren writes:

I think the issue is a little subtler than the chart. It's a question of measuring the relative effectiveness of trade barriers between the two countries.

Nye makes the point that while Britain did lower its tariffs, which during Victoria's reign by standard measures fell lower than those of the French, the French trade barriers had been dramatically less effective at limiting trade than the English ones for a long time.

France did have more protected products than England did but the average level of French tariffs (measured as total value of duties divided by total value of imports, cf. Figure 1) was actually lower than in Britain for three-quarters of the nineteenth century. In other words, tariffs had a smaller impact on French trade than British duties had on Britain's trade. The French, while eschewing free trade, and openly rejecting the Anglo doctrine of open markets, actually succeeded in making their trade more liberal and more open than that of the more vocal British. The master of this was Napoleon III--Bonaparte's nephew--who throughout the 1850s promoted the most radical liberalizing reforms of the French economy, all the while insisting that France was only interested in moderate reform.

By that measure, it's still true that in the latter part of Victoria's reign, English openness to trade was greater than France's; but they are much closer together than the standard view; and from the look of the chart, effectively similar. Britain has become the symbol of free trade; but in fact, France might have deserved that award for being open long before Britain.

spencer writes:

John Nye's method of calculating the average tariff - -(measured as total value of duties divided by total value of imports) -- may or may not support his point.

It is like the Bill Gates effect in looking at the median or average income. His average and the effective median may be very different things.

You need to take his calculations further to see if his point is valid. Maybe there were a high tariffs on a few items while most items were tariff free or low tariff.

You can not reach the conclusion you have from his simple calculation.

Robbie writes:

This is hugely misleading. A sign of a "successful" tariff would be one that reduced the amount of the good imported, a high ratio of "total tariff income:total imports" is a sign that people were importing despite the tariff.

An extreme example would be a country that had a 10000% tariff on everything except bananas, if due to this people only imported bananas then you could have figures saying that the country fully embraced free trade.

Lauren writes:

Robbie wrote:

A sign of a "successful" tariff would be one that reduced the amount of the good imported, a high ratio of "total tariff income:total imports" is a sign that people were importing despite the tariff.

The key here is what is meant by "success."

I believe that tariffs prior and during the time period of Nye's chart were viewed as a revenue source. A "successful" tariff thus would be one that maximized revenue. A tariff of 0 raises 0 revenue; as does a prohibitive tariff of 10000%. Somewhere in between there's a revenue-maximizing level, and at that level, there are still imports. A prohibitive tariff would have been highly unsuccessful at raising revenue. Nye's measure is suggestive of the extent to which tariffs were being used for that purpose. It's certainly not the only measure that matters, though, when thinking about how open a country is to trade.

I think Nye's book is sounding more and more like an informative read about the economic history of the period.

Billy writes:


On your recommendation, I've been reading Pop Internationalism and "Ricardo's Difficult Idea," and have thoroughly enjoyed them both. I remember a few months ago when Bill Easterly started blogging about aid and development and how excited Don Boudreaux was about it. After reading some of Krugman's writings from the 90's I couldn't help but think how great it would be if Krugman had a blog devoted to defending the case for free trade instead of the writings we get from Conscious of a Liberal.

I do have one question from "Ricardo's Difficult Idea." Krugman writes:

It is not easy to convince a non-economist that when gangsters hoard $100 bills in Vladivostock, this is a capital outflow from Russia's point of view -- and that it has the same effects on the US economy as if that money was put in a New York bank.

In my introductory macro class, I learned that the money supply increases when money is deposited in a bank and that is decreases when people hoard cash. So if Russian gangsters are hoarding $100 bills, how is this the same as if the money was deposited in a bank?

Ryan writes:

http://www.econtalk.org/archives/2008/05/nye_on_wine_war.html

John Nye is also featured in this EconTalk podcast.

John Caird writes:

Douglas Irwin's comment on Nye's view:

http://www.dartmouth.edu/~dirwin/FTBF.pdf

Silver Lining writes:

Since Adam Smith, tariffs have been used for "protectionist" purposes, meaning, of course, directing the flow of trade for the benefit of the domestic economy.
Lest we forget. . . his principle purpose for composing "Wealth of Nations" was to counter the young Colonial America's desire to impose tariffs to shut off trade with the newly invigorated (through Industrial Revolution) Great Britain. Before and after "Wealth of Nations", Smith advocated "free trade" on open markets. . all of which benefitted Great Britain much more than the colonies, hardly in a position then to match economic blows with Britain.
So, tariffs-protectionism-restriction of unfavorable trade go hand in hand. And, Britain has, as has many another nation, favored "open trade" for a long time. . . when it suits the purpose.

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