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State Power and the Structure of International Trade

Author(s): Stephen D. Krasner
Reviewed work(s):
Source: World Politics, Vol. 28, No. 3 (Apr., 1976), pp. 317-347
Published by: Cambridge University Press
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 STATE POWER AND THE STRUCTURE
OF INTERNATIONAL TRADE
By STEPHEN D. KRASNER*

INTRODUCTION

IN recentyears,studentsof international have multina-

relations
tionalized,
transnationalized, bureaucratized, andtransgovernment-
alizedthestateuntilithasvirtually ceasedto existas an analytic con-
struct.Nowhereis thattrendmoreapparent thanin thestudyofthe
politicsofinternationaleconomic relations.The basicconventional as-
sumptions havebeenundermined byassertionsthatthestateis trapped
by a transnational society creatednotby sovereigns, butby nonstate
actors.Interdependence is notseenas a reflection of statepoliciesand
statechoices(theperspective of balance-of-power theory), butas the
resultofelements beyondthecontrol ofanystateor a system created
bystates.
This perspective is at bestprofoundly misleading.It mayexplain
developments withina particular internationaleconomic structure,
but
it cannotexplainthestructure itself.
Thatstructure has manyinstitu-
tionaland behavioral manifestations. The centralcontinuum along
whichit can be described is openness. Internationaleconomicstruc-
turesmayrangefromcomplete autarky(if all statesprevent move-
mentsacrosstheirborders),to complete openness(if no restrictions
exist).In thispaperI will presentan analysisof one aspectof the
internationaleconomy-the structure of international trade;thatis,
thedegreeofopenness forthemovement ofgoodsas opposedto cap-
ital,labor,technology, or otherfactors of production.
Sincethebeginning ofthenineteenth thisstructure
century, hasgone
through several
changes. These can be explained, albeitimperfectly,by
a state-powertheory: an approach thatbeginswiththeassumption that
thestructure ofinternational tradeis determined bytheinterests and
powerof statesactingto maximizenationalgoals.The firststepin
thisargument is torelatefourbasicstateinterests-aggregate national
* I would like to thankRobertArt,PeterGourevitch, Samuel Huntington, Robert
Keohane,RachelMcCulloch,JosephNye,RonaldRogowski,and RobertW. Tuckerfor
theircomments. My greatestintellectual in the
debt,and one not adequatelyreflected
is to RobertGilpin.Completionof thispaperwas made possibleby support
footnotes,
fromtheWashington Centerof ForeignPolicyResearchof theJohnsHopkinsSchool
of AdvancedInternational Studiesand theCenterforInternational at Harvard
Affairs
University.
318 WORLD POLITICS

income,socialstability,
politicalpower,and economic growth-tothe
degreeof openness forthemovement of goods.The relationship be-
tweentheseinterests and opennessdependsupon the potential eco-
nomicpowerof anygivenstate.Potential economicpoweris opera-
tionalizedin termsof the relativesize and level of economic
development ofthestate.The secondstepin theargument is to relate
different
distributions
ofpotentialpower,suchas multipolar andhege-
monic,to differentinternationaltradingstructures. The mostimpor-
tantconclusionofthistheoreticalanalysisis thata hegemonic distribu-
tionofpotentialeconomic poweris likelytoresultin an opentrading
That argument
structure. is largely,althoughnot completely, sub-
stantiated
byempirical data.For a fullyadequateanalysis it is neces-
saryto amenda state-power argument to takeaccountof theimpact
ofpaststatedecisionson domestic socialstructuresas wellas on inter-
nationaleconomic ones.The twomajororganizers ofthestructure of
tradesincethebeginning ofthenineteenth century,GreatBritain and
the UnitedStates,have bothbeen prevented frommakingpolicy
amendments in linewithstateinterests by particular societalgroups
whosepowerhad beenenhanced byearlierstatepolicies.

THE CAUSAL ARGUMENT: STATE INTERESTS, STATE POWER, AND

INTERNATIONAL TRADING STRUCTURES

Neoclassical tradetheoryis basedupontheassumption thatstates

act to maximizetheiraggregate economicutility.This leadsto the
conclusion thatmaximum globalwelfareand Paretooptimality are
achieved underfreetrade.Whileparticularcountriesmightbetter their
situationsthrough economic
protectionism, theory hasgenerally looked
askanceat suchpolicies.In his seminalarticleon theoptimaltariff,
HarryJohnson wasat painstopointoutthattheimposition ofsucces-
siveoptimaltariffs couldlead bothtradingpartners to a situationin
whichtheywereworseoffthanundercompetitive conditions.'Neo-
classicaltheory thattraderegulations
recognizes can also be used to
correctdomestic distortions
andtopromote infant butthese
industries,2
are exceptions or temporarydeparturesfrompolicyconclusions that
lead logicallyto thesupportof freetrade.
1 Johnson, "OptimumTariffsand Retaliation,"
in H'arryJohnson, International
Trade
and EconomicGrowth(Cambridge:HarvardUniversity Pressi967), 31-61.
2 See, for instance,
EverettHagen, "An EconomicJustification of Protectionism,"
Quarterly Journalof Economics,Vol. 72 (November1958), 496-514; HarryJohnson,
"OptimalTrade Intervention in the Presenceof DomesticDistortions,"in Robert
Baldwinand others,Trade,Growthand theBalanceof Payments:Essaysin Honor of
Gottfried Haberler(Chicago: Rand McNallyi965), 3-34;and JagdishBhagwati,Trade,
Tarifis,and Growth(Cambridge:MIT Press i969), 295-308.
 STATE POWER AND INTERNATIONAL TRADE 319

STATE PREFERENCES

Historical experience suggests thatpolicymakersaredense,or that

theassumptions of theconventional argument are wrong.Freetrade
hashardlybeenthenorm.Stupidity is nota veryinteresting analytic
category.An alternative approach to explaining international trading
structuresis toassumethatstatesseeka broadrangeofgoals.At least
fourmajorstateinterests affectedbythestructure ofinternational trade
canbe identified. Theyare:political power,aggregate national income,
economic growth, andsocialstability. The wayin whicheachofthese
goalsis affectedbythedegreeofopenness dependsuponthepotential
economic powerofthestateas defined byitsrelative sizeand levelof
development.
Let us beginwithaggregate nationalincomebecauseit is most
straightforward. Giventheexceptions notedabove,conventional neo-
classicaltheory demonstrates thatthegreater thedegreeof openness
in theinternational trading system, thegreater thelevelof aggregate
economicincome.This conclusion appliesto all statesregardless of
theirsizeor relative levelof development. The staticeconomic bene-
fitsofopenness are,however, generally inversely relatedto size.Trade
givessmallstatesrelatively morewelfarebenefits thanit giveslarge
ones.Empirically, smallstateshavehigherratiosof tradeto national
product. Theydo nothave thegenerousfactorendowments or po-
tentialfornationaleconomies of scalethatare enjoyedby larger-
particularly continental-states.
The impactofopenness on socialstabilityrunsin theopposite direc-
tion.Greater openness exposesthedomestic economy to theexigencies
oftheworldmarket. Thatimpliesa higherleveloffactor movements
thanin a closedeconomy, becausedomestic production patterns must
adjustto changesin international prices.Socialinstability is thereby
increased, sincethereis friction in movingfactors, particularly labor,
fromonesector to another. The impactwillbe stronger in smallstates
thanin large,andin relatively lessdeveloped thanin moredeveloped
ones.Largestatesare lessinvolvedin theinternational economy:a
smallerpercentage of theirtotalfactor endowment is affected by the
international marketat anygivenlevelof openness. Moredeveloped
statesarebetter ableto adjustfactors: skilledworkers can moreeasily
be movedfromonekindofproduction to another thancan unskilled
laborers or peasants.Hencesocialstability is,ceterisparibus, inversely
relatedtoopenness, butthedeleterious consequences ofexposure tothe
international tradingsystem are mitigated by largersize and greater
economic development.
320 WORLD POLITICS

