The -Hawley Fixation:

Putting the Sino-US Trade War in Contemporary and Historical Perspective

Simon J. Evenett1 University of St. Gallen, the St. Gallen Endowment for Prosperity Through Trade2 and CEPR

29 September 2019

This paper was published in the Journal of International Economic Law on 6 December 2019. Unfortunately, the published version excluded many of the pertinent footnotes that lawyers love and that, more importantly, support key elements of the argument. For this reason we make the full version of the paper available here.

1 Professor of International Trade and Economic Development, Department of , University of St. Gallen, Switzerland, and Coordinator, the Global Trade Alert, the independent commercial policy monitor. I thank Patrick Buess, Johannes Fritz, Maxime Kantenwein, and Piotr Lukaszuk for help preparing the empirical evidence for this paper. I thank Anne van Aaken, Chad Bown, Andrew Lang, two referees, and Piotr Lukaszuk for comments on an earlier draft of this paper. I also thank Doug Irwin, Kevin O’Rourke, and Niko Wolf for checking my characterisation of the economic history literature on trade policy developments in the 1930s. All remaining errors are mine. Comments are welcome and should be sent to [email protected]. 2 Founder of the new non-profit Foundation to house the Global Trade Alert and other commercial policy- related initiatives.

Abstract

The extent to which the Sino-US trade war represents a break from the past is examined. This ongoing trade war is benchmarked empirically against the Smoot-Hawley tariff increase and against the sustained, covert discrimination by governments against foreign commercial interests witnessed since the start of the global economic crisis. The Sino-US trade war is not the defining moment that some contend. Thus, laying the blame for the current woes of global trade entirely at the feet of policymakers in Beijing or Washington, D.C., is unfounded. Since the rot started well before 2018 and implicates many states, greater attention should be given to the factors determining the unilateral commercial policies of governments during and after systemic economic crisis. The insights presented here from the economic history literature of the 1930s presented here are useful in this regard. Moreover, claims that existing multilateral trade rules have bite are hard to square with the very large shares of global trade affected by policy measures favouring local firms implemented over the past decade. When confronted with severe adverse economic conditions for better or for worse, WTO members had plenty of policy space after all.

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1. Introduction

“Compared to what?” is a question frequently asked in the design of economic research projects. At best, the systematic comparison of choices sharpens our understanding of underlying causes and their consequences in both quantitative and qualitative analyses of decision-making. In the context of trade policy, in particular in the context of steps taken by governments to discriminate against foreign commercial interests, a frequent point of reference is the Smoot-Hawley tariff enacted by the in 1930. The power of this point of reference was demonstrated at the beginning of the global financial crisis of 2008-9 when policymakers, including those meeting in fora such as the Group of Twenty (G20), argued that governments should take on board the “lessons of history.” This mantra became so pervasive in the years that followed that one leading economic historian devoted an entire book to the “uses and misuses of history” (Eichengreen 2014). In trade policy discourse there is a fixation with the Smoot-Hawley tariff (Evenett and Fritz 2017a). For better or for worse, this act of blatant unilateralism by the United States in 1930 has defined the benchmark for bad behaviour in international trade policy ever since. Moreover, reference to the Smoot-Hawley tariff has been used as a rhetorical device to condemn certain trade policy decisions (such as the America First policies) or to diminish the significance of the many steps to consciously favour local firms witnessed since the global financial crisis. Whether the Smoot-Hawley tariff is a sensible point of reference for contemporary events is rarely pondered. Nor does there appear to be much consideration of whether the data exists to allow a comprehensive comparison between contemporary policy choice and the Smoot-Hawley tariff. Furthermore, even if a trade policy decision was “found” to be “smaller” than the Smoot-Hawley tariff, it is far from clear what to make of such a finding. The decision in question may still be significant on some other, legitimate criteria. It was, therefore, with considerable trepidation that I embarked on a comparison between the Sino-US bilateral trade war3 that began in 2018 and the Smoot-Hawley tariff. After all, the total value of US-China bilateral goods trade in 2017, the year before the recent trade war started, was only 4.2% of world goods trade. In addition, this bilateral trade war has not yet resulted in other governments raising tariffs to the same degree, begging the question as to whether it is sensible to compare the bilateral Sino-US trade war of 2018-9 with the pervasive trade discrimination seen in the 1930s. The fact that, as of this writing, the Sino-US trade war is ongoing gave me pause too. I cannot rule out that some findings presented here may well be overturned by events.4 Still, such is the

3 Some object to the term “trade war” being employed to describe the current confrontation between China and the United States, advancing the argument that the former is a manifestation of the emerging geopolitical rivalry between the latter two nations (Gros 2019). I do not deny that there may be significant geopolitical factors at work but will focus here specifically on the commercial policy actions taken by both protagonists. 4 The possibility that the current bilateral trade war spreads and eventually implicates other nations cannot be ruled out. In which case, the analyses of Ossa (2014) and Nicita and others (2018), which simulate a complete breakdown in international trade cooperation between nations, may serve as useful points of reference. 3 of 26

apparent shock to trade policy norms represented by this trade war that, even if settled very soon, it is likely to be analysed for years to come. My assessment of the ongoing Sino-US trade war was informed as much by the way in which economic historians have thought about the critical trade policy choices made in the 1930s as by the magnitudes involved. As will become evident, there are interesting parallels between the genesis of the Smoot-Hawley tariff and the origins of the America First trade policies of the Trump Administration. Whether the US-China trade war, as it currently stands, implicates the same shares of global commerce as the trade discrimination of the 1930s is doubtful. Moreover, even if President Trump’s threats to raise tariffs on all Chinese imports come to pass, the value of trade thereby affected pales when compared to the covert commercial discrimination that has built up over the past decade. One contribution of this paper is to systematically compare the scale of the Sino- U.S. trade war with the goods trade affected by the accumulation of protectionist silt over the past decade. The remainder of this paper is organised as follows. In section two I summarise the “lessons from history” concerning the 1930’s “trade policy disaster,” as put forward by leading mainstream economic historians. I then reflect on their framing of the key decisions and consider their contemporary relevance. This sets up my point of departure from recent literature on the Sino-US trade war, which has tended to focus on scaling and estimating the impact of more transparent trade policy interventions (Bown 2019 being a recent example). In the third section of this paper I present evidence of the Sino-US trade war comparing the policy choices made with those that immediately preceded it. This permits a multi-faceted assessment of the scale of Sino-US trade war. In section four, I draw implications for the understanding of trade policy choice in extremis.

