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Did tariffs boost 19th century U.S. economic growth?
It is a common view that the growth experience of the United States represents a strong case for the "infant industry" argument for protection. Bill Lazonick told us this repeatedly in my Harvard history of thought class. But is it true? Via Ben Muse, Douglas Irwin says no:
Were high import tariffs somehow related to the strong U.S. economic growth during the late nineteenth century? One paper investigates the multiple channels by which tariffs could have promoted growth during this period. I found that 1) late nineteenth century growth hinged more on population expansion and capital accumulation than on productivity growth; 2) tariffs may have discouraged capital accumulation by raising the price of imported capital goods; and 3) productivity growth was most rapid in non-traded sectors (such as utilities and services) whose performance was not directly related to the tariff.
Posted by Tyler Cowen on July 28, 2006 at 11:06 AM in History | Permalink
Comments
My first question is what is the source of his estimate that
productivity was stronger in the nontraded sector. That is
contrary to so much other experience that it sticks out like a
sore thumb.
Posted by: spencer at Jul 28, 2006 1:01:33 PM
If we go with tariff barriers as the primary explanation for US 19th Century economic growth, then it would stand to reason that the countries with the most infant industry protection during this period would have had the highest growth. In fact, this is not the case. Tariff levels were highest in Latin America during this period. As Coatsworth and Williamson note in their chapter "The Roots of Latin American Protectionism: Looking Before the Great Depression" in the edited volume Integrating the Americas: FTAA and Beyond (Harvard 2004), Latin American tariffs were "far higher than anywhere else in the world from the 1860s to World War I..." They point out that the countries with the highest tariff rates grew the slowest.
For those mistakenly rejoicing in the demise of the Doha Round, this should remind us of the compelling arguments in favor of free trade.
Posted by: D. Daniel Sokol at Jul 28, 2006 9:46:58 PM
My question: I don't believe in high tariffs to say the least.
But we believe high tariffs should really hurt a nation's economy.
19th century U.S. growth rates were extremely impressive with high
tariff rates. Can it be said that the high tariff rates hurt economic
growth that much in 19th century? And if not why not?
Posted by: brad at Jul 28, 2006 11:21:39 PM
I think the point that the economist was trying to make is that many of the inputs to the products being made domesticaly were expensive to import because of the tarifs. Without the tarrifs many domestic producers could chose the lowest priced inputs regardless of their geographical location. It is extremely naive and simplistic to argue that tarrifs can help infant industries because many of the inputs used to create those products could come from oversees at lower costs. In a country with tarrifs, you would have to take it as a point of faith that the inputs needed for domestic industry could be found at their lowest price within the nations borders. Hence the reason that we are so passionate about free markets because they allow for tremendous eficiency gains.
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