The relationshipbetween politicalpowerandtheinternational trad-

ingstructure canbe analyzed in terms of the opportunity
relative costs
ofclosurefortrading partners.3The highertherelative costofclosure,
theweakerthepoliticalposition of thestate.Hirschman has argued
thatthiscostcanbe measured in terms ofdirectincomelossesandthe
adjustment costsofreallocating factors.4Thesewillbe smaller forlarge
statesand forrelatively moredevelopedstates.Otherthingsbeing
equal,utilitycostswillbe lessforlargestatesbecausetheygenerally
havea smallerproportion of theireconomy engagedin theinterna-
tionaleconomicsystem. Reallocation costswill be lessformoread-
vancedstates becausetheirfactors aremoremobile.Hencea statethat
largeand moredevelopedwill findits politicalpower
is relatively
enhancedby an opensystem becauseitsopportunity costsof closure
areless.The largestatecanusethethreat to alterthesystem to secure
economic or noneconomic objectives. Historically,thereis one impor-
tantexceptionto thisgeneralization-the oil-exporting states.The
levelofreserves forsomeofthesestates, particularlySaudi Arabia,has
reducedtheeconomic opportunity costsofclosureto a verylow level
despitetheirlack of development.
The relationship between international economic structure and eco-
nomicgrowthis elusive.For smallstates, economicgrowthhas gen-
erallybeenempirically associated withopenness.5 Exposure totheinter-
nationalsystem makespossiblea muchmoreefficient allocationof
resources.Openness alsoprobably furthers therateof growth oflarge
countrieswithrelatively advancedtechnologies becausetheydo not
needto protect infantindustries and can takeadvantage ofexpanded
worldmarkets. In thelongterm,however, openness forcapitaland
technology, as wellas goods,mayhamperthegrowth oflarge,devel-
opedcountries bydiverting resources fromthedomestic economy, and
by providing potentialcompetitors withthe knowledgeneededto
developtheirown industries. Onlyby maintaining its technological
lead and continually developing newindustries can even a verylarge
stateescapetheundesired consequences of an entirelyopeneconomic
system.For medium-size states,therelationship between international
trading structure and growth is impossible to specify definitively,
3 This notion is reflectedin Albert 0. Hirschman, National Power and the Structure
of Foreign Trade (Berkeley:University of CaliforniaPress I945); RobertW. Tucker,
The New Isolationism:Threator Promise?(Washington:PotomacAssociates1972);
and KennethWaltz,"The Mythof Interdependence," ed.,
in CharlesP. Kindleberger,
The InternationalCorporation (Cambridge:MIT Press1970), 205-23.
4Hirschman (fn.3), I3-34.
5 Simon Kuznets, Modern Economic Growth: Rate, Structure,and Spread (New
Pressi966), 302.
Haven: Yale University
 STATE POWER AND INTERNATIONAL TRADE 321

On theone hand,writers
or empirically.
eithertheoretically fromthe
throughthe Americanprotectionists
mercantilists and the German
school,and morerecently
historical analystsof dependencia, have
arguedthatan entirely opensystem can undermine a state'seffort
to
develop,and evenlead to underdevelopment.6 On the otherhand,
adherentsofmoreconventional neoclassical
positionshavemaintained
thatexposuretointernational
competition spurseconomic transforma-
tion.7The evidenceis notyetin. All thatcan confidentlybe said is
thatopennessfurtherstheeconomic growth ofsmallstatesandoflarge
onesso longas theymaintain theirtechnologicaledge.
FROM STATE PREFERENCES TO INTERNATIONAL TRADING STRUCTURES

The nextstepin thisargument is torelateparticular

distributionsof
economic
potential power,defined bythesizeandlevelofdevelopment
of individualstates, to thestructure of theinternationaltradingsys-
tem,defined in termsof openness.
Letusconsider a system composed ofa largenumber ofsmall,highly
developedstates.Sucha system is likelytoleadtoan openinternational
tradingstructure.The aggregate incomeandeconomic growth ofeach
stateareincreased byan opensystem. The socialinstabilityproduced
by exposureto international competition is mitigated by the factor
mobilitymadepossiblebyhigherlevelsof development. Thereis no
lossofpoliticalpowerfromopenness becausethe costs of closureare
symmetrical forall members of thesystem.
Now let us considera system composedof a fewverylarge,but
unequally developed states.Sucha distribution of potentialeconomic
poweris likelyto lead to a closed structure.Each statecould increase
itsincomethrough a moreopensystem, butthegainswouldbe modest.
Opennesswouldcreatemoresocialinstability in the less developed
The rateof growthformorebackwardareasmightbe
countries.
6 See David P. Calleo and BenjaminRowland,Americaand the World Political
Economy(Bloomington:Indiana University Press 1973), Part II, for a discussionof
Americanthought;Eli Heckscher,Mercantilism (New York: Macmillani955); and
D. C. Coleman,ed.,Revisionsin Mercantilism (London: Methueni969), fortheclassic
discussionand a collectionof recentarticleson mercantilism; AndreGunderFrank,
LatinAmerica:Underdevelopment or Revolution(New York: MonthlyReviewi969);
ArghiriEmmanuel,Unequal Exchange:A Studyof the Imperialismof Trade (New
York: MonthlyReview 1972); and JohanGaltung,"A Structural Theoryof Imperial-
ism,"Journal ofPeace Research,viii, No. 2 (1971), 8i-iI7, forsomerepresentative argu-
mentsaboutthedeleterious effectsoffreetrade.
7 See GottfriedHaberler,International Trade and EconomicDevelopment(Cairo:
NationalBankof Egypt1959); and CarlosF. Diaz-Alejandro,"LatinAmerica:Toward
2000 A.D.," in JagdishBhagwati,ed., Economicsand WorldOrderfromthe 19705 to
the i9gos (New York: Macmillan1972), 223-55, forsome argumentsconcerningthe
benefitsoftrade.
322 WORLD POLITICS
frustrated, whilethatof themoreadvancedoneswouldbe enhanced.
A moreopenstructure wouldleavethelessdeveloped states in a polit-
icallymorevulnerable position, becausetheirgreaterfactorrigidity
wouldmeana higherrelative costof closure.Becauseof thesedisad-
vantages, largebutrelatively lessdeveloped statesareunlikely toaccept
an opentradingstructure. Moreadvancedstatescannot,unlessthey
aremilitarily muchmorepowerful, forcelargebackward countries to
acceptopenness.
Finally, letus considera hegemonic system-one in whichthereis a
singlestatethatis muchlargerandrelatively moreadvancedthanits
tradingpartners. The costsand benefits of opennessare not sym-
metrical forall members ofthesystem. The hegemonic statewillhave
a preference foran openstructure. Sucha structure increases itsag-
gregate nationalincome.It alsoincreases itsrateofgrowth duringits
ascendency-that is,whenitsrelative size and technological lead are
increasing. Further,an openstructure increasesitspolitical power,since
theopportunity costsofclosure areleastfora largeanddeveloped state.
The socialinstability resultingfromexposure to theinternational sys-
temis mitigated by the hegemonic power'srelatively low levelof
involvement in the international economy, and the mobility of its
factors.
Whatof theothermembers of a hegemonic system? Smallstates
for
arelikelyto opt openness becausethe advantages in terms of ag-
gregateincomeand growthare so great,and theirpoliticalpoweris
boundto be restricted regardless of whattheydo. The reactionof
medium-size statesis hardto predict;it dependsat leastin parton
theway in whichthehegemonic powerutilizesits resources. The
potentially dominant statehas symbolic, economic, and military capa-
thatcan be usedto enticeor compelothersto acceptan open
bilities
trading structure.
At thesymbolic level,thehegemonic statestandsas an exampleof
howeconomic development canbe achieved. Itspoliciesmaybe emu-
lated,eveniftheyareinappropriate forotherstates. Wherethereare
verydramaticasymmetries, military power can be used to coerce
weakerstatesintoan open structure. Forceis not,however, a very
meansforchanging
efficient economic policies,andit is unlikely tobe
employed againstmedium-size states.
Mostimportantly, thehegemonic statecanuseitseconomic resources
tocreatean openstructure. In terms ofpositive incentives, it can offer
accessto itslargedomestic market and to itsrelatively cheapexports.
In termsofnegative ones,it can withhold foreign grantsand engage
 STATE POWER AND INTERNATIONAL TRADE 323

in competition, potentiallyruinous for the weaker state,in third-

countrymarkets.The size and economicrobustness of thehegemonic
statealso enable it to provide the confidence necessary for a stable
international monetarysystem, and itscurrency can offertheliquidity
neededforan increasingly open system.
In sum, opennessis most likelyto occur duringperiodswhen a
hegemonicstateis in itsascendancy.Such a statehas the interestand
theresourcesto createa structure characterizedby lowertariffs,rising
tradeproportions, and lessregionalism.Thereare otherdistributions of
potentialpowerwhereopennessis likely,such as a systemcomposed
of manysmall,highlydevelopedstates.But even here,thatpotential
mightnot be realizedbecauseof theproblemsof creatingconfidence
in a monetary systemwhereadequateliquiditywould have to be pro-
vided by a negotiated internationalreserveassetor a groupof national
currencies. Finally,it is unlikelythatverylarge states,particularly at
unequal levelsof development, would acceptopen tradingrelations.
These arguments, and the implicationsof otherideal typicalcon-
figurations of potentialeconomicpower for the opennessof trading
structures,are summarizedin thefollowingchart.

