Douglas Irwin on Talking about Trade and Commerce

Trade is all the rage these days. Or, at least, raging about trade is. Today, we unpack what trade and free trade are, and how to talk about it. We also address the abundance of lawyers in trade policy. 

Douglas Irwin is a professor of economics at Dartmouth College and the author of several books including Clashing Over Commerce and Against the Tide: An Intellectual History of Free Trade.


Want to explore more?

• Douglas Irwin, International Trade Agreements, in the Concise Encyclopedia of Economics
• Samuel Gregg on National Security and Industrial Policy, a Great Antidote podcast.
• Why Industrial Policy is (Almost) Always a Bad Idea (with Scott Sumner), an EconTalk podcast.
• Colin Grabow on the Jones Act 2: Treason and Cruises, a Great Antidote podcast.
• Jon Murphy, Does National Security Justify Tariffs? at Econlib

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Transcript

Juliette Sellgren 

Science is the great antidote to the poison of enthusiasm and superstition. Hi, I'm Juliet Sellgren, and this is my podcast, the Great Antidote named for Adam Smith, brought to you by Liberty Fund. To learn more, visit www.AdamSmithWorks.org. Welcome back. Today on January 3rd, 2025, we're going to be kicking off the new year by talking about something that has been at the forefront of, I think the public economics consciousness, if that's a thing. For a while now, it's this big hot topic that funnily we have some critiques of, and that is protectionism and trade, all of the industrial policy, that sort of stuff. And I am super excited to welcome Douglas Irwin to the podcast to talk about this. He is kind of the god of this arena. He is a professor at Dartmouth College, and he wrote Clashing Over Commerce. Check it out if you haven't. Very good book, very long book, but entirely worth the read and against the tide and intellectual history of free trade. These books are super important to help us understand what is wrong with the current narrative and to kind of well critique the current narrative- to give a supplement that fills in the gaps that maybe seem a little too smooth or convenient. So I'm excited to talk about all of that and more welcome to the podcast.

Douglas Irwin 

Thanks for having me. It's a great pleasure to be here.

Juliette Sellgren (1:59)

So the first question, what is the most important thing that people my age or in my generation should know that we don't?

Douglas Irwin (2:08)

Well, there's not one specific thing that I could think of that you should know or your generation should know, but I guess if you're asking for some advice in some sense, I think a sense or an appreciation of history is very important for your generation, whether you're interested in politics, economics, or even some of the sciences. I think just knowing how things have evolved over time, how new ideas developed and changed, how we got to where we are today. It gives a depth to your knowledge, I think relatively few people possess. And I think just understanding history and how things have evolved can be very important. Winston Churchill, once he said study history, in history lie all the secrets of statecraft. So he's someone who really drew upon history to understand the times he was in. I think to understand where we are today, you have to understand how he got here.

Juliette Sellgren (3:06)

Perfect. Jumping off point for one, I've been enjoying learning more about history. I feel like that's kind of almost a New Year's resolution. So many people on the podcast have said that and pointed to the importance, even if that's not the thing they say is the most important, a lot of what we argue about, talk about just intellectually point to is historical. And so focusing on that, that's what I'm trying to do this year. But this might seem easy, redundant, I don't know. But let's start with what is trade, and further, why do you specifically care about trade and why should we care about trade?

Douglas Irwin (3:50)

Well, there's domestic trade and then there's international trade and all trade is commerce. It's producers and consumers exchanging goods, and that commerce can take place within a country or it can take place between countries. And you might think that if trade is just commerce, it really doesn't matter whether things are crossing international borders or not. But it turns out politically and possibly even economically, there is a difference and they are sort of separate in some sense. The way I sort of explain to my class sometimes is if Coke and Pepsi are battling for consumers and battling for the market, and Pepsi comes up with a better tasting drink or something that's more attractive to consumers and they really knock out Coke and Coke, sales go down, their profits go down, they have to shutter some factories and lay off some workers. No one's really going to complain about that because it's sort of domestic commerce and they're facing a level playing field and one firm came out with a better product.

But somehow if Coke and Pepsi or if one of them was in another country and the same sort of thing took place, then all of a sudden it becomes political in a sense. It becomes controversial whether we should allow a foreign firm to make inroads into the domestic market and hurt a domestic firm, even though it's fundamentally the same thing, even though for consumers they're benefiting from it. We sort of view foreign commerce and international trade as something different and requires a possible look at in terms of what policymakers, how they might respond to it. So I've always been interested in the world and international relations and international politics and international trade just seemed to be a dimension of that. That was interesting to me as an economist.

