recap what did trade look like during 1700-1800?
A lesson in economics…..
Prior to 1900 – Free Trade was the exception and protectionism the rule. Why? custom duties were a source of significant share of federal revenues. Protection of manufactured good against foreign competition (esp. England)
World War I American manufacturers and workers begin to see foreign industrial countries as potential markets to as great a degree as they saw them potential competitors.
World War I brought heavy borrowing from the United States by the Allied powers of Britain and France, a large surplus of exports over imports, and the rapid transformation of the United States from a debtor to a creditor nation
The tariff made imported capital goods more expensive, and presumably raised the price of domestic capital goods that were substitutes for imports as well. A high-tariff economy is a lower investment economy; a lower capital stock economy; and a lower wage economy.
World War II – dominant political constellation in both political parties was close to what we see today. The dominance of protectionist pressures in the United States was gone. And pressures for increased protection have, for the most part, remained relatively dormant for nearly half a century. Opposition to free trade has usually focused on preventing further liberalization—and not on rolling back liberalization that had previously taken place.
The United States shifts from a manufactures importing to a manufactures-exporting economy, and a high level of protection for manufactured goods becomes a less and less important politico-economic goal.
WOOL The woolen manufacturers of Boston, organized the first trade association, engaged in what was certainly one of the first formal lobbying efforts, and lodged the first unfair trade practice claims in 1826. Boston’s woolen manufacturers claimed that British exporters were understating the value of their goods—thus evading a substantial part of the 33 1/3 percent ad valorem tariff in effect. The woolen manufacturers asked for a minimum valuation of 40 cents a yard on wool imports, and for an imposed minimum valuation of $2.50 a yard on woolen goods worth more than 40 cents a yard. The effect of the woolen manufacturers’ proposals would have been to keep—in the letter of the law—the 33 1/3 percent ad valorem rate, but to charge an average tariff of approximately 80 percent on woolen goods imports.
Short-Term Arrangement Regarding International Trade in Cotton Textiles (STA) 1961-62
Long-Term Arrangement Regarding International Trade in Cotton Textiles (LTA), 1962-73.
signatories can impose quantitative restrictions to avoid “market disruption”
“two important ideas [were] especially strongly held in the United States, namely (i) that textiles were somehow special and fully deserving of exemption from general liberalization and (ii), a closely related idea, that without protection the industry could hardly survive
The protectionist idea was reinforced when Japan applied for accession to the GATT in 1955. Many countries worried about the potential of Japan, which was dramatically expanding exports of cotton textiles. As Sampson argues, “restraining all suppliers would require restraint of more economically powerful countries and could prompt retaliatory action
The MFA affects consumers in importing countries by increasing prices of both domestic and imported T&C products. Exporting countries are affected by a reduction in export opportunity.
The MFA contributes to the economic development of unrestricted or less restricted developing countries, which are often poorer than the restricted developing countries that are major T&C exporters, by encouraging foreign investment in the less restricted countries.
Because the MFA gives only a framework for world T&C trade and actual restrictions are imposed by either unilateral or bilateral quotas, the severity of MFA restrictions depends on the administration of the individual quotas.
As the GATT (1984) pointed out, the period under MFA I (January 1974-December 1977) was characterized by a period of “relative liberalization” of trade in textiles and clothing. During this time, many previous restrictions were abolished
MFA II (January 1978-December 1981) proved more restrictive, primarily because of European Community (Ec) initiatives. During the period under MFA I, the EC’s T&C imports dramatically in- creased, possibly because T&C exports from developing countries shifted to the EC from the United States, where a comprehensive system of bilateral restriction had been set up in 1971. This increase occurred during a time of economic recession and high unemployment after the first oil crisis.
The MFA also affects trade patterns. Because the MFA consists of discriminatory quotas, it can divert trade from more restricted to less restricted countries.
Kumar and McLeod (1981) affirm that the MFA encourages foreign direct investment in nonrestricted and less restricted developing countries. When major T&C exporters (Hong Kong and Korea, for example) realized that MFA restrictions imposed on them would continue for years, they tried to set up plants in other countries. T&C firms in Hong Kong invested in other Asian countries, including China.
The MFA has four important short-term effects on exporting developing countries: (a) the forgoing of exports, (b) the transfer of quota rents, (c) the shift to unrestricted exporters, and (d) the up- grading of products. Most studies on the effects of the MFA on exporting developing countries cover the transferred quota rent and the change in export revenue under the MFA quota. These studies show that the forgone exports revenue and transferred quota rents are huge.