Size of States

RELATIVELY EQUAL
VERY UNEQUAL
SMALL LARGE

Level of EQUAL HighModerateLow- High

Development
of States UNEQUAL Moderate Low Moderate-

CHART I. PROBABILITY OF AN OPEN TRADING STRUCTURE WITH DIFFERENT

DISTRIBUTIONS OF POTENTIAL ECONOMIC POWER

THE DEPENDENT VARIABLE: DESCRIBING THE STRucTuRE OF

THE INTERNATIONAL TRADING SYSTEM

The structure tradehas bothbehavioraland institu-

of international
The degreeof opennesscan be describedbothby the
tionalattributes.
flowofgoodsand bythepoliciesthatarefollowedbystateswithrespect
to tradebarriersand international payments.The two are not unre-
lated,buttheydo notcoincideperfectly.
In commonusage,the focusof attention has been upon institutions.
Openness is associatedwith those periodsin which tariffs
historical
324 WORLD POLITICS
weresubstantially lowered:thethirdquarter ofthenineteenth century
and theperiodsincetheSecondWorldWar.
Tariffs alone,however, are notan adequateindicator of structure.
Theyarehardto operationalize quantitatively.Tariffsdo nothaveto
be hightobe effective. If costfunctions arenearlyidentical,evenlow
tariffs
canprevent trade.Effective tariffratesmaybe muchhigherthan
nominalones.Non-tariff barriers to trade,whichare noteasilycom-
paredacrossstates, can substitute forduties.An undervalued exchange
ratecan protect domestic markets fromforeigncompetition. Tariff
levelsalonecannotdescribe thestructure ofinternationaltrade.8
A secondindicator, andonewhichis behavioral ratherthaninstitu-
tional,is tradeproportions-the ratiosoftradeto nationalincomefor
different states.Like tariff levels,theseinvolvedescribing thesystem
in termsof an agglomeration of nationaltendencies. A periodin
whichtheseratiosare increasing acrosstimeformoststatescan be
described as one of increasing openness.
A thirdindicator is theconcentration of tradewithinregionscom-
posedofstatesat different levelsof development. The degreeof such
regionalencapsulation is determined notso muchbycomparative ad-
vantage(becauserelative factor endowments wouldallowalmostany
backward areato tradewithalmostanydeveloped one),butbypolit-
ical choicesor dictates. Largestates, attempting to protectthemselves
fromthevagaries ofa globalsystem, seekto maximizetheirinterests
bycreating regional blocs.Openness in theglobaleconomic systemhas
in effectmeantgreater tradeamongtheleadingindustrial states.
Peri-
odsofclosure areassociated withtheencapsulation ofcertainadvanced
stateswithinregional systems sharedwithcertain lessdevelopedareas.
A description of theinternational trading system then,an
involves,
exercisethatis comparative rather thanabsolute. A periodwhentariffs
arefalling, tradeproportions arerising, and regionaltrading patterns
arebecoming lessextreme willbe defined as onein whichthestructure
is becoming moreopen.
TARIFF LEVELS

The periodfromthei820'S to i879 was basically

one of decreasing
levelsin Europe.The trendbeganin GreatBritain
tariff in thei820'S,
8 See HarryJohnson, Economic Policies Toward Less Developed Countries (New
York: PraegerI967), 90-94,for a discussionof nominalversuseffective tariffs;Bela
Belassa,Trade Liberalization among Industrial Countries (New York: McGraw-Hill
I967), chap. 3, for the problemsof determining the heightof tariffs;
and Hans 0.
Schmitt,"International MonetarySystem:Three Optionsfor Reform,"International
of tariffs
Aflairs, L (April 1974), 200, for similareffects and undervaluedexchange
rates.
 STATE POWER AND INTERNATIONAL TRADE 325
with reductionsof duties and otherbarriersto trade. In i846 the
abolitionof the Corn Laws ended agricultural protectionism. France
reduceddutieson someintermediate goods in the i830's, and on coal,
iron,and steelin i852. The Zollvereinestablishedfairlylow tariffs
in i834. Belgium,Portugal,Spain, Piedmont,Norway,Switzerland,
and Sweden loweredimpostsin the i850's. The golden age of free
tradebegan in i86o, when Britainand France signed the Cobden-
ChevalierTreaty,which virtuallyeliminatedtradebarriers.This was
followedby a seriesof bilateraltradeagreements betweenvirtually all
Europeanstates.It is important to note,however,thattheUnitedStates
tooklittlepartin thegeneralmovementtowardlowertradebarriers."
The movementtowardgreaterliberalitywas reversedin the late
i870's. Austria-Hungary increaseddutiesin i876 and i878, and Italy
also in i878; but the main breachcame in Germanyin i879. France
increasedtariffs modestlyin i88i, sharplyin I892, and raised them
stillfurtherin i910. Othercountriesfolloweda similarpattern.Only
Great Britain,Belgium,the Netherlands,and Switzerlandcontinued
to followfree-trade policiesthroughthe i88o's. AlthoughBritaindid
not herselfimposeduties,she began establishing a systemof prefer-
entialmarketsin heroverseasEmpirein i898.10The UnitedStateswas
basicallyprotectionist throughoutthe nineteenthcentury.The high
tariffsimposedduringthe Civil War continuedwiththe exceptionof
a briefperiod in the i890's. There were no major duty reductions
before1914.
During the 1920'S, tariff levelsincreasedfurther.WesternEuropean
statesprotectedtheiragrariansectorsagainstimportsfromtheDanube
region,Australia,Canada, and the United States,wherethe war had
stimulated increasedoutput.GreatBritainadoptedsomecolonialpref-
erencesin i919, imposeda small numberof tariffs in 192i, and ex-
tendedsome wartimeduties.The successorstatesof the Austro-Hun-
garianEmpireimposeddutiesto achievesomenationalself-sufficiency.
The Britishdominionsand Latin Americaprotectedindustriesnur-
tured by wartime demands. In the United States the Fordney-
9CharlesP. Kindleberger, "The Rise of Free Trade in WesternEurope 1820-1875,"
The journal of Economic History,xxxv (March 1975), 20-55; SidneyPollard,European
Economic Integration 18i5-1970 (London: Thames and Hudson 1974), 117; J. B.
Condliffe, The Commerce of Nations (New York: Norton 1950), 212-23, 229-30.
10Charles P. Kindleberger, "GroupBehaviorand International Trade," journal of
Political Economy, Vol. 59 (February1951), 33; Condliffe(fn. 9), 498; Pollard (fn.
9), 121; and Peter A. Gourevitch, Trade, DomesticCoalitions,and
"International
Liberty:ComparativeResponsesto theGreatDepressionof 1873-I896," paperdelivered
StudiesAssociation
to the Tnternational Convention,Washington, 1973.
326 WORLD POLITICS
McCumberTariffAct of 1922 increasedprotectionism. The October
RevolutionremovedRussiafromthe Westerntradingsystem."
Dramaticclosurein termsof tariff levelsbegan withthe passageof
the Smoot-HawleyTariffAct in the United Statesin i930. Britain
raised tariffsin 193i and definitively abandoned free trade at the
OttawaConference of 1932, whichintroducedextensiveimperialpref-
erences.Germanyand Japanestablished tradingblocswithintheirown
spheresof influence.All othermajor countriesfollowedprotectionist
policies.'2
Significantreductionsin protectionbegan afterthe Second World
War; theUnitedStateshad foreshadowed themovement towardgreater
liberalitywith the passage of the ReciprocalTrade AgreementsAct
tariff
in 1934. Since1945 therehavebeensevenroundsofmultilateral
The first,
reductions. held in 1947 at Geneva,and theKennedyRound,
held duringthe i960's, have been the most significant. They have
reducedthe level of protection.'3
substantially
The presentsituationis ambiguous.There have recentlybeen some
new tradecontrols.In theUnitedStatestheseincludea voluntary im-
portagreementforsteel,the impositionof a io per centimportsur-
chargeduringfourmonthsof 197i, and exportcontrolson agricultural
productsin I973 and 1974. Italyimposeda depositrequirement on im-
portsduringpartsof I974 and I975. Britainand Japanhaveengagedin
exportsubsidization.Non-tariff barriershave becomemoreimportant.
On balance,therehas been movementtowardgreaterprotectionism
sincethe end of the KennedyRound,but it is not decisive.The out-
come of the multilateralnegotiations thatbegan in 1975 remainsto
be seen.
In sum, afteri820 therewas a generaltrendtowardlower tariffs
(with the notableexceptionof the United States),which culminated
betweeni86o and i879; highertariffs fromi879 throughthe interwar
from
years,withdramaticincreasesin theI930's; and lessprotectionism
I945 through the conclusion of the Kennedy Round in i967.
TRADE PROPORTIONS

With the exceptionof one period,ratiosof tradeto aggregateeco-

nomicactivityfollowedthesame generalpatternas tarifflevels.Trade
proportionsincreasedfromthe earlypart of the nineteenthcentury
11 CharlesP. Kindelberger, The Worldin Depression(Berkeley:Universityof Cali-
forniaPress1973), '7'; Condliffe(fn. 9), 478-8i.
Economic
12Condliffe (fn. 9), 498; RobertGilpin,"The Politicsof Transnational
Relations,"International Organization,xxv (Summer 1971), 407; Kindelberger(fn.
II), 132, 171.
13JohnW. Evans, The KennedyRound in AmericanTrade Policy (Cambridge:
Press 1971), 10-20.
HarvardUniversity
 STATE POWER AND INTERNATIONAL TRADE 327
to about i88o. Betweeni88o and i900 therewas a decrease,sharperif
measuredin currentpricesthan constantones,but apparentin both
seriesformostcountries.Betweeni9oo and I91I3-and here
statistical
is the exceptionfromthe tariffpattern-therewas a markedincrease
in the ratio of trade to aggregateeconomic activity.This trend
broughttradeproportions to levelsthathave generallynot been re-
DuringtheI920's andi930's theimportance
attained. oftradeinnational
economicactivity declined.Afterthe Second World War it increased.
Diagram I presentsthesefindingsin greaterdetail.There are con-
siderabledifferencesin the movementof trade proportionsamong
states.They hold moreor less constantforthe United States;Japan,
Denmark,and Norway(thelastnotshownon thegraph) areunaffect-

70-
A Denmark
o France
- * Germany
6060
0 o~~Italy
ai /A4
A Japan,
0 Sweden H_ /
50 0 UnitedKingdom
_ *United States G

40-

30 -

20

10

1800 1820 1840 1860 1880 1900 1920 1940 1960

Source Simon Kuznets, QuantitativeAspects ofthe Economic
Growthof Nations: X. Level and Structure of Foreign Trade:
Long-TermTrends", Economic Development and Cultural
Change, XV (1967), Appendix 1. In all casesthe mid-points
of Kuznets periods were used.