Juliette Sellgren (5:41)

You mentioned the political and economic potential, economic importance of the international aspect of the trade and the boundaries and all that. How do those differ and how do they intersect and what is their significance?

Douglas Irwin (6:04)

So just going back to my example, if as I said, Pepsi comes out with some great new drink that really hurts coke, Coke really can't go to Congress and say, do something to stop Pepsi from doing this. Let's put taxes on Pepsi. Let's do something to slow down the competitive inroads they're doing because it's really hurting us. I think members of Congress of both parties would say, that's ridiculous. You're in the market. You're not competing as well. You failed in some sense, the consumer test. And so you've got to up your game. You can't turn to us for any sort of assistance. But if it's a domestic firm facing off against a foreign firm, that domestic firm can go to Congress and get a sympathetic year saying, look, we're trying to compete here, but there would probably be some allegation of some unfair trade. They're getting subsidies, they pay lower wages, they have some special advantage, and so you have to help us out with either tax on them or some sort of restriction on their ability to enter the market. And I think a lot of members of Congress and many members of the public as well might say, yeah, this is a domestic firm. They're part of us, and even though consumers are benefiting, we ought to help out the domestic firm and hold back the foreign firm. So that's why I think international commerce is inherently more political than domestic commerce and a whole host of things sort of derives from that.

Juliette Sellgren (7:36)

So something that I don't want to say I'm confused about, but something that I have been kind of thinking about recently, especially when having conversations about trade and being an advocate for free trade, I'm realizing that of course this is not my specialty. If I can even have a specialty at this point in my career, in my life, is that free trade? It's not that it doesn't make sense to me, but these are two words that sound like they make sense together, but what does it actually mean when you put it together? There are so many different ways to trade, so many different arrangements and agreements. And so where does free trade stand within the different ways that countries can have commerce that businesses can operate internationally? Domestically?

Douglas Irwin (8:32)

That's a great question and it's actually not an easy one to answer in the sense that there's no unique definition of what free trade is. So you mentioned my book- Against the Tide: An Intellectual History of Free Trade when the term first came up, it didn't mean that you couldn't tax imports or even exports. It just meant that businesses or merchants at the time and they're talking about pre-Adam Smith period, would have the freedom to enter a trade and freedom to at least give it a go, give it a shot even if there are taxes that they would have to face. So it didn't mean zero tariffs or anything, it just meant freedom of entry. You could enter something, there was no legal prohibition against you from trying something. And then it sort of evolved after Adam Smith to sort of mean non-discrimination in the sense of you're not discriminating against foreign firms or foreign trade as opposed to domestic firms and domestic trade.

So that sort of meant if you have tariffs at the border, you'd bring those down to something approximating zero, but they wouldn't have to be zero. Britain in the 19th century is very famous for repealing its Corn Laws and moving towards free trade. They still levied some tariffs, but what those tariffs were the international extension of domestic excise taxes. So they tax domestic tobacco firms, domestic alcohol producers, and to ensure equal tax treatment, they would levy those same taxes on tobacco and alcohol coming into the country. So it doesn't mean zero tariffs necessarily, it just means non-discrimination between domestic and foreign producers within your domestic market.

Juliette Sellgren (10:13)

This seems to be somewhat a common distinction. Distinction is not the right way to put it, but it's a common line, something that we talk about a lot, right? The discrimination and people who like freedom, people who think that freedom is good for humans, it's good for prosperity, all of that. We tend to say things like we're not discriminating. It's actually because we're not discriminating. That's what freedom is. And that's kind of how we can reap the benefits of freedom and of the society we're a part of. And yet there's something, it's almost like discrimination is becoming popular and that doesn't sound great, but it's also discrimination is becoming popular by another name and not along maybe what you would consider traditional lines. So it's not necessarily explicitly racial or socioeconomic, whatever you want to say, but how you kind size up this turn in trade and just generally of I guess American politics and the views on the economy and all of that just across the board really towards discrimination and protectionism and favoritism and what does that mean for us, not just as people who defend freedom and the importance of freedom, but just Americans as a whole, the world as a whole.