2. The Smoot-Hawley tariff as a point of reference.5

The Smoot-Hawley tariff was signed into US law in June 1930. While claims are frequently made in the public discourse that the associated tariff increases were prompted by special interest lobbying, were a cause of the Great Depression, and induced widespread retaliation by foreign trading partners and an ensuing trade war, in fact, each of these arguments have been contested by leading mainstream economic historians (Irwin 2011, 2012, Eichengreen 2014, Temin 1989, to name a few.) Their research suggests a different interpretation of the causes and consequences of this high-profile, unilateral U.S. trade policy act. In what follows I summarise their most pertinent findings. The origins of the Smoot-Hawley tariff lay in Republican Party commitments to win votes in the agricultural sector during the 1928 election. The duties were set in legislation that passed the House of Representatives in May 1929, months before the U.S. economy peaked and its stock- market crashed. The enacted legislation raised the average tariff rate on dutiable imports by less

5 As will be evident, this account is heavily influenced by Irwin (2011, 2012) and Temin (1989). 4 of 26

than seven percentage points (from around 38% to 45%). At that time, only a third of U.S. imports paid duties. The total value of dutiable U.S. imports was only 1.4% of national income (Irwin 2012). The small share of U.S. spending on dutiable imports, the modest increase in tariff rates (as compared to some previous U.S. tariff increases), and the timing of the legislation, have led economic historians to conclude that the Smoot-Hawley tariff could not have been a major contributing factor to the U.S. economy succumbing to the Great Depression (Temin 1989). Accounts of the legislative history of the Smoot-Hawley tariff do not point to foreign commercial practices or adverse foreign treatment of American commercial interests as being central factors affecting enactment. Representations made by foreign governments were given short shrift by Republican advocates of this legislation. The clear impression given by supporters was that this was an internal U.S. matter (Irwin 2011). In terms of foreign reaction to the Smoot-Hawley tariff, it appears there is compelling evidence of direct retaliation by only the Canadian government—where again electoral bid up responses to their largest trading partner’s damaging unilateral act (Irwin 2012). For sure, the Smoot-Hawley tariff was seen by European trading partners as an impediment to securing sought- after US dollar export earnings and was criticised accordingly. However, beyond Canada the trigger for imposing trade restrictions was the reaction to the spread of the European financial crisis from mid-1931 (Straumann 2019). To understand the significance of what was to come, it is important to appreciate that many nations had adopted the gold standard (thereby forgoing an independent monetary policy) and followed the fiscal policy orthodoxy of the time which called for budgetary tightening during economic downturns. To the extent that trade agreements existed at the time, they were principally bilateral and included clauses that applied to tariff rates (but not to other policy instruments such as import quotas.) Countries also differed in their inflation history in the 1920s (with some countries experiencing hyperinflations, such as Germany) and, consequently, to the degree to which the Gold Standard was seen as a pre-requisite for internal price stability. Following persistent deflationary pressure which put national banking systems under strain, Irwin (2012) summarised his argument as follows “…when Britain went off the gold standard, a chaotic scramble to restrict trade and close markets began” (page 25).6 Irwin cites two contemporary League of Nations reports that make the same point. Eichengreen and Irwin (2010) and Irwin (2012) frame the subsequent policy choice in terms of an open economy trilemma. Governments could pursue two, but not all three, of the following objectives: maintaining gold standard parity, executing an independent monetary policy, and retaining open trade. Once the British abandoned the gold standard and devalued the pound, the

6 Boyce (2009) also emphasises domestic political factors in the United Kingdom, in particular, the general election of 1931 (in which the Labour Party was unsuccessful in persuading working class voters to support its stand against import tariffs) and the role of Neville Chamberlain in 1931 and 1932. At that time, Chamberlain held the office of Chancellor of the Exchequer and pursued a policy of both protectionism and preferring trade with Great Britain’s current and former colonies. 5 of 26

resulting increase in its export competitiveness put trading partners under considerable pressure. Those that chose to retain gold standard parity reacted to deteriorating trade balances by raising tariffs, resorting to import quotas, and exchange controls. Other trading partners abandoned the gold standard and those governments that devalued their currencies by more tended to raise their import tariffs by less. From 1929 to 1932, world trade volumes fell a quarter. Half of the fall has been attributed to rising trade barriers (Irwin 2012, page xii.) Another important element in the response of some America’s trading partners was to deepen trade agreements that discriminated in favour of signatories at the expense of third parties. Most prominent was the Ottawa Conference in 1932 which increased trade preferences between the United Kingdom and some of its current and former colonies.7 Irwin, for one, contends that American exporters suffered significantly as a result of such discrimination, which he argues was an important legacy of the breakdown of trade cooperation in the 1930s (Irwin 2012). Based on this reading of the leading histories of the 1930s breakdown of trade cooperation, I offer five observations of my own. First, the account above places much weight on electoral factors and on contingency. That is, unexpected events (such as the European financial crisis) and anticipated but independent, internal events (such as elections) played their part in accounting for the rising trade barriers witnessed in the 1930s. A narrative based on action and counter-reaction by governments unfolding sequentially over time is insufficient, if not outright misleading. Contingency mattered as often enough it triggers action. Second, accounting for the breakdown in trade cooperation in terms of a trilemma is useful for it shifts the discussion away from the pros and cons of a specific policy choice (such as restricting trade). Instead, the focus is on the hierarchy of objectives that a government may have had and with it implications for trade policy choice. Evidently, in the 1930s some governments placed open trade below domestic price stability in their priorities and trade discrimination was the result. Even governments that placed positive value upon free trade may be confronted with circumstances when open borders are sacrificed on the altar of higher order objectives. Those higher order objectives could include genuine threats to national security and to the domestic political stability of a nation. A deeper lesson of the literature of the 1930s is that it encourages analysts to see trade policy choice in the context of other societal objectives not directly related to international commerce. Third, as well as different objectives, an enduring lesson from the 1930s is to consider the potential for substitution across different classes of policy instruments (such as macroeconomic and commercial) and between commercial policy tools. Analyses that focus on a narrow range of policy interventions may well miss important facets of national policy response. Moreover, as new forms of cross-border commerce arise, analysts need to document and evaluate novel threats to international commerce and be cognisant of a wider range of commercial policy trade-offs.

7 For further evidence on the impact of such violations of the Most Favoured Nation principle on UK trade flows during the 1930s see de Bromhead and others (2019). O’Rourke (2017) contains a summary of key research findings in this regard. 6 of 26

Fourth, Irwin’s account differentiated between an open and a discriminatory trading system. In his case the discrimination arose from trade preferences between trading nations, violating the Most Favoured Nation principle (Irwin 2012). Such an emphasis should not overlook the fact that discrimination can also be the result of violations of the National Treatment principle. Both forms of discrimination ought to be considered in any evaluation of national trade policy choice. Fifth, a striking feature on the literature on the breakdown of trade policy cooperation in the early 1930s is the absence of claims by reputed historians that international conferences or associated initiatives curtailed trade discrimination. If anything, as noted above, some conferences introduced further preferences between groups of nations.8 If I have read the historians of this period correctly, then there was little collective restraint upon the unilateral exercise of trade policy in the 1930s. This stands in marked contrast to contemporary conventional wisdom that multilateral trade rules disciplined national trade policy choice since the onset of the global financial crisis.

