put a premium on executive branch ability to negotiate credibly and tlexibly. Under Hull, the State Department criticised the incoherence of US policy, using historical precedent to justify a centralisation of policy through the RTAA of 1934 (Haggard 1988: 100). Indeed, as Goldstein (1993: 143) suggests, ‘Hull was successful at trade liberalization only because his ideas were consonant with the new institutional structures. In retrospect, his support of executive delegation was probably more critical to the history of the trade reform program than was his commitment to liberalism’.
The Smoot-Hawley Tariff Act was the last general tariff law enacted by the US Congress. Under the RTAA, the president was authorised to negotiate tariff reductions of up to 50 per cent within a specified period of three years. As Goldstein (1993: 146) points out, this congressional delegation of tariff setting to the executive branch was ‘an unusual moment in congressional history’ in that:
Congress could have mandated that it ratify all treaties negotiated by the president. Instead, its members specifically denied themselves even this authority. After 1934, treaties that were within the reductions specified, ex ante, by Congress were enacted and implemented through executive order.
Presidential authority to negotiate and implement reciprocal tariff reductions with other nations was renewed in 1937, 1940, 1943 and 1945. After the war, the US executive took the lead in multilateralising its trade negotiating objectives through the GATT.45 The GAIT established the framework for an American trade strategy of process-oriented multilateralism designed to promote reciprocal reductions in trade barriers through trade negotiating rounds.46 Six rounds of GATT negotiations were completed by the end of the 1960s. Especially important were the first, the Geneva Round of 1947, and the last, the Kennedy Round (1963-1967). During the former, the United States reduced its tariffs by an average of 20 per cent on all dutiable imports.47 During the latter, major participants reduced tariffs by about 35 per cent on their non-agricultural imports that accounted for about 80 per cent of industrial countries’ dutiable imports (Pastor 1980: 118-19).
45 Finalised in October 1947 after seven months of negotiation, the GATT contained ‘most of the provisions on commercial policy supported in the 1940s by US diplomats’ (Dam 1970: 12).
46 From the outset, there were important exceptions in efforts to establish a comprehensive, multilateral trading system, including US-instigated waivers to allow for the continuation of New Deal farm programs. In
addition, moves to launch a more ambitious International Trade Organization could not gain US congressional endorsement (Diebold 1952).
1 The United States engaged in the most meaningful tariff reductions in the early years of the GATT largely due to the maintenance of quantitative restrictions in other countries (Curzon 1965: 70).
[Beyond the crisis phase of depression and war, a number of factors helped to reinforce and secure executive primacy at the heart of the 1934 policy regime. First, as will be explored further below, America’s global economic dominance was conducive to an executive-defined agenda of reductions in trade barriers. Second, trade policy was interwoven with a national security policy centred on the Cold War and the construction of an American-led alliance system in opposition to the spread of communism. In the immediate postwar years, key policy makers in the Truman Administration (e.g., Marshall, Acheson and Kennan) saw the instruments of international economic policy (including trade policy) as fundamental instruments of national security policy (Gaddis 1982, Pollard 1985, Kunz 1997).48 And third, the 1934 regime was secured by the decline of trade as a major source of conflict between the Republican and Democratic parties. Critical in this regard was the gradual shift by the Republican Party towards support for a more liberal trade policy. This was vital to the norm of executive primacy as presidents, regardless of party, could champion liberal trade for both foreign and domestic policy reasons.44 Increased support for international economic liberalism among government and business elites was a significant factor in this cross-party support for executive primacy. This elite coalition in turn drew strength through the 1950s and 1960s as the pursuit of freer trade coincided with a period of growing global economic prosperity. Success confirmed the liberal ideology, just as the Great Depression discredited protectionism.
The 1934 regime was characterised by a centralisation and insulation of the policy making process. At the same time, Congress took on a balancing and brokering role, continuing to place limits on the autonomy of the executive branch. Especially important were devices for managing protectionist pressures and diverting them from Congress to the executive branch. First, the GATT-based system of multilateral trade rounds provided the key mechanism for export politics, shifting the balance of trade interests by
1S A major aim of US policy was to integrate Japan into the “free world” economic system, underpinning its role as a key US strategic ally in Asia. The United States took the lead in sponsoring Japan’s entry into the GATT and, along with Canada, was one of two GATT members not to invoke Article XXXV authorising non application of the GATT to a new contracting party (Curzon 1965).