Douglas Irwin (11:56)

That's a great question. I think you're right. There has been sort of a growing policy movement towards more discrimination and trade. And I think it's related to another ism, or not just protectionism, but nationalism. The view that our own country, our own firms were sort of being besieged and hurt by other countries and therefore it's the nationalist or the patriotic thing to do is to help out our firms against foreign competition. And usually foreign competition can be said to be unfair on some dimension. As I mentioned, they're not operating necessarily in the domestic market, so they don't have the same domestic regulations. They don't have to pay the same wages as domestic firms do. So there's some dimension on which they're different. And that difference can be sort of a thin edge of the wedge of discrimination saying, well, because they pay lower wages, we ought to tax them before they can send their goods to the US market, or something like that.

In terms of your point about how do you respond to that, I think it's important to discern good cases of discrimination against bad cases of discrimination, if you will. And that's where a little knowledge will be helpful. I always go back to Adam Smith and the Wealth of Nations because it's just such a powerful book on trade and on so many other topics. But he does say in the Wealth of Nations, defense is more important than opulence. And what he means by that is that national defense, that's the first objective of any state, any government that's its obligation, and it's more important than opulence in the sense that we ought to be willing to sacrifice some of the wealth of the nation, some of our income to ensure that defense. We're in a world today where geopolitics is back and a lot of protectionism is sort of justified on national defense grounds.

Now taking Adam Smith in principle is fine, but the devil is always sort of in the details and you just can't use that sort wave the flag of national defense and then protect all industries because not all industries are really necessary for national defense. And so there's sort of this trade-off. You have to think carefully about, in this particular case, is it right that we have to discriminate in favor of domestic firms and against foreign firms or in favor of domestic commerce as against foreign commerce for defense purposes? How legitimate is that? How important is that and what's the economic cost going to be? That's something that's sort of tough to take on from a principled philosophical a priori position saying something is right or wrong. It's saying we sort have to make a judgment call. And unfortunately, I think we're a very messy world where we have to make a lot of these judgment calls when we're talking about trade with China. Should we import drones from China? If the chips have some sort of backdoor where the communist party can influence where those drones go and what they do, I don't know. But that's not an easy issue to handle.

Juliette Sellgren (15:05)

Yeah, I mean it really isn't. And I think especially, I mean those of you who spend your time talking about trade and free trade and this openness, it's really difficult. But also there is what you were saying before that part of how you got here was your interest in just foreign relations in the global kind of stage. And I think it's hard when you have a lot of national security defense IR people talking about, oh, well, it's for the good of the country, it's for safety, it's for this, it's for that. It's a little hard to argue against. And Sam Gregg is who comes to mind. He in particular has been making this move towards learning their language to try to be able to talk about trade in these terms to kind of bridge that gap. But I think it is hard to argue against, and there's kind of maybe a whole economics there where what about the information asymmetry, right? The defense sector of the government knows things that we don't as economists and as just citizens. And so what do we do about that? Because I mean, a lot of economics focuses on information asymmetry, but how do we even think about trade and arguing for trade and the importance of trade when we don't have full information?

Douglas Irwin (16:36)

Yeah. Let me give you two examples of how this is, how one should be discerning about this and why things have changed. In recent decades, the Trump administration's first term protected the steel industry with pretty high tariffs, and it justified those tariffs on national security. In fact, the statute that they invoked to allow the government to impose those higher tariffs explicitly was about national security. Well, before they could do that, they had to do an internal review about whether there actually was a national security case for imposing those tariffs. Lo and behold, the Department of Defense under James Mattis issued a statement or issued advisory to the committee that was considering those tariffs saying the Department of Defense view was that we did not need tariffs to protect the steel industry on grounds of national defense that we produced about three quarters of the steel we consumed.

We have more than enough to produce the tanks and the armaments that we need, and that if we impose those tariffs, most of our imports came from our allies, Germany, Japan, Korea, Canada, and that we shouldn't jeopardize those relationships because actually we don't import a lot of steel from say, Russia, China. So despite that, despite the Department of Defense saying that we didn't need tariffs for national security reasons, the Trump administration went ahead and did that. And so either national security was a cloak for what they wanted to do, which is probably the case. They just wanted to really protect the steel industry for political purposes or what have you, to make America great. But once again, they had to justify it some way and they use national defense. So I'm not saying that there aren't any cases where it's not important for a national defense to have a domestic industry that's viable, but you just can't use it without looking at the facts.