3. Putting the Sino-US Trade War in Perspective.

The purpose of this section is to assess, where possible, the degree to which the Sino-US Trade War of 2018-9 is of the same scale as the Smoot-Hawley tariff and to determine whether the Sino- US Trade War represents a break from the immediate past. I start by summarising pertinent facts and describing the standard characterisation of this trade war. a. Timeline and standard characterisation of the Sino-US Trade War. During 2018 Chinese exports have been implicated in three distinct phases of trade discrimination by the United States government (see Bown and Kolb 2019). That these actions resulted in tariffs being imposed during 2018 has given the impression that the resulting tariff war with China began that year. However, it is worth recalling that, having come to office in January 2017, the Trump Administration initiated a series of investigations that it contends provided the legal basis for the tariffs imposed during 2018. The first phase involved the imposition on 22 January 2018 of global safeguard duties on imported solar panels and washing machines. As China is an exporter of both goods, its exports were affected. However, it was not the only trading partner of the United States affected. A total of $10.3 billion of imports was said to be implicated (Bown and Kolb 2019), deploying a common journalistic practice of estimating the trade implicated during 2018 using available trade data for the entire prior year, irrespective of when the tariffs were actually imposed in 2018.9 The second phase followed a determination on 1 March 2018 by President Trump under Section 232 of the of 1962 that imports of steel and aluminium threatened or

8 Eichengreen (2019) notes that the United States was not a member of the League of Nations and as a result did not participate in that organisation’s unsuccessful attempts to negotiate a tariff truce. 9 The consequence of this failure to adjust for the duration the tariffs were in effect will be apparent later. 7 of 26

threatened to impair the national security of the United States. Additional tariffs of 25% were proposed for steel imports and 10% for aluminium imports. While certain U.S. trading partners were granted temporary exemptions from these tariffs, China was not. It should be noted that much of China’s exports of steel to the United States already faced supplementary tariffs following numerous previous dumping and subsidy investigations. Still, Chinese commercial interests were implicated. The third phase started with an investigation under Section 301 of the Trade Act of 1974 “to determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce” (USTR 2017). Once a report was issued on 22 March 2018 determining that Chinese policies were unacceptable, a process began that eventually resulted in four separate decisions to impose or raise tariffs on imports from China.10 On 6 July 2018, 25% additional tariffs on $34 billion of Chinese exports to the United States came into force, and targeted parts, components, and capital equipment. From 23 August 2018 another $16 billion of imports from China faced 25% tariffs. A 10% tariff came into effect on another $200 billion of Chinese exports on 24 September 2018. It was announced that these latter tariffs would rise to 25% if no satisfactory conclusion to the trade dispute was reached by 1 January 2019. Subsequently, a truce was declared and then extended, however, no mutually satisfactory conclusion was reached. As a result, on 10 May 2019 the United States raised the tariffs on the third tranche (mentioned above) to 25%. President Trump has also threatened to impose a 25% tariff on remaining Chinese imports (Bown and Kolb 2019). Further steps were taken by the Trump Administration to raise tariffs on imports from China in August and September 2019. On 1 August 2019 President Trump announced that a 10 percent tariff would be imposed on another $300 billion of Chinese imports, mainly consumer goods, to come into effect on 1 September 2019. A clarification was issued on 13 August 2019, with the 10 percent tariff increase being implemented on $112 billion of Chinese imports on 1 September 2019 and a similar tariff to be implemented on $160 billion on 15 December 2019 (Bown and Kolb 2019). China has retaliated by imposing additional tariffs on imports from the United States. In response to the United States global safeguard action on solar panels and washing machines, China investigated sorghum exports from the United States for dumping, threatened to impose duties of 178.6% on these goods, and then withdrew that threat on 18 May 2018 following negotiations with the United States. On 14 August 2018 China initiated a WTO dispute settlement case against the United States concerning its global safeguard investigation into imports of solar panels. With respect to the tariffs imposed by the United States on steel and aluminium, on 2 April 2018 China imposed retaliatory import duties on $2.4 billion of various American exports, including aluminium waste, fruits, nuts, and pork.

10 In the interests of brevity I omit the accusations, counter-accusations, and threats and focus on the trade impediments imposed during 2018. 8 of 26

With respect to the tariffs following the Section 301 investigation, on the day the United States imposed tariffs on $34 billion of Chinese exports (6 July 2018), China matched with tariffs on the same amount of United States’ exports. Likewise, on 23 August 2018 China imposed retaliatory tariffs on US exports of equivalent value to those imposed by the Trump Administration. On 24 September 2018, China retaliated to the US imposition of tariffs on $200 billion of its exports with tariffs on $60 billion of US exports. Following the announcement of the 10 May 2018 US tariff increase, China announced it would raise its tariffs further on the above mentioned $60 billion to go into effect on 1 June 2019. The flurry of U.S. tariff announcements in August 2019 triggered a Chinese response. On 23 August 2019 China announced that tariffs on a further $75 billion of U.S. imports would be imposed on 1 September 2019 and 15 December 2019. Chinese plans to raise tariffs on American cars from 12.6 to 42.6% garnered much media attention. President Trump felt compelled on the same day to announce increasing the tariff to be imposed on the $112 billion of Chinese imports on 1 September 2019 to 15%. In addition, the U.S. President announced increasing from 1 October 2019 the duty on the $250 billion of Chinese imports already affected by tariffs from 25% to 30%. Following these tit-for-tat measures, steps were taken to de-escalate the dispute. A new round of trade talks were planned. On 11 September 2019 China said it would exclude $2 billion of U.S. imports from the latest tariff increases (Bown and Kolb 2019). President Trump announced he would delay the tariff increase from 25% to 30% on $250 billion of Chinese imports from 1 October 2019 to 15 October 2019 apparently on the grounds that the tariff increase not coincide with the celebrations to mark the 70th anniversary of the creation of the People’s Republic of China. In total, following the journalistic practice of using 2017 trade flow data to estimate the scale of trade implicated by tariff increases in 2018, the United States imposed tariffs on at least $250 billion of Chinese exports. Chinese retaliation has affected over $110 billion of US exports. In this regard it is worth noting that in 2017 the China exported $526 billion to the United States and $154 billion of goods trade flowed in the other direction. Furthermore, during 2017 the China and the United States imported for all sources $1,844 billion and $2,407 billion, respectively.11 Until the very recent targeting of specific Chinese companies and potential Chinese retaliation in this regard, the standard characterisation of the Sino-US trade war has been to regard it as a tariff war. With the exception of the middle column (to which I will return later), Figure 1 characterises how this trade conflict has been portrayed in the media and elsewhere.12 Such stacked bar charts give one indication of the scale of the trade war, at least by comparing the cumulative size of the tariff interventions in the left-hand columns with the total size of bilateral trade in the right-most column. Such characterisations have three hallmarks: they focus exclusively on the targeted bilateral tariff increases implemented in 2018, they estimate the trade implicated from each tariff hike without

