Asia America

So, I've been thinking about tariffs recently, no reason why, just interested, and while reading I came across a series of interesting papers by economists Michael Clemens and Jeffrey Williamson, and they explore what looks Up until World War I, the countries of Latin America were the most protectionist in the world with some of its East Asia on the other hand, for reasons we will discuss later, had tariffs just a fraction as Yet, during these decades, the Latin American countries grew faster than the Asian ones. Before World War I, one might argue that if you wanted faster economic growth, you needed Then t One works, the other doesn't. Right? No. The context and composition matter. Let me set the stage by first mentioning a few t I want to make clear that w The paper considers Latin America to be Argentina, Brazil, C An Asia is defined in the paper as Burma, Ceylon, C T Each country has our own political, economic, and cultural differences. When appropriate, I might And since a lot of t Okay, with such caveats in mind, let us begin. In the 1820s, Latin America fights a series of wars to win their political independence from Spain and Portugal. These wars saw the creation of the countries of Brazil, Gran Colombia, Peru, Bolivia, Central America, and Mexico. Prior to independence, the Latin American colonies were run as part of a mercantilist network favoring Europe. Their economies primarily depended on the export of raw goods Imports had to be carried by Spanish or Portuguese-owned s These import restrictions were protected the colonies from foreign competition, particularly in the nascent manufacturing sector. It also meant that Spain and Portugal didn't need to raise tariffs. These empires eventually fell apart, thanks in part to Napoleon. In the case of Portugal, Napoleon's threats against countries trading with Britain led to France invading Portugal. Their king flees to Brazil for over a decade. That king is soon called back, leaving Pedro declares Brazil an independent empire. So Brazil's independence from Portugal was relatively gradual. Spain's was not. After invading Portugal, Napoleon takes advantage of the country's instability. Napoleon forces King Charles IV to abdicate and puts The colonies were not sure who to obey. The crown managed to put down a few of the first independent movements, but the elites had lost their faith in their king's ability to maintain order and protect their interests. Fernando VII returned to power as king of Spain and tried to re-establish an absolutist monarchy after a time of liberalism and self-rule. T Vibes were immaculate. The wars shattered their country's abilities to collect revenues in a traditional manner. They had already borrowed heavily to raise and maintain their armies for the wars, and the military conflict between the newly established countries continued on as neighbors clashed over borders. One of the major promises of independence was to lift heavy, exploitative tax burdens imposed by Europe to fight its own wars back home. Such taxes were levied on working populations Indigenous had a head tax w It would be hypocritical for the new governments to res And even if leaders were ideologically open to keeping such taxes, they lacked the infrastructure and bureaucracy to collect them The wars left over a million dead and destroyed a lot of infrastructure. The colonies were all left in various states of political, social, and economic instability. Taxing incoming so in the early days after independence, government leaders turned to heavy tariffs of 30-40% to fund their activities. Between 1820 and 1890, tariffs produced 57. 8% of government revenue for 11 Latin American republics. Take Mexico. After winning its independence from Spain in 1821, the newly founded Mexican state imposed its first tariff law, raising tariffs on textile imports to 25%. 60% of total imports during t Yes, tariffs protected the country's nascent manufacturing sectors, The intention was to make money. In Mexico's case, these tariffs did not sufficiently protect from British imports. In 1828, major riots in the city of Puebla, with participation by members of the Mexican cotton industry, helped put a military officer named Vicente Guerrero into the presidency. Guerrero initially promised a ban on all cotton imports in 1829, but then delayed it for six months and later finally rescinded it due to concerns about revenue impact. Half of Mexican governmental revenues in the 1820s came from tariffs. Another example is Peru, after its military loss to C The economy was already suffering from the guano industry's collapse. To pay for the war, the Peruvian government raised tariffs and relied upon them for the majority of revenue in the late 1800s. Now we move on to Asia. By 1885, Latin America had tariff rates five times Considering that these are two economically undeveloped regions, why didn'the Asian countries adopt First and foremost, many of these Asian nations were colonized, or semi-colonized, in the 1800s and early 1900s, meaning they had little control over their own tariffs. India was then part of the British Empire, so they followed the Empire's general free trade-oriented attitude and its low tariff rates, the same with Burma, Ceylon, and Indonesia, then part of the Dutch Empire. Even for those Asian countries that have not been colonized, there were unequal treaties made possible by gunboat diplomacy. China, after