And that's one case where it seemed like it was unnecessary. And here's where things have changed a bit in just in the past five or 10 years or so. When I grew up, it was the Cold War. We didn't have free trade with the Soviet Union and no philosophical free trader in the US that I can recall ever said, yes, we ought to have free trade with the Soviet Union if they want to buy F sixteens or F fifteens or if China wanted to buy them today, I don't think we should probably do that. That's an interference with trade. But then the Cold War ended, the Berlin Wall collapsed, the Soviet Union collapsed as well, and we had this period for about 20 or 30 years, more like 20 I think, where China really wasn't a geopolitical threat. They were just trying to get rich.

Russia was too busy trying to stabilize its own economy to really focus on foreign policy or foreign adventurism. Some people have called this a holiday from history. The US was this unipolar had this unipolar moment of unprecedented power, and so free trade under those conditions when politics really wasn't so important, international politics, that is we could say yes, we ought to open up markets and have pretty much unrestricted trade. But I think since the stance of China and Russia has changed China under President Xi and obviously Putin in Russia, we have to be a little bit more careful. So now the case for free trade is a little bit more nuanced and a little more subtle than it used to be, and the exceptions have sort of come up to be more important.

Juliette Sellgren (20:06)

That example is first kind of shocking. I feel a little, well, ignorant for not knowing that that happened. Also, I'm a little heartened, can I say that to hear that actually different parts of government can disagree. Obviously I knew it was possible, but I didn't really think that that necessarily would happen. So that's cool.

Douglas Irwin (20:40)

I'll say that I did work in the federal government for a couple of years, including on trade policy in one year, and it's often said that the battles within the government are worse than the battles between governments. In some sense. When Henry Kissinger was a national security advisor, someone I believe on his staff said something along the lines that the Soviet Union was our enemy. And Kissinger corrected him and said, no, they are adversary. The State Department is our enemy. And that just sort of tells you that the bureaucratic politics within the government can be very ferocious as opposed to the relationship between governments.

Juliette Sellgren 

Yeah, no, that's hilarious.

Douglas Irwin 

That joke makes sense or that makes sense.

Juliette Sellgren (21:25)

Well, if you see it within movies, I mean, I want to say that movies are not the perfect representation of what happens within the government. It also seems much more glorious and action thriller than it probably is. But you always see all these different departments in the Pentagon and whoever, they're always like, oh, we hate the State Department. And then the State Department is like, no, everyone else sucks. And they're always just kind of talking smack about each other.

Douglas Irwin 

Right.

Juliette Sellgren 

That seems pretty accurate from what you just said.

Douglas Irwin (22:06)

Yeah. Wow. So in trade policy, there is something known as the black hats and the white hats, the black hats, and this is owed to a book by Clyde Prestowitz on trade policy and the Reagan administration, and I think he called his book Trading Places, but at any rate, it's a very accurate representation of what goes on the Department of Commerce. The Department of Labor, and a few other agencies and departments are pretty much always in favor of higher tariffs. They want to protect domestic industry as the State Department and the Defense Department and the Treasury Department that are the white hats, and also the Council of Economic Advisors that are always worried about consumer interests, getting along with other countries. They generally didn't want protectionist measures in place. So with any administration, Republican or Democrat, you get these different agencies lining up on different sides, usually on a particular trade issue in terms of how hard you should be against other countries and against imports.

Juliette Sellgren 

Wow, see, that's fascinating. It's the internal baseball.

Douglas Irwin 

That's right.

Juliette Sellgren (23:07)

Tell us a little bit about your time in the federal government. What did you learn? What were you doing? What was it like?

Douglas Irwin (23:16)

I did two stints. One was at the Council of Economic Advisors when I was in graduate school in economics in the late 1980s in the Reagan administration. And I worked on trade policy issues. And I was very fortunate that even though I was very low on the totem pole, I had, my immediate boss included me in all the meetings, pretty much all the meetings that he went to. So I could be a fly on the wall and sometimes I actually represented as a young 20-year-old or young twenties, the CEA, at these various inter-agency meetings. And it was just a marvelous experience, a fascinating experience because I learned so much about how trade policy actually works within the government and just how the process works, how people talk and communicate about ideas. Most agencies are not staffed with many economists, so it's CEA and a few others, treasury that would have sort of trained economists.

