A Theory of Trade Policy Transitions

We provide a formal model that revises and extends Irwin's (Irwin, D. A. 2020. “Trade Policy in American Economic History.” Annual Review of Economics 12: 23-44.) interpretation of US trade policy history from the Civil War to current period. Trade policy is set by domestic political bargaining between globalists and protectionists, representing owners of factors specific to export- and import-competing sectors, respectively. Treating the party in power as the agenda setter, and given the status quo tariff policy, we make several observations. Consistent with the post-Civil War Era of Restriction, protectionists implement high tariffs when status quo tariffs are low. When status quo tariffs are high, reciprocal free trade combined with domestic transfers to protectionists are implemented, explaining the 1930s Era of Reciprocity with Redistribution. Consensus emerges for Retreat from free trade when imports are high and domestic transfers are low, suggesting that US protectionist turn in the late 2010s was in part due to low levels of social transfers.