11 The data source employed is UN COMTRADE. 12 For example, the Financial Times’ characterisation can be found at https://www.ft.com/content/d1c41952- 83ad-11e9-9935-ad75bb96c849 9 of 26

taking account the date of implementation13, and they give the impression that trade discrimination began in 2018 (after all, no information from prior years is thought relevant enough to be included). The scale of the tariff increases, especially when compared to the total size of bilateral trade, along with the 2018 date stamp, may reinforce the impression that there has been a major break in trade policy.14 That the policy instrument chosen (import tariffs) is among the most transparent available, that the instrument is easy to explain (“a tax on imports”), along with President Trump’s high-profile involvement with US tariff policy decisions, also contributed to the prominence of this trade war. But is this the correct way to gauge the scale of the ongoing Sino-US trade war? b. Initial comparison between the Sino-US tariff war and the Smoot-Hawley tariff. Enough information has now been provided to provide a preliminary comparison. First, recall that the Smoot-Hawley tariff involved an across-the-board tariff increase of less than seven percentage points on one-third of U.S. imports. In contrast, the 2018 and 2019 U.S. tariff increases described in the last section were almost entirely bilateral, affecting principally Chinese exports. Given that the United States imported $2,407 billion from all sources in 2017, the estimated $276 billion of imports from China affected by U.S. tariff increases constituted 11.4% of all U.S. imports. This implies that, in terms of share of U.S. imports affected, U.S. actions against China to date are l a third of the size of the Smoot-Hawley tariff. Should the United States decide to impose tariffs on all imports from China, then 21.8% of all U.S. imports will be affected—still smaller than the third of all U.S. imports affected by the Smoot-Hawley tariff.15 A second comparison takes account of the differences in magnitude of the tariffs imposed. The Smoot-Hawley tariff increased the average ad valorem import duty paid in the United States by less than 2.3%. The 2018 trade war-related duties imposed by the United States on China have raised the overall mean tariff rate imposed on U.S. imports by 2.6%.16 Should the United States expand its additional tariffs to cover all imports from China, then the average tariff rate imposed on U.S. imports will rise by 5.5%. On this metric, in 2018 the United States has already crossed one threshold established by the Smoot-Hawley tariff.

13 Everything else equal, a tariff that comes into force on 1 January of a given year is likely to affect more trade in that year than one that comes into effect on 1 December of the same year, for example. 14 There may well be other, non-numerical aspects that represent a break with the past. These could be matters of presentation as well as the potential violation of the both parties’ WTO obligations. 15 Currently, the trade war-related Chinese tariff increases on imports from the United States account for 6.0% of total Chinese imports. Should China impose tariffs on all imports from the United States then 8.3% of all Chinese imports will be affected. Notice these percentages are even lower than those for the United States mentioned in the main text. 16 As noted above, current trade war-related tariff increases affect approximately 10.4% of U.S. imports. Multiply this by the 25% additional tariff imposed and the resulting average tariff increase is 2.6%. 10 of 26

Typically, economists would prefer a comparison based on the impact on national welfare. Such estimates require analysts to take a stand on the appropriate model for an economy and the findings are inevitably model-contingent. Each such model contains mechanisms by which import tariffs affect market outcomes as well as consumer and producer welfare. There is much debate as to which of these mechanisms is most relevant and over what time frame to best assess the impact of tariffs. In what follows I highlight some of the most prominent findings.17 With respect to the Smoot-Hawley tariff, Irwin (1998) found that the welfare losses were in the range of $60 million to $430 million in 1929 prices. Scaled by the U.S. Gross Domestic Product (GDP) at the time, implementing the Smoot-Hawley tariff imposed a welfare cost between 0.1%- 0.4% of American GDP.18 With respect to the current era, Amiti, Redding, and Weinstein (2019) have provided estimates of the effects of U.S. tariff increases imposed during 2018 on all countries, not just China. Consequently, their estimates will over-estimate the impact of the Sino-US trade war; nevertheless they are useful. During the first 11 months of 2018, they estimate that U.S. consumers and importers paid $12.3 billion more in tariffs as well as enduring welfare losses of $6.9 billion.19 By November 2018, given the sequence of tariff increases implemented that year, they estimate that the monthly welfare losses to U.S. buyers have risen to $1.4 billion. In an economy whose annual GDP in the fourth quarter of 2018 was estimated by the U.S. Bureau of Economic Analysis20 to be $18.8 trillion in size, welfare losses of this magnitude amount to 0.09%21 of US

17 In addition, there have been several attempts to simulate the impact on national incomes of different scenarios associated with the Sino-US trade war. A table summarising 17 such analyses and discussing their implications can be found in chapter 2 of Evenett and Fritz (2018). One important finding is that, unless the tariff increases assumed from a complete breakdown of trade cooperation are very high or there are plausible reasons to expect a large reduction in capital expenditures by the private sector, then the expected adverse impact on the trade war on global GDP is typically less than 0.5%. 18 Once the effect of the Smoot-Hawley tariff on factors that affect national income growth over time—such as investment or overall improvements in the efficiency of use of societal resources (what economists refer to as total factor productivity)—are taken into account then larger losses have been found. Crucini and Kahn (1996) employed a three-sector dynamic general equilibrium model and found that the Smoot-Hawley tariff reduced U.S. gross national product by 2% over the years 1929 to 1932. Bond, Crucini, Potter, and Rodrigue (2013) examined the effect of this tariff hike on resource allocation and aggregate total factor productivity, findings that the latter fell 0.5%. 19 Furthermore, they estimate that the tariff raised the average price of U.S. manufacturing goods by a percentage point (which is half the prevailing rate of recorded price inflation for such goods). 20 BEA (2019). 21 To obtain an upper bound on the welfare loss associated with the 2018 tariff increase, the $1.4 billion monthly estimate was annualised and then compared to the reported estimate for annual U.S. GDP. 11 of 26

GDP.22 23 On this metric, the U.S. tariff increases of 2018 are close to the lower estimates of the welfare costs of the Smoot-Hawley tariff reported by Irwin (1998). Recall, however, that these estimates were generated for all U.S. tariff increases during 2018, covering more international commerce therefore than that implicated by the Sino-US trade war. Overall, on the basis of the four comparisons conducted above, one cannot conclude that the scale of the tariff increases currently implemented during the Sino-US trade war clearly exceeded that of the Smoot-Hawley tariff. Still, at this time, the comparison is a close call. Should President Trump follow through on his threats to raise tariffs on all Chinese imports, then the calculus will shift towards the recent trade war having greater scope and welfare impact. c. Evidence to date on the impact on import volumes and prices. One of the enduring images associated with the Smoot-Hawley tariff is a spider diagram, prepared by the League of Nations secretariat, showing the month-by-month fall in world trade from January 1929 to June 1933.24 The same length of time has not elapsed with which to compare the effects on global trade of the Sino-US trade war. Still, what does the available data reveal? Using the latest data from the World Trade Monitor, Figure 2 plots the of U.S. import volumes and import values since the beginning of the second Obama Administration in January 2013. To facilitate comparisons each index was set to 100 for the month April 2018, when the United States released its first specific list of products targeted for 25% additional tariffs implicating tens of billions of US dollars of Chinese exports (Bown and Kolb 2019).25 Series for world import volumes and world import prices were added as comparators. In the top panel of Figure 2, the evolution of U.S. and world import volumes since April 2018 provide little support for the contention that either has broken with their prior trends. With respect to import prices, they fell below their trend in the second half of 2018, as shown in the lower panel of Figure 2. Before concluding that this finding is consistent with claims that Chinese exporters