The others were trained in foreign relations or in business or commerce or something like that. And so seeing different, I guess, positions being represented at the table and how arguments and decisions get made, I just learned so much during that year that's influenced the way I think about trade and trade policy. Ever since then, I spent, after getting my PhD, I spent three years at the Federal Reserve Board in Washington working on international issues, but not directly related to trade. And so that's why I didn't spend too much time there. I knew I wanted to move on and work mainly on trade, but just once again, being at the nation’s central bank, thinking about how US monetary policy has to respond or should respond to foreign developments, whether it's movements in the dollar or recession abroad or changes in capital flows, it's just once again, continued my education in a way that you just don't get in school about how the world actually operates. So I highly recommend to anyone, particularly someone in their twenties, worked for a short period of time for the federal government because you'll learn so much, you'll meet so many interesting people, and it'll give you a sense and a framework for thinking about all sorts of issues that will help you throughout your career.

Juliette Sellgren (25:33)

Yeah, that's so fascinating. I've been thinking about it. I'm not going to lie. I have been thinking about it. What do you think is the main difference? So this is maybe getting a little off the topic of trade, but I think it's still from maybe a public choice perspective is kind of important in understanding even how these bodies work. What are some of the main differences? So we talk a lot about like, oh, government is slow and this and that, and this is how it compares to the corporate world. But even, I mean, how much of that do you think is accurate or right, based on your experience there and especially then being in a university, how is it different from that? What do you think?

Douglas Irwin (26:26)

I think the analogies or the similarities between government and the university are very similar. Both are very slow, very impervious to change in terms of procedures. And the reason is because there's so many different stakeholders and they all have a say in the issue, and there's a drive towards consensus in both entities, and that just takes a lot of time. So with trade policy and any government policy, there's going to be a lot of committee hearings, there's going to be a lot of interagency meetings to formulate a proposal, and then things naturally get watered down. And the same things happens in a university. I think the private sector is very different where you have to meet the demands of the market every single day, your customers hold you into account, and time spans are just much shorter. Turnaround times have to be shorter. You have to act quickly because if you don't, your competitors will. So I'd say the university is very much like the public sector and being slow and impervious to change. They've sort of got this consumer base or customer base of undergraduates who always show up every year and pay their tuition, and they don't have to compete that much. I think Adam Smith had some rather negative things to say about universities in his day too, and how they weren't very responsive to change.

So not sure where I was going with that, but that's the observation I guess I would make.

Juliette Sellgren (27:55)

Yeah, I mean, just to continue on this path, how do you think, I mean, okay, I think about a lot of the people who talk about trade protectionism, stuff like that in the policy world. And it seems to me that a lot of them, I mean some of them are just lawyers, they're not really trained in economics necessarily. And I'm not saying that you have to be, but it probably would be a good thing if you spent more than maybe an introductory microeconomics course thinking about economics, just even from the point of being able to talk about economics. It seems helpful.

And a lot of these people, you can kind of see that they're coming more from either an IR perspective or an emotional perspective, or even just from having different things on their political agenda than the gains that we have from economics. And then you see them still lean on in sort of ways, the things that we talk about, about the prosperity and the abundance and the wellbeing. Because even if you don't like economics or don't specialize in economics, it sounds good, right? Prosperity sounds great. And so even if from a pure economic perspective, the thing that you're advocating as an advocate of protectionism actually gains the gains, gets the opposite outcome than the one that you say clearly not necessarily following economic logic. This is what's, and that's not always true. There are trained economists who still say stuff like that, but then you also look at the polls of what economists think, and a lot of them do fall on the same lines of this is what the economic outcome of X would be, even if politically you might fall somewhere else. Economists tend to agree on the economic consequences of certain events, including things like trade.

I say this maybe because a lot of the discussion that is leaning towards nationalism, protectionism, closedness seems to be coming from not the universities, while the university definitely has plenty of this also. So I mean, what does that really mean for a hopeful academic and as someone who is in academia that the people who are advocating a lot of these things are doing so and arguably winning outside of the place where economists usually find their home. That was a lot.

Douglas Irwin (30:58)

Yeah, no, it was a lot, but it was also very good. And I certainly agree with your sort of how you framed it and the role that economics and understanding economics can play in these policy debates. And you're absolutely right. The trade policy has historically in the US been dominated by lawyers who aren't necessarily trained in economics. And when you're a lawyer, what I sort of saw and I think has continued to this day to some extent, is that if there's some trade friction with some other country that lawyers want to make a deal, they want to stop the friction and make both sides happy and just move on. And I think what economists do is say, well, it's not just any deal that we should be aiming for. It's something that doesn't cost us too much and actually might bring some benefits in terms of added prosperity.