DIAGRAM I. RATIO OF TRADE TO AGGREGATE ECONOMIC ACTIVITY,

NINETEENTH CENTURY-I96o, AT CURRENT PRICES
 328 WORLD POLITICS
ed bythegeneraldecreasein theratiooftradeto aggregate
economic
activity
thattakesplaceafteri88o.The patterndescribedin thepre-
viousparagraphdoes,however,holdforGreatBritain,France,Sweden,
Germany, andItaly.
DiagramII showspostwardevelopments. Becauseof theboomin

100

90

80-

70-
* Belgium
A Denmark
60 0 France
* Germany
Z0Italy
50 A Japan
* Netherlands
o Norway
40 0 United
Kingdom
* UnitedStates

30

20

10 -_
OIi X111 11111111111I ,1
I, , ,1 I ii I i lii it Ii I111 I |I|I I I XI

1950 1955 1960 1965 1970 1975

Source United Nations, Yearbook of
NotionalAccountStatistics, variousyears.

DIAGRAM II. RATIO OF TRADE TO GROSS DOMESTIC PRODUCT,

I950-I972, AT CURRENT PRICES
 STATE POWER AND INTERNATIONAL TRADE 329
commodity pricesthatoccurredin the earlyI950's, the ratioof trade
to grossdomesticproductwas relatively high forlargerstatesduring
theseyears,at leastin currentprices.It thenfalteredor remainedcon-
stantuntilabout I96o. From the earlyi960's throughI972, tradepro-
portionsroseforall majorstatesexceptJapan.Data fori973 and I974
show further increases.For smallercountriesthe trendwas more er-
ratic,with Belgiumshowinga more or less steadyincrease,Norway
vacillatingbetween82 and go per cent,and Denmarkand theNether-
lands showinghigherfiguresforthe late I950's than formorerecent
years.There is then,in currentprices,a generallyupward trendin
tradeproportions since i960, particularly
forlargerstates.This move-
mentis more pronouncedif constantpricesare used.'4

REGIONAL TRADING PATTERNS

The finalindicatorof the degreeof opennessof the global trading

systemis regionalbloc concentration. There is a naturalaffinity for
some statesto tradewith othersbecauseof geographicalpropinquity
or comparative advantage.In general,however,a systemin whichthere
are fewermanifestations of tradingwithingiven blocs, particularly
among specificgroupsof more and less developedstates,is a more
open one. Over time therehave been extensivechangesin trading
patternsbetweenparticularareas of the world whose relativefactor
endowmentshave remainedlargelythe same.
RichardChadwick and Karl Deutsch have collectedextensivein-
formation on international
tradingpatternssincei890. Their basic da-
tumis the relativeacceptanceindicator(RA), which measuresdevia-
tionsfroma null hypothesis in whichtradebetweena pairof states,or
a stateand a region,is preciselywhatwould be predictedon the basis
of theirtotalshareof internationaltrade.15
When the null hypothesis
holds,theRA indicatoris equal to zero.Values lessthanzero indicate
less tradethanexpected,greaterthanzero moretradethan expected.
For ourpurposesthecriticalissueis whether, overtime,tradetendsto
becomemoreconcentrated as shownbymovements awayfromzero,or
less as shownby movementstowardzero.
Table I presents figuresfortheyearsi890, I9I3, I928, I938, I954,
14
Figuresare availablein UnitedNations,Yearbookof NationalAccountStatistics,
variousyears.
15 RichardI. Savageand Karl W. Deutsch,"A Statistical Model of theGrossAnalysis
ofTransaction Flows,"Econometrica, xxviii (Julyi960), 551-72. RichardChadwickand
Karl W. Deutsch,in "International Trade and EconomicIntegration: FurtherDevelop-
mentsin Trade MatrixAnalysis,"Comparative PoliticalStudies,vi (April 1973), 84-
I09, make some amendments to earliermethodsof calculationwhen regionalgroup-
ingsare beinganalyzed.These are not reflected in Table I. I am indebtedto Professor
Deutschforgivingme accessto the unpublished data presentedin the table.
330 WORLD POLITICS
and i958 through i968, thesetcollectedbyChadwickandDeutsch, for
thefollowing pairsofmajorstates andregions: Commonwealth-United
Kingdom;UnitedStates-Latin America;Russia-Eastern Europe;and
France-French speaking Africa.The region's percentage of exportsto
thecountry, andthecountry's percentage ofimports fromtheregion,
areincluded alongwithRA indicators togivesomesenseoftheoverall
importance oftheparticular trading relationship.
Thereis a generalpattern. In threeofthefourcases,theRA value
closestto zero-thatis theleastregionalencapsulation-occurred in
i890, I9I3, or I928; in the fourth case (Franceand FrenchWest
Africa),theI928 valuewasnotbettered untili964. In everycasethere
was an increase in theRA indicator betweenI928 and I938, reflecting
thebreakdown of internationalcommerce thatis associated withthe
depression. Surprisingly,theRA indicator was higherforeachofthe
fourpairsin I954 thanin I938, an indicationthatregional patternsper-
sistedand evenbecamemoreintense in thepostwar period.Withthe
exception of theSovietUnionand EasternEurope,therewas a gen-
eraltrendtowarddecreasing RA'sfortheperiodafterI954. Theystill,
however, showfairly highvaluesevenin thelatei960's.
If we putall threeindicators-tariff and
levels,tradeproportions,
tradepatterns-together,theysuggestthe followingperiodization.
PeriodI (i820-i879): Increasing openness-tariffsaregenerallylow-
ered;tradeproportions Data arenotavailablefortradepat-
increase.
terns.However, itis important to notethatthisis nota universal pat-
tern.The UnitedStatesis largelyunaffected: itstarifflevelsremain
high(and arein factincreased duringtheearlyi86o's)andAmerican
tradeproportions remainalmostconstant.
PeriodII (i879-9ioo): Modestclosure-tariffs are increased;trade
proportions declinemodestly formoststates.Data arenotavailablefor
tradepatterns.
PeriodIII (1900-I9I3): Greater openness-tarifflevelsremaingen-
erallyunchanged;tradeproportions increaseforall majortrading
statesexcepttheUnitedStates.Tradingpatterns becomelessregional
in threeoutofthefourcasesforwhichdataareavailable.
PeriodIV (I9I8-I939): Closure-tariff levelsare increased in the
I920's and againin the I930's; tradeproportions decline.Tradebe-
comesmoreregionally encapsulated.
V (1945-c.
Period I970): Greatopenness-tariffs
arelowered;
trade
proportions
increase, afteri960. Regionalconcentration
particularly
 TABLE I. REGIONALTRADING PATTERNS

COMMONWEALTH TO UNITED KINGDOM LATIN AMERICA* TO UNITED STATES

Percentage Percentage Percentage

Percentage of United of Latin of United
of Common- Kingdom Im- America States Imn-
Relative wealth Exports portsfrom Relative Exportsto portsfrom
Acceptance to United Common- Acceptance United Latin
Indicator Kingdom wealth Indicator States America

1890 1.64 6.51 9.83 .14 9.86 2.91

1913 1.49 17.74 28.97 .45 19.47 8.05
1928 .72 17.55 26.49 1.27 30.21 17.41
1938 1.28 25.44 35.44 1.54 26.59 16.56
1954 1.60 18.54 38.47 2.04 42.76 19.07
1958 1.89 15.91 36.82 1.86 42.95 13.00
1959 1.77 15.78 36.79 1.68 42.87 11.66
1960 1.74 15.68 33.96 1.89 40.39 11.56
1961 1.66 14.27 33.15 2.03 39.78 11.82
1962 1.72 13.47 32.24 1.81 38.05 10.87
1963 1.62 13.06 31.67 1.84 37.02 11.13
1964 1.59 13.66 31.85 1.71 34.45 10.07
1965 1.47 11.53 27.42 1.43 32.66 9.01
1966 1.26 10.24 25.09 1.18 31.86 8.09
1967 1.08 9.82 22.90 1.13 31.47 7.26
1968 1.02 8.74 21.55 1.11 35.85 6.02
* IncludesArgentina,Bolivia,Brazil, Chile, Colombia,Ecuador,Mexico,Paraguay.