22 There is not necessarily a contradiction between the finding that current trade war’s welfare losses are smaller than those estimated for the Smoot-Hawley Tariff and the finding that the increased welfare cost of the 2016 tariff structure was larger than that when the Smoot-Hawley Tariff was imposed in 1930. The explanation is likely to be that the 2016 tariff structure included average tariff rates far below that prevailing in 1930. 23 In another prominent study Fajgelbaum, Goldberg, Kennedy, and Khandelwal (2018) found “that the trade war lowered aggregate U.S. welfare in the short-run by $7.8 billion, or 0.04% of GDP. If trade partners had not retaliated, the terms-of-trade gains would have been larger, and the aggregate loss would have been about one third lower.” 24 This figure was reproduced in the 18 December 2008 edition of The Economist. 25 Arguably, this is when prior threats took concrete legal form. 12 of 26

are absorbing, partly or fully, the U.S. tariffs imposed on them26, it is worth noting that world import prices have fallen further. A common factor, unrelated to U.S. tariffs, may well be pulling down both U.S. and world import prices. The World Trade Monitor reports that in the second half of 2018 its index of primary commodity prices (excluding fuel) fell and then recovered in 2019. Their index of fuel prices fell during the fourth quarter of 2018 as well and, at this time of writing, are still below levels seen before the trade war began. Before concluding the U.S. tariff increases on Chinese exports pushed down U.S. import prices the impact of changes in the latter two factors should be controlled for. At this stage, it is probably too soon to draw conclusions about the impact of the Sino-US trade war on trade volumes and prices. Consideration of such effects, however, should be part of a complete comparison between the Sino-US tariff war and the Smoot-Hawley tariff. d. Comparing the tariff increases associated with the Sino-US trade war with other forms of trade discrimination. One feature of the breakdown of cooperation in trade policy in the 1930s was the resort by many countries to non-tariff measures, such as import quotas and exchange controls. The imposition of such non-tariff measures by the United States and China was not part of the standard characterisation of the tariff war in 2018 reported earlier. Nor were the Chinese and American exports implicated by each other’s tariff increases that affected multiple trading partners. Taking account of both adds scales up the Sino-US trade war in 2018. Discriminatory policy interventions by the United States affecting China that were implemented in 2018 and do not involve tariff increases that single out Chinese exporters were extracted from the Global Trade Alert database.27 Likewise, Chinese policy interventions that harmed U.S. exporters

26 One study that simulates the effects of tariff absorption by Chinese exporters is Zoller-Rydzek and Felbermayr (2018). Simulating the effect of such tariff absorption is not the same as demonstrating that Chinese exporters actually failed to pass on the U.S. tariffs completely to their American customers. 27 That data is freely available at www.globaltradealert.org. The Global Trade Alert applies a restricted relative treatment standard to classifying policy interventions, as explained at length in Evenett (2019). So that there is no misunderstanding, ordinary policy interventions involving the implementation of technical barriers to trade, sanitary and phytosanitary standards, and regional trading agreements, each of which is thought by some to be introducing or extending discrimination against foreign commercial interests, are not collected as part of the Global Trade Alert (GTA) initiative. As of this writing, the GTA database includes information on over 20,000 implemented policy interventions, two-thirds of which involved the implementation of one or more discriminatory state acts. Where cross-border trade in goods is concerned, that information includes the identification of the affected six-digit tariff line codes in the United Nations Harmonized System. In turn, along with the United Nations COMTRADE database on goods trade flows, this facilitates the calculations of trade implicated by the implementation of different policy interventions. To neutralise the effect of implementing a trade policy on the underlying trade flow, I follow the practice of the Global Trade Alert team of using international trade flows from 2005 to 2007, before the onset of the global 13 of 26

but did not target them were extracted. Where information on the products affected was available, fine-grained international trade data for 2017 was used to estimate the total amount of Sino-U.S. trade implicated. The standard characterisation of the Sino-US trade war omits $100 billion of bilateral trade affected by non-targeted American and Chinese policy interventions (see the third column of Figure 1).28 Another potentially misleading feature of the standard representation of the Sino-US trade war is that it compares the scale of tariffs imposed in 2018 with the total value of bilateral trade in 2018, possibly giving the impression that the share of bilateral trade affected by discrimination for the first time is significant.29 In fact, the U.S. and China have taken targeted and untargeted discriminatory measures against each other’s exports for years. Therefore, the 2018 fall in the share of Chinese (U.S.) exports that entered the U.S. (Chinese) market freely may be much smaller than implied by the media and others. Estimates of the build-up (or stock) of discrimination in Sino-US bilateral trade are thus needed. The entries in the Global Trade Alert database’s record policies implemented since 1 November 2008. Along with data on international trade flows, information in that database is used to compute the shares of Chinese (U.S.) exports affected by American (Chinese) discriminatory measures that were in effect during a given year which target only Chinese (American) exports and those which do not. Therefore, if a U.S. measure that started harming Chinese exports in 2010 was removed in 2013, it will not affect the calculated export share affected before 2010 and from 2014. The estimates are presented in the top panel of Figure 3 and the reported data is corrected for the duration each measure was in force (for example, a measure implemented from 1-31 December of a given year would be weighted by 31/365, reflecting the number of days the measure was in force.)30 From the top left-hand panel of Figure 3 it is evident that Chinese targeting of U.S. exports only really began in 2018 when, properly adjusted for duration, 23.5% of American exports were affected. The top right-hand panel of Figure 3 shows that the U.S. has singled out a growing share of Chinese exports since 2009, with a small jump in 2013 and a large jump in 2018. Correcting for duration, 31.8% of Chinese exports to the United States were targeted by the latter’s discriminatory measures in 2018. These shares for the cumulative exports targeted in 2018 are well below the headline numbers reported in many studies and newspaper articles. The top panels

financial crisis, to form “base year” weights that are used to estimate the amount of international goods trade implicated. 28 To the extent that the Global Trade Alert team missed any relevant public policy interventions or where, at this time, insufficient information is available to document such interventions, then this total will under- estimate the amount of trade implicated. 29 In this regard it is noteworthy that a group of U.S. economists, including the World Bank’s Chief Economist, titled a recent paper on assessing recent American trade policy with the statement “The return to protectionism.” See Fajgelbaum, Goldberg, Kennedy, and Khandelwal (2018). 30 From this point on, all estimates in this paper are duration-adjusted. That is, they correct for the date a government act comes into force and, where relevant, where it lapses or is removed. 14 of 26