So I think economists, and this goes back to Adam Smith as well, have this idea that what is the objective and what is we want to improve the wealth of the nation, and that's sort of our goal. And how do we either further that goal or how do we deviate from it, but not compromise too much or sacrifice too much wealth in the process of creating some trade deal that might maybe helps a domestic producer, what have you. So I guess what economists bring to the table is an awareness of the cost of different policies. And I know that when you read some of the work of past chairs of the Council of Economic Advisors, whether it's Martin Feldstein or Charles Schultz or someone more recently, they take great pride in saying, these are all the policy proposals that we helped shoot down that were really bad and would've cost us as a country quite a bit, even though some political movement to implement them. And so if you just stop a few bad policies, you sort of justified your value, even if a lot of the policies that get through the process are detrimental to the wealth of nations, if you will.

Juliette Sellgren (32:57)

Well, so what's interesting about the lawyer economist distinction to me is that, I mean, there's a reason why you find lawyers kind of everywhere, but there's a reason why I think economists, there are some in the private sector, but you find a lot of them in the government in universities, whereas lawyers, they're sure in the federal government, but there are fewer of them in universities, that to me kind of indicates that economists are a little bit slower moving and that lawyers are well corporate, they're faster, they want to resolve something as you were saying, and they want everyone to be happy, settle something, move on. And I think that that kind of poses a challenge for us. And I kind of want to know, I mean, you've had a ton of experience in this field, one that is kind of dominated by lawyers, and so how do you engage with people of different backgrounds?

I'm thinking of the way that Tocqueville has an entire couple chapters where he's sizing up lawyers and their role in a democracy, and he says they're kind of this weird in-between. They're not beholden to the people, nor are they really beholden to the government because they understand this language. No one else does. And I would say the same is true of economists, but I don't know, there's something about how similar and how different economists and lawyers are that I think makes it difficult to have one conversation, especially in the trade world. Have you run into this?

Douglas Irwin (34:51)

They do come from separate worlds. I don't want to denigrate lawyers at all. I think law is an honorable practice. 

Juliette Sellgren

Oh, it is!

Douglas Irwin (34:59)

And I considered becoming a lawyer myself. I've always been very impressed with many of the lawyers that I've met, and we do need them even in the realm of trade because there's an economic component to trade, but also just in terms of implementing things and process, there's a legal aspect to that that's very important. I think economists have in some sense gotten better at communicating with policymakers and making their views known compared to 30 or 40 years ago, the range in which economists engage in the debate, it can be from sort of a narrow economic calculation of the cost and the benefits of a particular policy that's very wonky and model driven and data intensive to blog posts and op-eds where you can make the economic case for a particular policy or against another type of policy. And I think social media is sort of given economists a little bit more of a voice in a way, and the internet makes economic opinion and economic ideas diffuse much more quickly.

And I see that in terms of the trade policy debate as well. So I don't think economists will always come out on top and perhaps nor should they in any particular policy debate, but as long as they get a hearing and as long as policymakers sort of appreciate and understand that actually they are helping to achieve some objective, but also at added an economic cost and recognizing that cost, that's about as good as you can get, as much as you can ask. I think the danger is that when non economists will say, we're going to move forward with this policy and it'll make us richer, so we're going to shut down trade with China, and we'll be more prosperous as a result instead of facing up to the fact that actually we're going to be cutting out some of the gains from trade, but we're doing it for this other purpose of disengaging with China or improving our national security, not acknowledging trade-offs, not acknowledging costs. That's a little bit more dangerous than saying that yes, this policy won't make us richer, but it'll make us safer. That's a more honest approach in many of the cases I've seen recently.

Juliette Sellgren (37:15)

And I think you're right that it's almost, you can hear it when you talk. There's this appreciation for the fact that social media and technological improvements have kind of allowed us to even butt heads more often, and maybe we are not wrong necessarily, but that there is actually room for this nuance and these disagreements to be had, and they kind of need to be had in order for us to know as a country, as individuals is whoever what we need or want in a given moment, I guess that's what democracy is, and talking about democracy is maybe a whole different conversation. That's just kind of what we have, so we roll with it.