RUSSIA TO EASTERN EUROPE FRANCE TO FRENCH AFRICA

Percentage Percentage
Percentage of Russian Percentage of French
of Eastern Imports of French Imports
Relative Europe from Relative African from
Acceptance Exports to Eastern Acceptance Exports to French
Indicator Russia Europe Indicator France Africa

1890 - .42 1.04 .58 9.57 100.00 .08

1913 .07 1.07 .79 724 53.59 .89
1928 .57 1.53 5.86 5.85 39.09 3.03
1938 - .25 .70 3.75 7.22 44.12 5.02
1954 9.94 22.78 60.89 7.76 41.25 10.73
1958 8.85 23.13 55.01 7.77 41.13 8.14
1959 8.40 22.51 55.17 7.34 34.62 6.78
1960 8.48 22.73 56.08 6.87 35.16 7.15
1961 9.04 24.12 61.76 6.85 36.60 7.13
1962 9.01 2555 63.00 6.60 38.76 634
1963 9.09 26.84 65.28 6.14 38.92 5.63
1964 9.22 26.73 64.18 5.55 36.41 5.28
1965 9.44 26.00 65.68 5.48 34.19 4.86
1966 9.90 24.24 64.77 4.90 32.64 4.69
1967 9.98 25.34 67.37 3.85 26.74 3.40
1968 11.78 33.84 67.06 7.58 46.18 2.57
332 WORLD POLITICS

thesedevelopments
afteri960. However,
decreases to non-
arelimited
Communist areasoftheworld.

THE INDEPENDENT VARIABLE: DESCRIBING THE DISTRIBUTION OF

POTENTIAL ECONOMIC PowER AMONG STATES

Analysts relations
of international havean almostproformasetof
designedto showthedistribution
variables of potentialpowerin the
international system.
political It includessuchfactorsas grossnational
product,percapitaincome,geographical and size of armed
position,
forces.
A similar setofindicatorscanbe presentedfortheinternational
economicsystem.
areavailableovera longtimeperiodforpercapitaincome,
Statistics
aggregate size,shareof worldtrade,and shareof worldinvestment.
Theydemonstrate that,sincethebeginning ofthenineteenth century,
therehavebeentwofirst-rank economic powersin theworldeconomy
Britainand theUnitedStates.The UnitedStatespassedBritainin
aggregatesizesometime in themiddleofthenineteenth centuryand,
in thei88o's,becamethelargest producerofmanufactures. America's
lead was particularlymarkedin technologically advancedindustries
turning out sewingmachines, cash registers,
harvesters, locomotives,
steampumps, telephones,andpetroleum.16UntiltheFirstWorldWar,
however, GreatBritainhada higher percapitaincome, a greater
share
ofworldtrade, anda greatershareofworldinvestment thananyother
state.The peak of Britishascendance occurredaroundi88o,when
Britain's
relativepercapitaincome, shareofworldtrade,and shareof
investment flowsreachedtheirhighest levels.Britain's
potential domi-
nancein i88o and i9oo was particularlystrikingin theinternational
economic system, wherehershareoftradeandforeign investmentwas
abouttwiceas largeas thatofanyotherstate.
It wasonlyafter theFirstWorldWarthattheUnitedStatesbecame
largerand moredevelopedin termsof all fourindicators.
relatively
Thispotential dominance reachednewand dramatic heights between
I945 therelative
andi960. Sincethen, oftheUnited
position has
States
declined, bringingit quiteclosetoWestGermany,itsnearest
rival,in
termsofpercapitaincomeandshareofworldtrade.The devaluations
of thedollarthathavetakenplacesince1972 are reflectedin a con-
tinuation of thisdownward trendforincomeand aggregatesize.
The relative potentialeconomicpowerof Britainand theUnited
Statesis shownin thefollowing twotables.
16 League of Nations,Industrialization
and ForeignTrade (1945, II.A.io), 13; Mira
Wilkins,The Emergenceof Multinational Enterprise(Cambridge:HarvardUniversity
Press1970), 45-65.
 TABLE II. INDICATORS OF BRITISH POTENTIAL P
(Ratio of Britishvalue to nexthighest)

Per Capita Aggregate Shareo

Income Size WorldT
1860 .91(US) .74(US) 2.01(FR)
1880 130(US) .79(1874-83US) 2.22(FR)
1900 1.05(1899US) .58(1899US) 2.17(1890G
1913 .92(US) .43(US) 1.20(US)
1928 .66(US) .25(1929US) .79(US)
1937 .79(US) .29(US) .88(US)
1950 .56(US) .19(US) .69(US)
1960 .49(US) .14(US) .46(1958U
1972 .46(US) .13(US) .47(1973U
*Stock i870-19I3; Flow I928-i950
Years are in parentheseswhendifferent fromthosein firstcolumn.
Countriesin parentheses are thosewiththe largestvaluesfor theparticular
indicat
Source:Derivedfromfigures in Appendix.
 TABLE III. INDICATORSOF U.S. POTENTIAL PO
(Ratio ofU.S. valueto nexthighest)

Per Capita Aggregate Shareof

Income Size WorldTra
1860 1.10(GB) 1.41(GB) *36(GB)
1880 .77(GB) 1.23(1883GB) .37(GB)
1900 .95(1899GB) 1.73(1899GB) .43(1890G
1913 1.09(GB) 2.15(RUS) .83(GB)
1928 1.51(GB) 3.22(USSR) 1.26(GB)
1937 1.26(GB) 2.67(USSR) 1.13(GB)
1950 1.78(GB) 3.15(USSR) 1.44(GB)
1960 2.05(GB) 2.81(USSR) 2.15(1958G
1972 1.31(GERM) n.a. _ 1.18(1973G
whendifferent
Yearsarein parentheses column.
fromthosein first
are thosewiththe largestvaluesfor theparticularindicat
Countriesin parentheses
Source:Derivedfromfiguresin Appendix.
 STATE POWER AND INTERNATIONAL TRADE 335

In sum,Britain
was theworld'smostimportant
tradingstatefrom
theperiod aftertheNapoleonicWars untili9I3. Her relativeposition
rose until about i88o and fell thereafter.
The United Statesbecame
thelargestand mostadvancedstatein economictermsafterthe First
World War, but did not equal the relativeshareof world tradeand
investment achievedby Britainin the i88o's until afterthe Second
World War.
TESTING THE ARGUMENT