of Figure 3 make clear that untargeted measures account for almost all of the total share of U.S- Sino bilateral trade covered by discriminatory measures. A focus on discriminatory measures that singled out the other’s exports ignores where most of build-up in Sino-US trade distortions actually occurred. The lower panels of Figure 3 show the relative contributions of discriminatory import tariffs and subsidies to the build-up of Sino-US trade facing trade discrimination. Until 2012 a larger share of U.S. exports to China competed against local Chinese firms that received some type of state aid than faced import tariff increases. From 2013 on, those two shares rose in tandem such that, by 2017, just under two-fifths of U.S. exports to China faced import tariff increases and a similar share competed against at least one subsidised import-competing firm.31 From 2017, the share of U.S. exports facing Chinese tariff hikes exceeded that facing subsidised Chinese firms. Meanwhile, since 2009 a larger share of Chinese exports to the United States competed against local firms that had received state aid than faced import U.S. tariff increases. This remained the case even after the targeted U.S. tariff increases in 2018 came into effect. While attention has focused on import tariff hikes on Chinese imports, the more pervasive discrimination faced by Chinese firms in the United States relate to subsidies that burgeoned during 2010-13, well before the Trump Administration came into office. In sum, in terms of the share of exports implicated, the targeted tariff increases imposed by China and the United States on each other’s exports in 2018 pale in comparison to the accumulation of discriminatory policies in force during the decade before the Sino-US tariff war. Low profile, but pervasive exposure to foreign subsidies has received less attention than the recent jump in exposure to import tariff increases. Figures 4 and 5 present information on developments year-by-year rather than the cumulative build-up of trade distortions shown in Figure 3. So as to facilitate comparisons an index was created and its value set equal to 100 for the total value of U.S.-China bilateral trade affected by the tariff increases resulting from the trade war in 2018. This allows readers to directly benchmark the scale of 2018 Sino-US tariff war against other developments that year and in the years since 2009. Those other developments include the total values of trade in a given year affected by (a) all tariff increases implemented that target a single nation (including those involving the United States and China), (b) all tariff increases implemented worldwide, (c) all discriminatory policies implemented that distort imports, and (d) all export incentives implemented. In what follows it is important to note that the vertical axes of Figures 4 and 5 are scaled in logarithms.32 Compared to the total amount of global exports affected by all tariff increases, by all

31 In the Global Trade Alert database there are a total of 193 subsidies or subsidy schemes implemented by U.S. official bodies since November 2008 that involve local producers of goods that China exports to the United States. A total of 154 of those subsidies were awarded by state governments. Of the 39 subsidies or subsidy schemes awarded by the U.S. Federal government, 34 involve financial grants. A list of these subsidy schemes is available upon request. 32 This is standard practice when comparing variables of different orders of magnitude. 15 of 26

import distortions, and by all export incentives, the total value of trade affected by the Sino-US trade war is small. In every year from 2009 to 2018 the total value of trade worldwide affected by newly imposed distortions to imports was between 1.9 and 6.9 times the size of trade implicated by the tariff increases imposed during the Sino-US bilateral trade war in 2018. Likewise, the total value of world trade affected by new export incentives each year was between four to 15 times the magnitude of the trade implicated by targeted tariff increases on Sino-US bilateral trade during 2018. If the scale of the latter makes it a systemic concern, then it is hard to accept that the former is not.33 One possible response to the evidence presented above is the following: what made the events of 2018 so shocking was the large headline numbers of the billions of US dollars of trade affected as the Sino-US tariff war escalated. Perhaps the discrimination of preceding years did not make the limelight because it implicated smaller amounts of trade? This matter was investigated in Evenett and Fritz (2019), where every discriminatory measure implemented anywhere in the world meeting all of the following criteria in the Global Trade Alert database was identified: (a) the measure was implemented by a national or supra-national government (excluding those implemented by sub-national official bodies), (b) the beneficiary of the measure was not a single firm, and (c) the estimated trade implicated in the year of implementation was at least $10 billion. A total of 348 instances of such “jumbo discrimination” were identified from the 14,000-plus discriminatory measures documented in the Global Trade Alert database and implemented between 1 November 2008 and 15 April 2019. Just six instances of jumbo discrimination relate to the implementation of “America First” policies, and four of those six relate to the Sino-US trade war. It is evident from Figure 7, then, that jumbo discrimination started before the Trump Administration took office, let alone before the Sino-US trade war. A total of 14 WTO members were each responsible for implementing five or more acts of jumbo discrimination. China and the United States were responsible for implementing “only” a fifth of the instances of jumbo discrimination over the past 10 years. That over 50 instances of jumbo discrimination were implemented in 2009 is hard to reconcile with claims that governments exercised restraint when world trade fell sharply at the beginning of

33 Moreover, there is a growing body of econometric evidence that crisis-era export incentives have distorted global trade flows. China is an extensive user of export incentives and studies by Chandra and Long (2013), Defever and Riano (2012), Gourdon, Monjon, and Poucet (2017), and Weinberger, Xuefen, and Yasar (2017) found more generous incentives increased Chinese exports. Wang and Anwar (2017) found the opposite. Evenett and Fritz (2015) considered other countries’ export incentives as well and found that the bilateral exports of the Least Developed Nations grew slower when they competed in third markets against a larger share of exports from other sources that were eligible for export incentives. In a later study, Evenett and Fritz (2017) showed using a structural gravity equation approach that the export growth of members of the European Union to third markets, when compared with American, Chinese, and Japanese rivals, was slower when the former were more exposed to subsidised foreign rivals in those third markets than the latter. Such findings imply that world trade is being reshuffled when a subset of nations resort to export incentives. As every agricultural trade economist knows, not every trade distortion reduces total trade flows (agricultural export subsidies being a case in point.) 16 of 26

the global financial crisis. Of the 76 jumbo discriminatory measures implemented since 2009 that implicate over $100 billion of trade, 65 involved the creation or expansion of state incentives to export. Only four involved tariff increases. Of the cases of jumbo discrimination affecting between $10-$100 billion of trade, 84 were the result of state-provided export incentives, 63 related to subsidies to import-competing firms, and 58 were due to import tariff increases (Evenett and Fritz 2019). Less than 18% of the instances of jumbo discrimination imposed over the past decade involved tariff increases. Accounts of the breakdown in trade policy cooperation in the 1930s are incomplete without reference to non-tariff measures. Likewise, accounts of contemporary discrimination. Seen in this light, the jumbo discrimination that shocked so many in 2018 followed, rather than led, hundreds of attempts to tilt the commercial playing field on a grand scale. What became apparent in 2018 was the tip of the discriminatory iceberg. The final piece of global perspective on the Sino-US tariff war can found in Figure 8. This figure plots the total share of world trade in each year from 2009 to 2018 that faced any policy-induced trade discrimination documented in the Global Trade Alert database, that competed against rivals enjoying state-provided export incentives, that competed against subsidised import-competing firms, and that faced an import tariff increase implemented since 2009 and still in effect in the year in question. To what extent did the Sino-US tariff war “move the needle” on global goods trade facing discrimination? Figure 8 reveals that the share of world exports facing tariff increases has risen sharply since 2017. To a slightly lesser degree so has the share facing subsidised importing-competing firms. Globally, the share of world exports facing no trade distortions fell by two percentage points from 2017 to 2018. While this is a step in the wrong direction, other years since 2009 have seen larger encroachments on the share of unimpeded global goods trade. The evidence presented in this sub-section is entirely empirical and sought to shed light on the scale of the Sino-US trade war in both absolute and relative terms. Seen in terms of both the flow of trade affected by new trade distortions and the build-up of trade distortions over time, the Sino- US trade war does not represent a sharp break from the immediate past.