Douglas Irwin (38:03)

Right. Lemme just give you one example that's just come to mind on exactly this point. You've probably heard of the Jones Act. This has been a longstanding part of US policy for many, many years, but thanks to Colin Grabow and others at the Cato Institute and elsewhere, they've just been pounding away at the problems and the distortions and the costs of this policy. So whereas it was not debated so much because people didn't have information and didn't really, the debate could not be aired in a way that many people could access before. And so it just continued year to year. We haven't changed that policy, but I think many more people are aware of its costs and its problems now than 20 years ago. And so that's a great improvement because that lays the conditions for some time in the future, policymakers to possibly get rid of the Jones Act. And if that happens, I think it'll be due to those efforts to publicize all the problems that are associated with it. So once again, we haven't seen the policy change yet, but I think there's more awareness, public awareness and awareness in government that this is really not a good policy. We should probably get rid of it if we could. Yes, there's some important vested interest behind it that will oppose you, but the direction of where policy should go I think is pretty clear, and we're waiting for the right opportunity in the moment when things align in the right way and policy can get changed for the better.

Juliette Sellgren (39:43)

Yeah. So kind of along these lines of looking at, I don't know, opening up the discussion, having this information is super critical to actually being able to make the sorts of claims that we often make and often hear about whether certain moves in trade will make us more prosperous, better off, that sort of thing. What are some of the things that advocates of protectionism point to instances in history as protectionism, tariffs, these sorts of things working, and is there any validity there? Are they correct? How do we interpret that and what are some of the details and important pieces of information that we need to know that are maybe, I don't want to say ignored, but left out if there are any?

Douglas Irwin (40:48)

I guess I'll give you two examples. One that you hear quite often now, and sometimes it comes from President Trump and some of his people, is that the United States became a rich and industrialized power in the 19th century, late 19th century. And this is a period in which we had very high tariffs. Therefore, they draw the conclusion, and they're not alone in this. Some others have as well that those tariffs are responsible for the United States becoming the large, wealthy, industrialized country that it became. And once again, this is just, does correlation mean imply causation just because we had the high tariffs, did they actually promote that development or did they actually have nothing to do with it? Or did they actually stand in opposition to, or sort of prevent us becoming even richer and more industrialized than we otherwise would've been? So this is a debate that economic historians have had to sort of investigate and look at.

And I think the general conclusion is that the high tariffs were not responsible for US industrial success and successes, a large national continental economy in the 19th century, that there were many other factors. We had a very large internal market, we had a lot of immigration. We were open to technology flows from then the world's industrial leader, great Britain, because we spoke the same language and a lot of information transfer and foreign investment. And so the tariffs really weren't a primary or even secondary factor in driving us industrialization during this period. In fact, some people suggested that the tariffs actually reduced industrialization by raising the cost of capital goods and therefore making investment less efficient. But everyone's position on that particular thing is that issue is it takes some study and you have to sort of tease out what the channels of impact are of different policies and what other things were going on that might've been responsible for that.

Just to use another more contemporary example of where sometimes people who advocate for higher tariffs will say, this is a case where tariff protection really worked. They'll talk about Harley Davidson in the 1980s, which is of course the motorcycle manufacturer that was really facing hard times in the early 1980s. It got tariff protection from the federal government and somehow miraculously turned itself around and did very well and flourished thereafter. And so people say, well, we imposed the tariff when their things were not good for 'em. They bought them breathing space, allowed them to reinvest, and we can take off the tariffs later on. And they flourished. And I guess there are two sort of arguments or points, one could make it against that interpretation. One is that they didn't do well during the great recession that we faced in the early 1980s when demand was really low, the unemployment rate was very high, all manufacturing industries were suffering, and it wasn't foreign competition.

It was really hurting. Harley Davidson was really just the fact that we had a very severe recession and demand was down in the early 1980s. And the reason they came back is that we had the recovery in the second half of the 1980s. And it wasn't once again that the tariff played a big role there. It was the fact that demand returned, and so they were able to expand production and hire more workers and what have you. And the evidence on the tariff is very subtle because, and here's where the legal aspect of it and understanding how the process works is important. We impose tariffs on motorcycles with piston displacement of 700 ccs. And above that is there's various categories of tariffs for motorcycles. And the tariff category for this one was these large motorbikes that Harley Davidson was producing with engines of 700 ccs and above in terms of piston displacement.

