now-developed countries between 1870 and 1913. The result seems to show
openness was bad for economic growth, but note that this historical correlation
is driven by several key outliers (US, Canada and Argentina). These three
countries were high-tariff/high-growth countries. Without them the correlation
disappears. These three were the labour-scarce/land- and resource-abundant
New World economies that had the most potential for rapid growth. In
Argentina and Canada trade policy was not designed to promote import-substi-
tuting industrialization. Growth in both cases was based on an FDI-led infra-
structure investment boom that in turn promoted an export boom in staple
products. Tariffs in these countries tended to be levied on key commodities
such as alcohol, coffee, sugar, tea and tobacco, motivated by the need to raise
revenue for the government not to protect and promote the growth of domestic
manufacturing. The US did achieve high, industrial-led growth based on high
tariff protection but the link was not a general one (Irwin, 2000).
Even more disaggregated industry-level case-study evidence suggests
further caution regarding the apparent positive link between trade protection
and economic growth. The important question or counterfactual we need to
ask is:how would industry have developed in the absence of tariffs? A
detailed case study of the US tinplate industry attempts to answer this ques-
tion. Tin plate is a sub-sector of the iron and steel industry. There was virtu-
ally no domestic production of tinplate in the late 1860s and US consumption
was largely met through imports from the UK. The McKinley tariff of 1890
raised the duty (from 30 to over 70 per cent) on imported tinplate to encour-
ag e the entry and growth of domestic producers. Domestic production
expanded after 1891,capturing nearly 90 per cent of the market by 1899. In
1869 the price of basic bar iron in the US was double that in the UK and only
by about 1910 did the price of US tinplate fall below UK prices and the US
become a net exporter. Douglas Irwin estimates that without the McKinley
tariff the US tinplate industry would have established itself about a decade
later based on the country’s abundance of iron ore and coal. Further, he argues
that the initial large loss of consumer welfare/surplus resulting from higher
domestic prices was not offset by the stream of profits received by protected
domestic producers, so protection had a net cost to the US economy (Irwin,
2000).
Trade liberalization and growth
The empirical and case-study results generally indicate a positive if small but
non-robust, varied and seemingly unpredictable link from trade liberalization
to economic growth and an even more confusing and ambiguous link from
trade liberalization to productivity growth. A good reason is that we are asking
the wrong question. Rather than asking if trade liberalization is good for
growth,we would be better to ask:under what circumstances is trade liberal-
ization good for growth?’ There is very good reason to believe that the relation-
ship is a heavily contingent one. Trade liberalization is only likely to be good
International Trade, Openness and Integration 281