4. Concluding remarks.

The U.S. Smoot-Hawley tariff of 1930 often serves as a point of reference for the ongoing U.S.- Sino trade war for two reasons: first, as a benchmark for scale and, second, as a source of “lessons” for contemporary decision-makers. My goal in this paper has been to apply insights from this earlier epoch to assess the commercial significance of the ongoing Sino-US trade war. I made clear in the introduction the reservations I have about this line of inquiry and will not repeat them here. Still, five conclusions follow from the analysis and evidence presented in earlier sections. Perhaps the most pertinent insights from the literature on the Smoot-Hawley tariff relate to the framing of the government decisions taken, the policy instruments deemed relevant (not just tariffs but non-tariff measures as well), and the potential substitutability between certain discriminatory

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policy instruments. Most importantly of all, this literature implies that even though a government values free trade, it may well sacrifice the benefits of international commerce in pursuit of some more highly appraised objective. The first conclusion, then, is that history teaches us that the objective of openness to trade may be trumped by other more pressing societal objectives, even by governments that instinctively support freer trade. Put differently, in some circumstances it is not enough to make the case for free trade vis-à-vis commercial autarky. Decisionmakers must be persuaded that free trade yields more benefits than pursuing some other societal objective whose attainment requires distorting international commerce. Mainstream economics textbooks emphasise the first test, they don’t make a habit of discussing the second. As far as quantitative metrics are concerned, to date the Sino-US trade war has yet to eclipse the Smoot-Hawley tariff. Indeed, as far as global trade volumes are concerned, at this time of writing it is difficult to detect much impact of Sino-US trade war. This is the second conclusion of this paper. One could respond: so what? Even if the Sino-US trade war is smaller than the “trade policy disaster” of the 1930s, it could be a major source of concern for a number of other reasons, not least of which is the disregard of the established trade rules and the erosion of trust between governments more generally. When the policy intervention associated with the ongoing Sino-US trade war is compared, in both flow and stock terms, with the discriminatory steps taken by governments over the past 10 years, another important finding arises. In terms of the frequency of far-reaching (“jumbo”) policy interventions as well as the scale of goods trade implicated, the high-profile Sino-US trade war pales in significance to the covert discrimination that preceded it. Before the Sino-US trade war began, the build-up of discriminatory policies since the start of the global financial crisis already implicated 71% of world goods trade. The ongoing trade war added little to this particular total. Since pervasive distortions to world trade existed before the Sino-US trade war began, the evidence presented here challenges the argument that the woes of global trade can be laid solely at the feet of the American or the Chinese governments. The third conclusion, then, is that the scale of the challenge currently facing the multilateral trading system extends well beyond containing one or two seemingly errant trading powers. Reversing the crisis-era build-up of discrimination against foreign trade is the priority and will require many nations to reform policy, in particular those governments responsible for the 348 instances of jumbo protectionism. In his assessment of the 1930s breakdown of trade cooperation, Irwin (2012) distinguished between the threats to openness and discrimination witnessed in world trade. For Irwin the former related to measures to reduce imports and the latter to measures favouring some foreign suppliers over others. The tariff increases associated with the ongoing Sino-US trade war have targeted the trade between two economic powers. Violations of the Most Favoured Nation principle are common to both the 1930s trade collapse and the recent Sino-U.S. trade war. In contrast, the build-up of trade discrimination witnessed since the onset of the 2008 global financial crisis involved commercially-significant departures from the National Treatment principle. In the decade before the Sino-US trade war, world trade remained largely open while becoming increasingly distorted by subsidies to import-competing firms and to exporters. The fourth

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conclusion is that conflating openness, trade restrictions, and discrimination is a mistake. Better to differentiate between trade restrictions and trade distortions. Even better is to reconsider what notion of protectionism is appropriate for the many forms of cross-border commerce witnessed in the 21st century.34 We may not be well served today by notions of protectionism employed to characterise state acts of the 1930s. The findings in this paper also beg the question why it took a bilateral tariff war to vitiate claims that the current multilateral trade rules contained unilateral government discrimination. Departures from the National Treatment Principle have been pervasive for over a decade. Deploying a counterfactual argument—along the lines of “well things would have been much worse without the WTO”—aren’t convincing. The current system resulted in 71% of world goods trade being distorted before the Sino-U.S. trade war started. If that constitutes success, one is tempted to ask what is failure? 85% or 95% of world trade distorted? The deeper question raised is what policymakers and analysts really learned about the operation of the multilateral system of trade rules over the past decade. Did a fixation on the Smoot-Hawley tariff lead them to focus solely on the more transparent trade restrictions, inadvertently creating a blind spot? Did they put too much faith in the surveillance function of the WTO? Did they critically evaluate whether the secretariat of an international organisation could effectively monitor the policy initiatives of its largest and most powerful members? Once the WTO secretariat began openly stating in its monitoring reports that G20 governments were not cooperating with their surveillance function, surely analysts and policymakers should have revisited their assumptions about the nature and extent of the discriminatory crisis-era policy response? Or by then was debate muted by fears that open discussion of trade distortions would trigger populist calls for retaliation? The answers to these questions are important for the Sino-U.S. trade war is less shocking once one accepts that it followed a wide-ranging breakdown in respect for the National Treatment Principle from the onset of the global financial crisis. Uncomfortable as it may be, some criticisms of President Trump and his officials of the crisis-era policies of America’s trading partners are not without substance. Of course, those criticisms are one-sided, ignoring the resort by U.S. states and federal agencies to discrimination against foreign commercial interests over the past 10 years. But did defenders of multilateral trade rules lose credibility when they rejected out of hand the Trump critique? Did the standing of the suffer as a result? This leads to the final conclusion. Seen in light of trade policy developments of prior years, the Sino-U.S. trade war was not a significant break from the past. The brazen nature of the trade war, however, made it impossible to ignore the failings of a broken multilateral trading system. Rather than fixing on a single historical reference point (such as the Smoot-Hawley tariff or the British abandonment of the Gold Standard), a better understanding of the unwinding of global trade cooperation in recent years is found by looking back over many years where the accumulation of literally thousands of beggar-thy-neighbour state acts have together undermined the rules-based world trading system. Interestingly, this parallels the conclusion of the some leading non-

34 For some thoughts in this regard see the third section of Evenett (2019). 19 of 26

economic historians who have analysed the trade policy disaster of the 1930s (Boyce 2009 being a prominent example).