The contention thathegemonyleads to a moreopen tradingstruc-

tureis fairlywell, but not perfectly, confirmedby the empiricalevi-
dence presentedin theprecedingsections.The argumentexplainsthe
periodsi820 to i879, i88o to i900, and I945 to i960. It does not fully
explainthosefromi900 to I9I3, I919 to i939, or I96o to thepresent.
1820-879. The periodfromi820 to i879 was one of increasing open-
ness in the structureof international trade.It was also one of rising
hegemony.GreatBritainwas the instigator and supporter of the new
structure.She began loweringher tradebarriersin the i820's, before
any otherstate.The signingof the Cobden-Chevalier TariffTreaty
withFrancein i86o initiateda seriesof bilateraltariffreductions. It is,
however,important to notethattheUnitedStateswas hardlyinvolved
in thesedevelopments, and thatAmerica'sratioof tradeto aggregate
economicactivitydid not increaseduringthe nineteenth century.
Britainputto use herinternalflexibilityand externalpowerin secur-
ing a moreopen structure. At thedomesticlevel,opennesswas favored
by the risingindustrialists.The oppositionof the agrariansectorwas
mitigatedby itscapacityforadjustment:therateof capitalinvestment
and technologicalinnovationwas highenoughto preventBritishagri-
culturalincomesfromfallinguntilsomethirty yearsaftertheabolition
of theCornLaws. Symbolically, theManchester Schoolled by Cobden
and Brightprovidedtheideologicaljustification forfreetrade.Its influ-
encewas feltthroughout EuropewhereBritainstoodas an exampleto
at leastsome members of the elite.
Britainused her militarystrengthto open many backwardareas:
Britishinterventions were frequentin Latin America during the
nineteenth century,and formaland informalcolonialexpansionopened
theinteriorof Africa.Most importantly, BritainforcedIndia intothe
internationaleconomicsystem."7 Britishmilitarypowerwas also a fac-
torin concludingthe Cobden-Chevalier Treaty,for Louis Napoleon
17 JohnGallagherand Ronald Robinson,"The Imperialismof Free Trade," Eco-
nomic HistoryReview,2nd Series,vi (AugustI953), I-I5.
336 WORLD POLITICS
was moreconcerned withcementing his relations withBritainthan
he was in theeconomicconsequences of greater openness. Once this
pactwas signed,however, it becamea catalyst forthe manyother
treaties
thatfollowed.18
Britainalso put economicinstruments to good use in creating an
opensystem. The abolition oftheCornLawsoffered continental grain
producers the incentive of continued accessto the growingBritish
market. Britain wasattheheartofthenineteenth-century international
monetary system whichfunctioned exceptionally well,at leastforthe
coreofthemoredeveloped statesandtheareascloselyassociated with
them.Exchangerateswerestable,and countries did nothaveto im-
posetradebarriers to rectify cyclicalpayments difficulties.Bothcon-
fidenceand liquidity were,to a criticaldegree,provided by Britain.
The useof sterling balancesas opposedto speciebecameincreasingly
widespread, alleviatingtheliquidity problems presented bytheerratic
production of gold and silver.Foreignprivateand centralbanksin-
creasingly placedtheircashreserves in London,and accountswere
clearedthrough changing bankbalancesrather thangoldflows. Great
Britain'sextremely sophisticated financialinstitutions,centered in the
CityofLondon,provided theshort-term financing necessary to facili-
tatetheinternational flowofgoods.Herearlyandsomewhat fortuitous
adherence tothegold-as opposedtothesilverorbimetallic-standard
provedtobe an important sourceofconfidence as all countries adopted
at leasta de factogold standard afteri870 becauseof thedeclining
relativevalueofsilver. In timesofmonetary emergency, theconfidence
placedin thepoundbecauseofthestrength oftheBritish economy al-
lowedtheBankofEnglandto be a lenderoflastresort.19
Hence,forthefirst three-quarters ofthenineteenth century, British
policyfavored an openinternational trading structure, andBritish pow-
erhelpedtocreateit.Butthiswasnota globalregime. British resources
werenotsufficient to enticeor compeltheUnitedStates(a country
whoseeconomy waslargerthanBritain's byi86oandwhosetechnology
wasdeveloping veryrapidly)to abandonitsprotectionist commercial
policy.As a state-power argument suggests,openness was onlyestab-
18 (fn.9), 41.
Kindleberger
19Robert Triffin,The Evolution of the International Monetary System (Princeton:
PrincetonStudiesin International Finance,No. i2, I964), 2-20; R. G. Hawtrey,The
Gold Standard in Theoryand Practice (London: Longmans, Green I947), 69-80; Leland
Yeager,InternationalMonetary Relations (New York: Harper and Row i966), 251-61;
Sidney E. Rolfe and James Burtle, The Great Wheel: The World Monetary System,a
Reinterpretation(New York: QuadrangleI973), io-ii; Condliffe (fn. 9), 343-80.
 STATE POWER AND INTERNATIONAL TRADE 337

lishedwithinthegeographical areawheretherisingeconomichege-
monywasableto exercise itsinfluence.
i88o-i900. The lasttwodecadesof thenineteenth century werea
periodof modestclosurewhichcorresponds to a relativedeclinein
British percapitaincome,size,and shareof worldtrade.The event
thatprecipitated highertariff levelswastheavailability ofinexpensive
grainfromtheAmerican Midwest, madepossible bytheconstruction
ofcontinental railways.Nationalresponses varied.Britain letheragri-
culturalsectordecline,a notunexpected development givenherstill
dominant economicposition. Denmark,a smalland relatively well-
developed state,alsorefrainedfrom imposing tariffsandtransformed its
farming sectorfromagriculture to animalhusbandry. Severalother
smallstatesalsofollowed openpolicies. Germany, France,Russia,and
Italyimposed highertariffs,however. Britaindidnothavethemilitary
oreconomic powertoforestall thesepolicies. struc-
Still,theinstitutional
tureoftheinternational monetary system, withtheCityofLondonat
its center,did not crumble.The declinein tradeproportions was
modest despite highertariffs.
i945-I960.The third periodthatisneatly explained bytheargument
thathegemony leadsto an opentradingstructure is thedecadeand
a-halfaftertheSecondWorldWar,characterized by theascendancy
of theUnitedStates.Duringtheseyearsthestructure of theinterna-
tionaltrading system becameincreasingly open.Tariffs werelowered;
tradeproportions wererestored wellaboveinterwar levels.Asymmetri-
cal regionaltrading patterns did beginto decline,although notuntil
thelatei950's. America's bilateral rival,theSovietUnion,remained-
as the theorywouldpredict-encapsulated withinits own regional
sphereof influence.
UnlikeBritainin the nineteenth century, the UnitedStatesafter
WorldWarII operated in a bipolarpolitical structure. Freetradewas
preferred, butdepartures suchas theCommonMarketand Japanese
importrestrictions wereacceptedto makesurethattheseareasre-
mainedwithin the generalAmerican sphere ofinfluence.20 Domestical-
lytheReciprocal TradeAgreements Act,firstpassedin 1934, was ex-
tendedseveraltimesafterthewar.Internationally theUnitedStates
supported theframework fortariff reductionsprovided bytheGeneral
Agreement on Tariffsand Trade. American policy makers usedtheir
economic leverage overGreatBritainto forcean end to theimperial
20 RaymondAron, The ImperialRepublic (Englewood Cliffs,N.J.: Prentice-Hall
1973), I9i; Gilpin(fn. 12), 409-I2; Calleo and Rowland(fn. 6), chap. 3.
338 WORLD POLITICS
preference The monetary
system.2" systemestablished Woods
at Bretton
was basicallyan Americancreation.In practice,liquiditywas provided
by theAmericandeficit;confidence by thesize of theAmericanecon-
omy.Behindtheeconomicveil stoodAmericanmilitary for
protection
marketeconomies-anoverwhelming
otherindustrialized for
incentive
themto acceptan open system,particularly one which was in fact
beneficial.
relatively