Well, what Honda did, and Suzuki and Kawasaki and other foreign manufacturers of these motorcycles did is they started producing a 699 cc version of their motorcycles. So one cubic centimeter less in terms of piston displacement, no consumer would ever notice the difference, but as a result, it was a different product category, and they didn't have to pay any of the tariffs to bring their motorcycles into the US market. So in other words, the tariff was completely evaded, but that little subtle fact is not really known. So the proponents of tariffs will say, well, we impose these tariffs, and Harley Davidson came back, and if you understand what actually happened, foreign manufacturers evaded the tariff completely. And yet Harley Davidson still came back because it was demand driven problem, not foreign competition issue that was facing them.

Juliette Sellgren (45:30)

I love that example because it highlights the importance, especially in trade, that I think the lawyer thing maybe makes more sense because of this, right? Trade is very law related. The words you use and the distinctions that are drawn are really important. And so that small fact that changes the entire story, you have to read the words, you have to read basically hundreds of pages of, well, why is it that cars with four wheels and cars with six wheels are treated differently even if they were to weigh the same? Oh, and there's also this weight cap and there's this and there's that. And there's so many subtle distinctions that it's honestly, it's just really impressive to me, the people who take the time, you and others to actually study all of this because it is so intricate. And that to me, that's a nuance that has always existed. But you mentioned before at the beginning that now in this time, trade is becoming more nuanced and a bit more difficult to talk about just because of what is happening geopolitically. And so before we go, can you outline for us some of the nuances that are new, some of the things that we should keep in mind when talking about trade and hearing others talk about trade that maybe weren't considerations before?

Douglas Irwin (47:04)

Well, I think where the battles of trade policy are in the future, in some sense are in the national security realm. And it has to do with electronics and TikTok and social media and semiconductors and the whole supply chains of producing these various goods and sort of looming over all this, of course, is China and whether view China's a benign power or a malign power and how fearful we should be of Chinese government influence in terms of business that will affect how you view importing products from China. And so there's a role for economists here, but it's a little bit less than it has been in the past. In terms of other products, no one's really complaining about importing t-shirts or apparel from China. There's no national security issue there that's even plausible. But when we get into electronics and things that are possibly related to defense or possibly related to surveillance, things are a little bit trickier.

Once again, like that Harley Davidson example and so many others, it's individual cases matter a lot. And knowing the little facts and details of individual cases is very, very important. And there's going to be some information that is going to be classified that we just don't have access to as a public. And so it's up to the government to sort of make the case if they're proposing certain restrictions on trade or investment to persuade us that that's actually the case. And they're not just acting to help out some domestic producers that really don't want to face foreign competition. So every generation faces its own different challenges with respect to arguing over trade, trade policy and free trade. And I think we're in realm for some time where national security will be the battleground of these debates.

Juliette Sellgren (49:07)

Yeah. Thank you so much for answering all my questions and for taking the time to well share your time with us and all of your knowledge and wisdom. I've learned a ton and I know my listeners will as well. So thanks again. I have one last question for you, and that is, what is one thing that you believed at one time in your life that you later changed your position on and why?

Douglas Irwin (49:33)

That's a great question. And the first question, I'm going to sort of evade it a little bit. It's actually, I'm not sure I've changed dramatically many of my positions. But what has changed over time is my disposition on the issue of trade policy. So I guess when I was younger, I would get very exercised about economic fallacies and people using flood reasoning to justify protectionist measures in the past. And I wrote some intemperate book reviews and tried to combat what I thought was poor thinking on the part of those non-economist reasoning about trade. And now I think I've studied so much history and I see how the debates evolve, and I've seen a lot of debates personally myself that I'm a little bit inured to this. I sigh and move on. I don't get quite as upset or exercised old fallacies returning again, but I just hope it's up to new generations to fight that battle and remind people of the tremendous benefits to any country from having relatively open trade with the rest of the world. It's good for consumers, it's good for keeping your firms disciplined through the force of competition. It gives you access to new ideas and new technology and information that can help out domestic productivity, which directly feeds into the wealth of nations. So having a more open economy is generally better, but I've seen there been a lot of cycles through the past, and geopolitics is always important, and it's very hard for economists to overcome the forces of geopolitics.

Juliette Sellgren (51:18)

Once again, I'd like to thank my guests for their time and insight. I'd also like to thank you for listening to the Great Antidote Podcast. It means a lot. The Great Antidote is sound engineered by Rich Goyette. If you have any questions, any guests or topic recommendations, please feel free to reach out to me at great antidote@libertyfund.org. Thank you.