49 A key test of executive primacy came with the election of the Eisenhower Republican Administration in 1952. In their analysis of the Reciprocal Trade Agreements Act of 1954-55, Bauer, Pool and Dexter (1963: 466) point out that the Republican Party (normally most susceptible to the pressure of business interests for protection from foreign competition) ‘felt free to adopt as the most cherished item of its legislative program a Roosevelt measure which transferred tariff making from the legislative to the executive branch’.
engaging exporters in the opening up of new markets overseas and, in the process, deferring protectionist claims. Still, Congress continued to set guidelines, regulating how much tariff levels should be changed, by what procedures, and with what exceptions. Second, Congress established the terms of access to administered protection, designed to offer recourse to interests seriously injured by imports, and to combat alleged unfair foreign practices. With the retention in US trade law of procedural safeguards such as the peril point and escape clause provisions, Congress sought to ensure that industries disadvantaged by the trade liberalisation program of the executive could gain relief/11 Third, Congress required an agent in the policy-making process to ensure that congressional and constituency concerns were not easily ignored even while trade expansion was pursued. As a price for providing President Kennedy with new negotiating authority in 1962, Congress proposed the establishment, within the Executive Office of the President, of the Special Trade Representative (STR).51 Later recast as USTR with the Trade Representative given cabinet rank, this agency would serve as the focal point for US trade policy management allowing Congress to more systematically shift responsibility on to the executive branch.
Clearly the shift towards executive primacy under the 1934 regime did not equate with free trade and demands for protection from politically-sensitive industries still had to be addressed. But equally, Congress gave executive officials leeway to find the specific form of protection that would minimise potential retaliation, and to ensure that less compelling pressures were diverted to a depoliticised administrative process that was for the most part unfriendly to granting relief (Mucciaroni 1995: 105). 2 By the 1970s, however, signs were emerging of a more fragmented and politicised policy regime as key
economic interests abandoned support for liberal trade/'* 1 Structural economic problems
of high inflation and unemployment preoccupied American policy-makers, as they did
50 See Destler (1995: 21) for a discussion of the peril point and escape clause provisions and their pre-1934 precedents. Goldstein (1993) deals at length with how postwar moves towards liberalisation incorporated many vestiges from the earlier protectionist period.
1 In the immediate postwar years, the US State Department played the lead role in trade negotiations. But over time the State Department became subject to increasing domestic criticism for trading away American commercial advantages for diplomatic goals.
52 The percentage of industries for which the US International Trade Commission (ITC) found import-induced injury was 35 per cent in 1951 -62 and fell to 20 per cent in 1963-74 (Lawrence and Litan 1986: 44).
y’ Most notably, rising import penetration in many manufacturing industries saw the peak body of US organised labour, the American Federation of Labour and Congress of Industrial Organizations (AFL-CIO), move out of the open trade coalition. T his change in labour’s position was reflected in the trade policy stance among an increased number of Democratic Party members of Congress.
those in most other industrialised economies. The emergence of persistent balance of payments problems saw trade issues become more salient politically in the United States. Also, the success of the process of tariff reductions shifted attention towards NTBs to trade, not only because they were more obvious as tariff rates declined but also because they were increasingly the outlet of protectionist pressures.
In the Trade Act of 1974, Congress authorised the Nixon Administration to begin a new round of negotiations - the Tokyo Round - with a particular focus on reducing NTBs. But in order to preserve greater oversight, Congress now stipulated that any agreements must be approved by a majority vote in both the House of Representatives and the Senate - the so-called “fast-track” procedure. The 1974 Trade Act also eased the conditions regulating access to relief under anti-dumping and countervailing duty mechanisms. In addition, Congress established a process whereby domestic interests could petition the executive to act against unfair foreign import restrictions. Building on an earlier provision in the Trade Expansion Act of 1962, the new Section 301 provision granted the president authority to take retaliatory action against a country that maintained ‘unjustifiable’, ‘unreasonable’, or ‘discriminatory’ restrictions on US exports. In time, Section 301 would form the legal instrument for a rebalancing of US trade policy focus away from multilateralism and towards aggressive bilateralism.