betweenhegemonyand open-
The argumentaboutthe relationship
fortheyears1900 to 1913, I919 to i939, and
nessis notas satisfactory
i960 tothepresent.
I900-I9I3. preceding
Duringtheyearsimmediately theFirstWorld
War, the structureof international
tradebecamemoreopen in terms
of tradeproportions Britainremainedthelargest
and regionalpatterns.
economicentity,
international butherrelativepositioncontinueda de-
clinethathad beguntwo decadesearlier.Still,Britainmaintainedher
commitment of the City
to freetradeand to the financialinstitutions
of London. A state-power argumentwould suggestsome reconsidera-
tionof thesepolicies.
Perhapsthesimplestexplanationfortheincreasein tradeproportions
was theburstofloansthatflowedoutof Europein theyearsbeforethe
FirstWorldWar,loansthatfinancedtheincreasingsale of goods.Ger-
manyand Franceas well as Britainparticipated in thisdevelopment.
Despitethe highertariff struc-
levelsimposedafteri879, institutional
tures-particularlythe monetarysystem-allowedthesecapital flows
to generateincreasingtradeflows.Had Britainreconsidered her poli-
cies,thismightnothave been thecase.
I9I9-I939. fromtheFirstWorldWaras
The UnitedStatesemerged
theworld'smostpowerfuleconomicstate.WhetherAmericawas large
enoughto have put an open systemin place is a moot question.As
Tables II and III indicate,America'sshareof world tradeand invest-
mentwas only26 and 55 per centgreaterthanthatof any otherstate,
whilecomparablefiguresforGreatBritainduringthe lastpartof the
nineteenth centuryare ioo per cent.What is apparent,though,is that
Americanpolicymakersmade littleeffortto open the structure of
international not a
trade.The call foran open door was a shibboleth,
policy.It was reallythe Britishwho attemptedto continuea hege-
monicrole.
In the area of trade,the U.S. Fordney-McCumber Tariffof 1922
EconomicAspectsof New Deal Diplomacy(Madison: University
21 Lloyd Gardner,
of WisconsinPressi964), 389; Gilpin (fn. 12), 409.
 STATE POWER AND INTERNATIONAL TRADE 339
increasedprotection. That tendency was greatlyreinforced by the
Smoot-Hawley Tariffof i930 whichtouchedoffa waveofprotective
Insteadof leadingthewayto openness,
legislation. theUnitedStates
led thewayto closure.
In themonetary area,theAmerican government madelittleeffort
to altera situationthatwas confused and oftenchaotic.Duringthe
firsthalfofthei920's, exchange widelyamongmajor
ratesfluctuated
currenciesas countrieswereforced,bytheinflationary pressuresofthe
war,to abandonthegoldstandard. Convertibilitywas restored in the
mid-twenties at valuesincompatiblewithlong-term equilibrium. The
Britishpoundwasovervalued, andtheFrenchfrancundervalued. Bri-
tainwasforcedoffthegoldstandard in September 193i, accelerating
a trendthathadbegunwithUruguay in Aprili929. The UnitedStates
wentoffgoldin 1933. France'sdecisionto end convertibility in 1936
completed thepattern. Duringthe I930's the monetary system col-
lapsed.22
Constructing a stablemonetary orderwouldhavebeenno easytask
in the politicalenvironment of the i920's and 1930's. The United
Statesmadeno effort. Itrefused torecognize a connection between war
debtsand reparations, althoughmuchof thepostwarflowof funds
tooktheformofAmerican loanstoGermany, Germanreparations pay-
mentsto Franceand Britain, and Frenchand British war-debt pay-
mentstotheUnitedStates.The greatdepression wasin no smallmea-
suretouched offbythecontraction ofAmerican creditinthelatei920's.
In thedeflationary collapsethatfollowed, theBritish weretoo weak
to actas a lenderof lastresort, and theAmericans actuallyundercut
to reconstruct
efforts theWestern economy when,beforetheLondon
Monetary Conference of 1933, President Roosevelt changedthebasic
assumptions of the meetingby takingthe UnitedStatesoffgold.
American concern waswhollywithrestoring thedomestic economy.23
Thatis nottosaythatAmerican behavior wasentirely obstreperous;
but cooperation was erraticand oftenprivate.The FederalReserve
BankofNew Yorkdid try,duringthelatei920's, to maintain New
Yorkinterest ratesbelowthosein Londonto protect thevalueof the
pound.24 Two Americans, Dawes and Young,lenttheirnamesto the
renegotiationsofGermanreparations payments, butmostoftheactual
workwascarried outbyBritish At theofficial
experts.25 level,thefirst
(fn. iv), 22-28; Rolfeand Burtle(fn. I9),
22 Triflin 13-55; Yeager (fn. I9), 278-317;
Kindleberger (fn. II), 270-71.
23 Kindleberger (fn. II), 199-224; Yeager (fn. 19), 314; Condliffe(fn. 9), 499.
24 Triflin
(fn. i9), 22.
25 Kindleberger (fn. i i), 296.
340 WORLD POLITICS
manifestation of Americanleadershipwas PresidentHoover'scall for
a moratorium on war debtsand reparations in June1931; but in I932
the United Statesrefusedto participatein the Lausanne Conference
thatin effectended reparations.26
thatthe UnitedStatesassertedany
It was not untilthe mid-thirties
real leadership.The ReciprocalTrade Agreements Act of I934 led to
bilateraltreatieswith twenty-seven countriesbeforeI945. American
concessionscovered64 per cent of dutiableitems,and reducedrates
by an averageof 44 per cent.However,tariffs were so high to begin
withthatthe actual impactof theseagreementswas limited.27 There
werealso somemodeststepstowardtariff liberalizationin Britainand
France.In the monetaryfield,the UnitedStates,Britain,and France
pledgedto maintainexchange-rate stabilityin the TripartiteDeclara-
tionof September1936. These actionswere not adequateto createan
open international economicstructure. Americanpolicy during the
interwar beforethemid-thirties,
period,and particularly failsto accord
with the predictionsmade by a state-power explanationof the be-
haviorof a risinghegemonicpower.
i96o-present.The finalperiodnot adequatelydealt withby a state-
powerexplanationis thelastdecadeor so. In recentyears,therelative
size and level of developmentof the U.S. economyhas fallen.This
declinehas not,however,been accompaniedby a clear turntoward
protectionism.The Trade ExpansionAct of i962 was extremely liberal
and led to the verysuccessfulKennedyRound of multilateraltariff
cuts duringthe mid-sixties. The protectionist Burke-HartkeBill did
not pass. The i974 Trade Act does includenew protectionist aspects,
particularlyin its requirements for review of the removal of non-
tariffbarriersby Congressand forstiffer requirements forthe imposi-
tion of countervailing duties,but it still maintainsthe mechanism
of presidentialdiscretionon tariffcuts thathas been the keystoneof
postwarreductions. While theVoluntarySteelAgreement, theAugust
197i economicpolicy,and restrictions on agricultural exportsall show
a tendencytowardprotectionism, thereis as yetno evidenceof a basic
turnaway froma commitment to openness.
In termsof behaviorin theinternational tradingsystem, the decade
of the I96o's was clearlyone of greateropenness.Trade proportions
increased,and traditionalregionaltrade patternsbecame weaker.A
state-power argumentwould predicta downturnor at leasta faltering
in theseindicatorsas Americanpower declined.
26 Condliffe
(fn.9), 494-97.
27 Evans(fn.13), 7.
 STATE POWER AND INTERNATIONAL TRADE 341
In sum,althoughthegeneralpatternof thestructureof international
tradeconformswith the predictions of a state-power
argument-two
periodsof opennessseparatedby one of closure-correspondingto pe-
riodsof risingBritishand Americanhegemonyand an interregnum,
thewholepatternis outofphase.Britishcommitment to opennesscon-
tinuedlong afterBritain'spositionhad declined.Americancommit-
mentto opennessdid not beginuntilwell afterthe UnitedStateshad
becometheworld'sleadingeconomicpowerand has continuedduring
a periodofrelativeAmericandecline.The state-powerargumentneeds
to be amendedto takethesedelayedreactionsintoaccount.

AMENDING THE ARGUMENT

The structure of the internationaltradingsystemdoes not move in

lockstepwith changesin the distribution of potentialpower among
states.Systemsare initiatedand ended, not as a state-power theory
wouldpredict,by closeassessments of theinterestsof thestateat every
givenmoment,but by externalevents-usuallycataclysmic ones.The
closurethatbegan in i879 coincidedwiththeGreatDepressionof the
lastpartof thenineteenth century.The finaldismantling of the nine-
teenth-century international economicsystemwas not precipitated by
a changein Britishtradeor monetary policy,but by the FirstWorld
War and the Depression.The potatofamineof the i840's prompted
abolitionof the Corn Laws; and the United Statesdid not assume
the mantleof worldleadershipuntilthe worldhad been laid bare by
six yearsof totalwar. Some catalyticexternaleventseemsnecessary
to movestatesto dramaticpolicyinitiatives in line withstateinterests.
Once policieshave been adopted,theyare pursueduntila new crisis
demonstrates thattheyare no longerfeasible.Statesbecomelockedin
by the impactof priorchoiceson theirdomesticpoliticalstructures.
The Britishdecisionto opt for opennessin i846 correspondedwith
stateinterests.It also strengthenedthepositionof industrialand finan-
cial groupsovertime,becausetheyhad theopportunity to operatein an
international systemthatfurthered theirobjectives.That systemeven-
tuallyunderminedthepositionof Britishfarmers, a groupthatwould
have supportedprotectionism if it had survived.Once entrenched,
Britain'sexportindustries, and moreimportantly the Cityof London,
resistedpoliciesof closure.28 In the interwaryears,the Britishrentier
class insistedon restoring theprewarparityof the pound-a decision
28 RobertGilpin,American Power and the Multinationals: The Political Economy of
Foreign Investment (New York: Basic Books 1975), chap. 3; Kindleberger(fn. ii),
294.
342 WORLD POLITICS
thatplacedenormous deflationary on thedomestic
pressures economy-
becausetheywantedtoprotect thevalueoftheirinvestments.29
Institutions
created duringperiodsofrisingascendancy remained in
operationwhentheywereno longerappropriate. For instance, theor-
ganizationof Britishbankingin the nineteenth century separated
domestic and foreign operations. The CourtofDirectors of theBank
of Englandwas dominated by internationalbankinghouses.Their
decisionsaboutBritish monetary policyweregearedtowardtheinter-
nationaleconomy.30 Undera different institutional
arrangement more
mighthavebeengivenafteri900 totheneedtorevitalize
attention the
domesticeconomy. The British statewasunableto free itselffrom the
domestic structuresthatitsearlierpolicydecisions had created, and
continued to followpoliciesappropriate fora risinghegemony long
afterBritain'sstarhad begunto fall.
Similarly,earlierpoliciesin theUnitedStatesbegatsocialstructures
andinstitutionalarrangements thattrammeled statepolicy.Afterpro-
tectingimport-competing industries fora century, theUnitedStates
was unablein the 1920'S to optformoreopenpolicies,eventhough
wouldhavebeenfurthered
stateinterests thereby. Institutionally,deci-
sionsabouttariff reductions weretakenprimarily in congressional
committees, givingvirtually anygroupseeking protection easyaccessto
thedecision-making process. Whentherewereconflicts amonggroups,
theywereresolved byraisingthelevelsof protection foreveryone. It
wasonlyafter thecataclysm ofthedepression thatthedecision-making
processesfortradepolicywerechanged.The Presidency, farmore
insulated fromtheentreaties societalgroupsthancon-
of particular
gressionalcommittees, wasthengivenmorepower.3' Furthermore, the
American commercial bankingsystem was unableto assumethebur-
denofregulating theinternational economy duringtheI920'S. Ameri-
can institutions
weregearedtowardthedomestic economy. Onlyafter
the SecondWorldWar, and in factnot untilthe late i950's, did
American banksfullydevelopthecomplex institutionalstructurescom-
mensurate withthedollar'srolein theinternational monetary system.32
21Yeager(fn.19), 279-
30 Condliffe(fn.9), 347.
31 This draws fromarguments made by Theodore Lowi, particularly his "Four
Systemsof Policy,Politicsand Choice,"Public Administration Review,xxxii (July-
Politics,Pressures
August1972), 298-310. See also E. E. Schattschneider, and the Tarifi:
A StudyofFree Enterprise in PressurePoliticsas Shownin the I929-I930 Revisionof
the Tariff(New York: Prentice-Hall 1935).
32 See JanetKelly,"AmericanBanksin London,"Ph.D. diss. (JohnsHopkinsUni-
versity1975), fora studyof theoverseasexpansionof Americanbanksin thepostwar
period.
 STATE POWER AND INTERNATIONAL TRADE 343
Havingtakenthecritical
decisions an opensystem
thatcreated after
I945, theAmericanGovernment is unlikelyto changeits policyuntil
it confrontssomeexternaleventthatit cannotcontrol,suchas a world-
wide deflation, droughtin the greatplains,or the malicioususe of
petrodollars.In Americaperhapsmorethanin anyothercountry "new
policies,"as E. E. Schattschneider wrotein his brilliantstudyof the
Smoot-HawleyTariffin i935, "createnew politics,"33 forin America
thestateis weak and thesocietystrong.34 Statedecisionstakenbecause
of stateinterests reinforceprivatesocietalgroupsthatthestateis unable
to resistin laterperiods.Multinationalcorporations have grownand
prosperedsincei950. International economicpolicymakinghas passed
fromthe Congressto the Executive.Groupsfavoringclosure,such as
organizedlabor,areunlikelyto carrythedayuntilsomeexternalevent
demonstrates thatexistingpoliciescan no longerbe implemented.
The structure of internationaltrade changesin fitsand starts;it
doesnotflowsmoothly withtheredistribution of potentialstatepower.
Nevertheless, it is thepowerand thepoliciesof statesthatcreateorder
wheretherewould otherwisebe chaos or at best a Lockian stateof
nature.The existenceof varioustransnational, multinational, trans-
governmental, and othernonstateactorsthathave rivetedscholarlyat-
tentionin recentyearscan onlybe understoodwithinthecontextof a
broaderstructure thatultimatelyrestsupon the power and interests
of states,shackledthoughtheymay be by the societalconsequences
of theirown pastdecisions.
33Schattschneider(fn.31), 288.
34See PeterJ. Katzenstein, "Transnational For-
Relationsand DomesticStructures:
eign EconomicPolicies of AdvancedIndustrialStates,"InternationalOrganization,
xxx (Winter1976), fora suggestive discussionof the impactof the relativepowerof
stateand societyon foreigneconomicpolicy.See also Samuel P. Huntington, "Para-
digmsof AmericanPolitics:Beyondthe One, the Two, and the Many,"PoliticalSci-
PoliticalOrderin
Vol. 89 (March i974), i6-17, as well as Huntington,
ence Quarterly,
ChangingSocieties(New Haven: Yale University PressI968), chap. 2.
 APPENDIX

