Horowitz: Restarting Globalization after World War II

S Horowitz, “Restarting Globalization after World War II: Structure, Coalitions, and the Cold War,” Comparative Political Studies 37, no. 2 (2004): 127.

"The present period of economic globalization originated following World War II. Given the strongly protectionist tendencies prevailing at the time, how did this happen?" (127).

Trade protectionism is examined in the five largest trading countries.

"'Economic globalization' can be defined as an increase in the values of international trade and investment as a share of the value of total output over a given time period. It can be measured for the world economy as well as for individual national economies" (127; from Footnote 1).

"There are two basic explanatory approaches in the international trade policy literature. One emphasizes endogenous tariff formation in response to the changing relative size and political power of protectionist and free-trading interest groups...Another emphasizes how military externalities of trade can lead countries to modify trade policies in an effort to strengthen allies or to strengthen themselves relative to their enemies" (128).

How does a world war affect international patterns of trade? Firstly, and obviously, there is a decrease in trade among countries who are in contention with one another. This will bring about competition among sectors who previously competed with these exports to grow and the total amount of exports to contract. This will bring about a tendency towards protectionist measures. Additionally, foreign finance patterns will change.

"In the period after World War II per se, one would expect the structural effects through production- and trade-diversion and changes in foreign investment stocks to be relatively limited. This is because similar shocks due to World War I and the Depression had already pushed a once extensive international division of labor and investment network a long way back toward national self-sufficiency and exclusive trading blocs. On the other hand, the same reasoning implies that initial conditions should strongly favor protectionist sectoral coalitions. Given the postwar strength and scope of exchange and trade controls, exchange rate overvaluation and undervaluation would also be expected to have more limited impacts on sectoral competitiveness" (132). The above two paragraphs are summarized in Hypothesis 1.

The second and third hypotheses involve the relationship between military explanations and trade patterns. The second suggests that, if there is a positive relationship between military expenditures and free trade, this will further buttress policies after the war for expanded trade. Hypothesis 3 states the opposite: that if there are negative relationships between the military and trade, this will stifle trade, at least in the affected sectors.

"Some related features of the political mechanism and process should also be kept in mind. One is that coalitions will not necessarily form in a way that pits all protectionist industries against all free-trading industries" (134). This leads to the fourth hypothesis: "Coalitional side payments, economic ideologies, fragmentation of institutional power, and international economic institutions may have additional effects on the relative size and effectiveness of protectionist and free trading political forces" (136).

"The most important factors influencing post-World War II trade policy changes in the five large trading states can now be summarized. Beginning with World War I and continui9ng through the Depression and World War II, structural economic changes played a central role in reversing the pre-World War I tide of globalization. But these protectionist structural economic tendencies were least advanced in the most capital intensive economies of the United States and FRG. During and after World War II, the most important changes in the balance of power between protectionist and free-trading coalitions were produced not by uneven structural economic changes but rather by side payments to agriculture in the United States and the FRG. However, strong military interests in free trade with allies best explain the unilateral form of US and FRG trade policy liberalization" (146).