In 1979, the Carter Administration won overwhelming congressional approval for the Tokyo Round agreements. The Tokyo Round reduced tariff rates on manufactured products by an average of one-third and put in place new codes on NTBs in such areas as government procurement, subsidies and countervailing duties (Winham 1986). While Congress again moved to ease the standards by which administered protection could be granted in the Trade Act of 1979, the central norm of executive primacy was largely maintained. Congress’ main objective was limited to giving more power to the bureaucracy by easing aid requirements, not to subvert executive branch primacy. It was this presidential authority and leadership, used astutely to tip the balance in favour of freer trade, that underpinned the 1934 regime. It allowed Congress to avoid blame and continue to deflect pressures for it to assume a more dominant role in the trade policy process. As a result of successive rounds of multilateral negotiations initiated by the executive, the average US tariff level on dutiable imports was reduced from 60 per cent in 1931 to 5.7 per cent in 1980 (Lavergne 1983). With their larger constituency, capacity
to control appointments, to set agendas and to define the nature of an issue, postwar presidents were able to use their position to support a generally liberal, multilateralist trade strategy. As Destler (1995: 32) notes:
There were variations in their degrees of personal commitment: on balance, Gerald R. Ford’s was greater than Richard M. Nixon’s, and Lyndon B. Johnson and Jimmy Carter were more devoted free traders than John F. Kennedy. But all proved willing to play the role of tilting in the liberal direction - in the decisions they made themselves and in the appointments they made to key trade positions.
The 1980s crisis in the US trade policy regime would signify an unprecedented test of the legitimacy of the 1934 regime, its central norm of executive primacy and the process- oriented multilateralism that had been at the centre of American trade strategy for around 40 years. It saw the most avowedly free trade-oriented US President of the modern era preside over what even supporters would term a ‘strategic retreat’ on trade policy (Niskanen 1988: 137). The Reagan Administration’s first formal “Statement on US Trade Policy” in July 1981 set as its goal the promotion of ‘free trade, based on mutually acceptable trading relations’ while pledging to ‘strongly oppose trade distorting interventions by government’.54 In time, senior Reagan Administration officials would acknowledge that the President had imposed more protectionist measures than any predecessor since Herbert Floover whose signature approved the Smoot Hawley tariff. 5 By the second half of 1985, Congress had moved to reclaim a more central role in US trade policy, wielding the threat of veto-proof protectionist legislation and embarking on the first omnibus trade bill to be drafted by the Congress in over 50 years. President Reagan was forced to unveil a new strategy of ‘free and fair’ trade on 23 September 1985. The centrepiece was the self-initiation by the US government of bilateral Section 301 actions to combat unfair foreign trade practices.
The regime crisis acts as a conditioning variable and vantage-point for exploring change in US policy towards Japan. It illuminates the role of path dependency and how actions taken at one point in time result in opportunities for and constraints on future action by sending policy off on particular tracks. It would have long-lasting consequences as Congress moved to reclaim a more central role in US trade policy and the executive
54 US Congress, Senate Committee on Finance (1981).
55 In 1987, then US Treasury Secretary James Baker remarked that President Reagan had granted ‘more import relief than any predecessor ‘in more than half a century’ (Finger 1992: 89). Similarly, Niskanen (1988: 137) states that ‘the administration imposed more new restraints on trade than any administration since Hoover’.
branch embraced a more structured and aggressive bilateral market access policy. As Haggard (1988: 119) notes, ‘If institutions matter in explaining policy outcomes, political scientists should spend more effort unraveling those historical conjunctures or “turning points” when the context of policymaking changes fundamentally’. But in so doing it becomes clear that while institutional factors are important, they are never the sole “cause” of outcomes. The underlying sources of the regime crisis lay in the interaction o f international and domestic factors external to the policy regime.