.I PER CAPITA INCOME

United United
Year Indicator Unit Kingdom States
1. 1860 RealProduct/P IU's* 325(1870) 357
2. 1883 " " 380 292(1874-83)
3. 1899 GDP/P 1955$ 830 790
4. 1913 920 1,000
5. 1929 915 1,380
6. 1937 1,055 1,330
7. 1950 1,085 1,940
8. 1955 1,245 2,195
9. 1957 1,280 2,185
10. 1960 Current$ 1,368 2,817
11. 1963 1,586 3,151
12. 1969 1,987 4,578
13. 1972 2,472 5,551
 I.2 AGGREGATE ECONOMIC SIZE

Great United
Year Indicator Unit Britain States F
1. 1860 Real Income millionsIU's* 8.34(1870) 11.25 4
2. 1874-83 " " 11.55(1883) 14.23 5
3. 1899 GDP billions1955$ 34.0 59.0 1
4. 1913 " " 42.0 97.0 1
5. 1929 " " 42.0 168.0 2
6. 1937 " " 50.0 171.0 2
7. 1950 " " 54.7 294.0 3
8. 1955 63.5 362.5 4
9. 1957 66.0 376.0 4
10. 1960 billions
current
$ 71.2 509.0 6
11. 1963 84.6 596.0 8
12. 1969 109.7 928.0 14
13. 1972 153.0 1,159.0 19
*IU's (International
Units): Quantityof goods exchangeableon theaveragefor$i i
Dates are in parentheses
whendifferent fromthosein firstcolumn.
SourcesforI.i and 1.2:
Lines I-2: ColinClark,The ConditionsofEconomicProgress(London: Macmillan19
Lines 3-9: AlfredMaizels,IndustrialGrowthand WorldTrade (Cambridge:Cambr
Lines IO-I3: UnitedNationsStatistical
YearbookI974,596-98.
 1.3 AGGREGATE ECONOMIC SIZE AND PER CAPITA INCOME

AggregateEconomicSize
Year Unit USS.R. UnitedStates GreatBritain
1. 1913 billions
IU's* 22.3 48.0(1914) 20.39
2. 1928 " 25.5 82.3 22.50
3. 1932 22.3 61.5 21.36
4. 1937 33.95 90.7 27.56
5. 1938 34.9 86.1 26.70
6. 1940 41.0 103.0 30.48
7. 1951 54.1 170.7 30.16
8. 1958 billions
$ 144.8 406.6 n.a.
Per CapitaIncome
Year Unit U.S.S.R. UnitedStates GreatBritain
9. 1913 IU's* 161 508(1914) 530
10. 1928 " 168 686 535
11. 1932 " 141 499 513
12. 1937 " 206 707 637
13. 1938 " 207 666 624
14. 1940 " 236 789 n.a.
15. 1951 " 267 1,122 597
16. 1958 U.S.$ 700 2,324 n.a.
* IU's (InternationalUnits): Quantityof goods exchangeable on the averagefor$i
in theU.S. during1925-34.
Sources:Lines 1-7, 9-15: Colin Clark,The Conditionsof EconomicProgress(Lon-
don: Macmillan,1957), chap. IV, Table 23; chap. III, Table 40.
Lines 8, i6: SimonKuznets,PostwarEconomicGrowth(Cambridge:HarvardUni-
versityPressI964), 29.

1.4 PERCENTAGE OF SHARE OF WORLD TRADE

United United
Years Kingdom* France Germany Russia States** Japan
1720,1750,1780 14.1 9.7 10.2 9.4 1.0 n.a.
1820,1830 21.6 9.9 11.5 6.7 6.0 n.a.
1830,1840 20.8 10.8 10.2 6.4 6.3 n.a.
1840,1850 20.1 11.4 8.8 5.3 7.3 n.a.
1850,1860 22.7 11.3 8.6 4.0 83 n.a.
1860,1870 25.1 10.8 9.2 4.0 8.3 n.a.
1870,1880 24.0 10.8 9.7 45 8.8 n.a.
1880,1890 22.4 10.2 103 3.9 9.8 n.a.
1913 15.5 73 12.1 12.8 12.9 n.a.
1928 13.7 6.1 93 8.3 17.3 n.a.
1937 14.1 4.8 83 7.4 16.0 5.1
1950 11.6 53 4.1 n.a. 16.7 1.6
1958 9.3 5.0 7.5 3.9 20.0 2.7
1969 7.0 6.0 10.0 2.0 15.0 6.0
1973 9.0 9.0 16.0 2.0 19.0 9.0
*
UnitedKingdomand Ireland.
1913-1937
* NorthAmerica.
1913-1937
Sources:1720-1937: SimonKuznets,ModernEconomicGrowth(New Haven: Yale
UniversityPress I966), 306-o8.
1950-1973: MonetaryFund, Directionof Trade, variousyears; and
International
Trade Statistics,
UnitedNations,Yearbookof International variousyears.
 STATE POWER AND INTERNATIONAL TRADE 347

1.5FOREIGN INVESTMENT

GrossForeignInvestment Outstanding
(billionsofdollars)
United United
Year Kingdom France Germany States
c. 1874 4.6 n.a. n.a. n.a.
1880 5.8 3.0 1.2 n.a.
1890 9.5 4.0 2.8 n.a.
1900 11.7 5.6 3.4 n.a.
1914 183 8.7 5.6 3.5
N.B. Throughoutthisperiodthe U.S. was a net capitaldebtor,except
forthe years1900-1905.

ShareofMajor Creditorsin
Flow ofForeignCapitalInvestment
(percentages)
United United
Years Kingdom France Germany States
1921-29 27.7 21.8 netdebtor 43.0
1930-38 14.1 13 " " 78.1
1951-55 10.5 2.5 2.2 78.4
1956-61 10.2 62 9.2 67.4
Sources:SimonKuznets,ModernEconomicGrowth(New Haven: Yale University
Press I966), 322-23; for 1914, Mira Wilkins,The Emergenceof Multinational
Enter-
prise(Cambridge:HarvardUniversity Press1970), 201.