losing the Opi These set a standard tariff rate of about 5% at Velor For centuries, Japan practiced somet 75% to 5%. Though they regained some autonomy in 1899, a few items remained subject to low duties until 1911. Thailand, w T Perhaps the Asian country that stuck out the most were the P These tariff rates were just two points below that of the United States. Clemens and Williamson do make it clear that there seem to be other factors at play, particularly to explain the variance between countries. Asia's populations were far larger than Latin America's. Larger populations offer larger internal markets that can more accommodate both domestic producers and imports, dampening the demand for tariffs. Latin America'smaller populations, w Urbanized populations have Another thing that lowers the demand for trade protections are natural barriers to trade, In the 1800s Asian countries had little train access inland, making it difficult for goods to reach the coasts and larger markets abroad. On the other hand, Latin American regions on the Atlantic coast facing Europe, Brazil, Cuba, Uruguay and such, had good access to foreign markets. And before 1914, their railroad networks had more track laid down, thanks to large investments made to transport mined export goods. And finally, Clemens and Williamson say that if a country's trading partners have Asia's top trading partners prior to the World Wars were the industrialized, more free trade oriented countries, mostly Britain. Latin America on the other hand did a lot of trade with the United States, w So t From the scholar Leandro Prado de la Escocura estimated that between 1820 and 1870, Latin America's income per capita grew about 0. 5% each year. T It lagged Western Europe and United States, yes, but those countries were at different stages of development. America's per capita income in the 1820s was nearly twice that of the Latin countries. So de la Escocura argues for restricting comparisons to just countries with similar starting income rates. For example, C T Clemens and Williamson also find that prior to World War I, Latin America's economic growth rates, with their 5 times And that is why they say that Correlation is not causation I want to make absolutely clear. There's a whole lot of difference between Latin America and Asia and invite the viewers to yell at each other in the comments about those differences. But the tariff gap between Latin America and Asia largely closes after World War I. During this time, various Asian countries Only the P We can attribute t Money had to be raised to fight the war and other ongoing conflicts in the area. The Great Depression unleashed excess capacity around the world leading to a global rise in tariffs So by the end of the 1930s, tariff rates in Asia were about as And the Japan case is interesting. Their domestic industries faced import competition from overseas, So they decided to try non-tariff protections Then they started manipulating the currency. Every country used to link their currency to gold. In 1929, Japan tried to return to the gold standard after leaving it during the war, but the global depression and an overvalued currency eventually caused them to drop gold again. The currency crashed 40%. Real wages crashed 30%. T Japanese textiles flooded into traditionally British-dominated markets At the same time, the Japanese began focusing on specific industries I mentioned the car policies in a prior video about Nissan and the steel policies in a prior video about Nippon, Iron and Steel. For their part, Britain, urged on by business elites in its various dominions, decided to respond to Japanese competition in 1932 with the Ottawa Conference, raising trade barriers outside of the empire w Korea for their part raised their tariff rates some 4 times over from 5. 5% in 1920 to 27. 5% in 1939. Other British colonies in Asia, Burma and Ceylon, had tariff raises too, though nowhere as dramatic. With traditional markets closed, the Japanese turned to exporting into its colonies of Korea and Taiwan as well as its semi-colonies of Manchuria, the least province of Guangdong, Russia and others prior to war with C As I mentioned, A strange the fastest-going countries were those industrializing states that lowered their tariffs and trade barriers. They mentioned how certain core industrial countries For them, tariffs were not just about revenues for government. These trade restrictions were to protect the industrial base until it was ready to break out when the nature of the global economy changed in their favor. I don't pres Lots of these writings are 20-plus years old and we are all learning here in real time. The idea seems to be that tariffs can exist for different reasons and must be used in the right way. They and other forms of import substitution policies seem to work best when they are used to nurture the industrial base. That particular example used both non-tariff and tariff trade restrictions to build that industry. Per the work of Albert Attracted to core industries that are quote-quote demanding in some way. Successes in such core industries can flow through into other sectors. Like how China's lithi And protections must be temporary. C At some point the tariffs or whatever trade restrictions must be lifted and foreign competition brought back in. Otherwise you get Latin America post 1950 w TLDR, Use them right. 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