America’s relative economic decline and the Japanese challenge
Stresses in the American trade policy regime by the 1980s can be traced in part to change in America’s relative position in the world economy, especially vis-a-vis Japan. Relative decline in American economic power and increasing interdependence with the world economy provide an important, but permissive, systemic factor explaining a general US shift towards a more aggressive bilateral market opening policy in the 1980s. Two factors restructured the international environment facing American institutions and actors: (1) the erosion of the artificial postwar dominance o f American manufacturing industry; and (2) the emergence of new sources of surplus capital in the international economy. With the United States increasingly dependent on international trade and financial flows, Japan would emerge as the major economic challenger to American economic supremacy. In the real economy, Japan’s challenge was first apparent via pressure on basic US manufacturing industries, and later manifest in the area o f high technology. By the 1980s, Japan's financial resources saw it eclipse the United States as the world’s largest creditor nation.
At the end o f World War II, the United States emerged with its economic base greatly expanded, while the industrial capacity of both its enemies and its allies was either destroyed or obsolete. Output in the United States had roughly doubled in real terms during the war, and by 1945 the US produced around half o f the world’s industrial output (Gardner 1980: 178). The United States was often the only source o f products incorporating the technologies that emerged after the war. Trade patterns in the early postwar years confirmed its economic dominance. The United States accounted for over one-third of world trade in the war’s aftermath, but its economy remained largely self-
sufficient/6 As late as 1952, the US share of manufactures exports of the ten largest industrial economies stood at 35 per cent, compared with only 21 per cent in both 1938 and 1928. Export surpluses were recorded at that time in every major industrial group except metals - for example, machinery, vehicles, chemicals, textiles, and miscellaneous manufactures (Baldwin 1984b: 8). One senior figure in postwar US economic diplomacy would write subsequently that the position of the United States after World War II was ‘entirely abnormal and unsustainable’ (Volcker 1992: xv).
Two decades of rapid economic growth in Europe and Japan meant that the postwar dominance of the US economy had diminished significantly by the early 1970s. On a purchasing power parity basis, the US share of world output fell from around a third in the late 1940s to approximately 22 per cent in 1970 (Maddison 1995a). America’s share of the ten major industrial countries’ total manufacturing output fell from 62 per cent in 1950 to 44 per cent in 1970 (Branson 1980: 191). Low- and medium-technology manufacturing industries in the United States experienced eroding comparative advantage, first relative to European and Japanese competitors, and later relative to the newly industrialising economies (NIEs) of Asia and Latin America. In the 1950s, productivity in Japan and Europe was very low compared with the United States. Subsequently output per worker in these countries converged to the US level, though at a steadily diminishing pace. Table 3.1 shows the differences in manufacturing productivity growth rates that delivered the postwar “catch-up" with the United States by other industrial countries, as well as the general productivity slow-down in the 1970s.
Table 3.1 Manufacturing Productivity Growth in Major Industrialised Countries (average annual growth, %)
U n i t e d S t a t e s J a p a n G e r m a n y F r a n c e U n i t e d K i n g d o m
1 9 5 0 - 7 3 2.62 9.48 6.31 5.63 3.25
1 9 7 3 - 7 9 1.37 5.39 4.22 4.9 0.83
Source: Bailey and Blair (1988: 180)
' In 1946-47, exports were about 6 per cent of national income while imports were 2.5 per cent (Pollard 1985: 281).
The US share of world manufactures exports fell from 29 per cent in 1953 to 13 per cent in 1971 (Branson 1980: 196). Summarising the changing international position of America’s manufacturing sector, Branson (1980: 183) noted that:
in the immediate postwar years, the pattern of United States trade was distorted by a relative strength in manufacturing that was transitory. The recovery of the European and Japanese economies in the 1950s and 1960s, and the growth of manufacturing capacity in the developing countries in the 1960s and 1970s inevitably reduced the United States share of world output and of world exports. ... By the 1970s, trade patterns reflecting underlying comparative advantage had been restored, and the United States was once