5. References

Amiti, Mary, Stephen Redding, and David Weinstein. (2019). “The Impact of the 2018 Trade War on U.S. Prices and Welfare,” CEPR Discussion Paper number 13564. Forthcoming in the Journal of Economic Perspectives. BEA (2019). U.S. Bureau of Economic Analysis. Gross Domestic Product Fourth Quarter 2018 and Annual 2018 (Third Estimate). Corporate Profits, Fourth Quarter 2018 and Annual 2018. News Release. 28 March. de Bromhead, Alan, Alan Fernihough, Markus Lampe, and Kevin Hjortshøj O'Rourke (2019). “When Britain Turned Inward: The Impact of Interwar British Protection,” American Economic Review, 109(2): 325-352. Bond, E. W., Crucini, M. J., Potter, T., & Rodrigue, J. (2013). Misallocation and productivity effects of the Smoot–Hawley tariff. Review of Economic Dynamics, 16(1), 120-134. Bown, Chad. (2019). “The 2018 US-China Trade Conflict After 40 Years of Special Protection.” Peterson Institute for International Economics. Working Paper 19-7. Bown, Chad, and Melina Kolb (2019). “Trump’s Trade War Timeline: An Up-to-Date Guide.” Peterson Institute for International Economics. Version as of 11 September 2019. Boyce, Robert (2009). The Great Interwar Crisis and The Collapse of Globalization. Palgrave Macmillan. London. Chandra, Piyush, and Cheryl Long (2013). “VAT rebates and export performance in China: Firm-level evidence.” Journal of Public Economics, 102: 13-22. June. Crucini, M. J., & Kahn, J. (1996). Tariffs and aggregate economic activity: Lessons from the Great Depression. Journal of Monetary Economics, 38(3), 427-467. Defever; Fabrice, and Alejandro Riano (2012). “China's Pure Exporter Subsidies.” Discussion Paper No 1182, Centre for Economic Performance, London School of Economics. December. Eichengreen, Barry. (2014). Hall of Mirrors: The Great Depression, the Great Recession, and the Uses-and Misuses-of History. Oxford University Press. Eichengreen, Barry. (2019). “Versailles: the economic legacy,” International Affairs 95(1): 7-24. Eichengreen, Barry, and Douglas Irwin (2010). “The Slide to Protectionism in the Great Depression: Who Succumbed and Why?” Journal of Economic History, 38:1-24. Evenett, Simon J. (2019). “Protectionism, state discrimination, and international business since the onset of the Global Financial Crisis,” Journal of International Business Policy 2(1): 9-36. Evenett, Simon J., and Johannes Fritz. (2015). Throwing Sand in the Wheels: How Foreign Trade Distortions Slowed LDC Export-Led Growth. CEPR Press. June. Evenett, Simon J., and Johannes Fritz. (2017a). “The Smoot Hawley Fixation” Chapter 2 in Simon Evenett and Johannes Fritz Will Awe Trump Rules? The 21st GTA Report. CEPR Press. Evenett, Simon J., and Johannes Fritz. (2017b). Europe Fettered: The Impact of Crisis-Era Trade Distortions on Exports from the European Union. CEPR Press. December.

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Evenett, Simon J., and Johannes Fritz. (2018). Brazen Unilateralism: The U.S.-China Tariff War in Perspective. The 23rd GTA Report. CEPR Press. Evenett, Simon J., and Johannes Fritz. (2019). Jaw Jaw not War War: Prioritising WTO Reform Options. The 24th Global Trade Alert Report. CEPR Press. Fajgelbaum, Pablo, Pinelopi K. Goldberg, Patrick Kennedy and Amit Khandelwal. (2018) “The Return to Protectionism: Causes and Consequences of the 2018 Trade War.” , mimeograph. Gourdon, Julien, Stéphane Monjon, and Sandra Poucet (2017). “Incomplete VAT rebates to exporters: how do they affect China’s export performance?” HAL archives-ouvertes.fr Gros, Daniel. (2019). “This is not a trade war, it is a struggle for technological and geo-strategic dominance,” CESifo Forum. Volume 20: 21-27. Irwin, Douglas A. (2008). “The Smoot-Hawley Tariff: A Quantitative Assessment.” The Review of Economic Statistics 80(2): 326-334. Irwin, Douglas A. (2010). “Trade restrictiveness and deadweight losses from US tariffs.” American Economic Journal: Economic Policy, 2(3), 111-33. Irwin, Douglas A. (2011). Peddling Protectionism: Smoot Hawley and the Great Depression. Princeton University Press. Princeton, MA. Irwin, Douglas A. (2012). Trade Policy Disaster: Lessons from the 1930s. MIT Press. Cambridge, MA. Nicita, Alessandro, Marcelo Olarreaga and Peri da Silva (2018), "A trade war will increase average tariffs by 32 percentage points,” VoxEU.org. 5 April. O’Rourke, Kevin Hjortshøj (2017). “The Two Great Trade Collapses Compared: The Interwar Years and the Great Depression Compared.” University of Oxford. Discussion Papers in Economic and Social History number 159. Ossa, Ralph. (2014). “Trade Wars and Trade Talks with Data.” American Economic Review, 104(12):4104- 46. Straumann, Tobias. (2019). 1931: Debt, Crisis and the Rise of Hitler. Oxford University Press. Oxford. USTR (2017). United States Trade Representative. “USTR Announces Initiation of Section 301 Investigation of China.” 18 August. Wang, Litan, and Sajid Anwar (2017). “Does VAT Rebate Policy Prompt the Export Performance of Mechanical Products?” Mimeo. Shanghai Lixin University of Accounting and Finance. Weinberger, Ariel, Qian Xuefen, and Mahmut Yasar (2017). “Export Tax Rebates and Resource Misallocation: Evidence from a Large Developing Country.” Working Paper No. 302, Globalization and Monetary Policy Institute, Federal Reserve Bank of Dallas, January. Zoller-Rydzek, Benedikt, and Gabriel Felbermayr. (2018). “Who is Paying for the Trade War with China?” EconPol Policy Brief. November.

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Figure 1: "Trade conflict began in 2018": the standard portrayal of the Sino-US tariff war.

Note: This figure was constructed using what became during 2018 the standard journalistic practice of estimating the Chinese exports affected by a U.S. tariff increase as the total value of annual U.S. imports from China in the products facing the tariff increase computed using the last year for which UN trade data is available. This journalistic practice therefore does not adjust for the period of time that the tariffs were imposed. A tariff imposed on a range of products on 1 January 2018 will affect more trade in 2018 that a tariff imposed on 1 December 2018. Duration- adjusted totals produce considerably lower headline figures. UN COMTRADE was the trade data used for this source and the source of information on commercial policy change is the Global Trade Alert.

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Figure 2: No clear break in US and world import volumes since the start of the Sino-US trade war (April 2018)—but import prices fell clearly below trend in 2019.

Data source: World Trade Monitor (latest release) 23 of 26

Figure 3: Chinese targeting of US exports increased sharply in 2018—but US targeting of Chinese exports began rising much earlier.

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Figure 4: Sino-US bilateral tariff hikes accounted for less than a sixth of all global trade affected by import distortions in 2018.

Figure 5: Sino-US bilateral tariff hikes in 2018 accounted for just over 10% of all global trade affected by new export incentives implemented in the same year.

Figure 6: Of the 348 instances of “jumbo discrimination” undertaken since the first crisis-era G20 Leaders’ summit, only six are associated with “America First” policies. 25 of 26

Notes: Evenett and Fritz (2019) is the source. For definition of a jumbo protectionist measure see main text. Data for 2019 relates to government measures implemented on or before 15 April 2019. Threats by the U.S. Administration to raise tariffs against imports from China and Mexico after 15 April 2019 are not included.

Figure 7: Such was the build-up of crisis-era trade distortions that the Sino-US tariff war barely increased the share of world trade facing trade distortions in 2018 and 2019.

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