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International Trade and Finance

Notes during successive rounds of the GATT. A fuller understanding is therefore needed of the factors that
account for variations in NTBs across states.
10.1 Societal Approaches to Trade Policy

Societal (or pluralist) approaches to the study of foreign economic policy focus primarily on the
effects of demands for protection by pressure groups. Societal explanations consider trade policy to
be the product of competition among pressure groups and other nonstate actors that are affected by
commerce. The impact of these groups on policy depends largely on their ability to organize for the
purpose of articulating their demands and on the amount of electoral influence they possess. Societal
approaches attribute little importance to policymakers and political institutions for the purposes of
explaining trade policy. As G. John Ikenberry, David Lake, and Michael Mastanduno point out,
societal theories view the state as “essentially passive; it acts as a disinterested referee for competing
groups, and supplies policies to satisfy the demands of successful domestic players.”
Societal approaches to the study of trade policy characterize much of the literature on endogenous
protection. Empirical studies of this sort infer the demands for protection based on macroeconomic
and/or sectoral fluctuations. Most analyses of endogenous protection conducted by political scientists
have been cast at the sectoral level. A large and growing body of literature, however, centers on the
macroeconomic determinants of protection. Much of this research supports the view advanced by
certain societal theories that macroeconomic fluctuations strongly influence pressures for protection.
Therefore we focus our societal analysis of NTBs on macroeconomic factors.
Chief among the macroeconomic variables that these studies emphasize are unemployment and the
real exchange rate. It is widely accepted by analysts of trade policy that high levels of unemployment
contribute to demands for protection. Widespread unemployment increases the costs to workers of
adjusting to rising import levels. Workers who are displaced by imports will find it progressively
more difficult to obtain alternative employment, and when they do, downward pressure will be
placed on their wages. Together these factors promote pressures to restrict the flow of imports.
In addition to unemployment, variations in the exchange rate are expected to give rise to protectionist
pressures. In fact, Rudiger Dornbusch and Jeffrey Frankel argue that “hypotheses concerning the
exchange rate may be the most important macroeconomic theories of protection.”

“Conventional wisdom suggests that high levels of unemployment are the single
most important source of protectionist pressures.”

Central to the effects of the exchange rate on demands for protection is the influence of the price of a
state’s currency on the competitiveness of its exports and its import-competing products. An
appreciated currency, by increasing the price of domestically produced goods, threatens to undermine
both exports and import-competing sectors of the economy. As C. Fred Bergsten and John Williamson
point out in a related context, these developments are likely to contribute to “pressure that is generated
for protectionist measures. Export and import-competing firms and workers will tend to seek help
from their governments to offset these distortions, which undermine their ability to compete, with
some degree of legitimacy since the distortions are accepted—in some cases, even fostered—by those
governments. Coalitions in support of trade restrictions will be much easier to form, and much broader
in their political clout, because no longer will only the most vulnerable firms and workers be seeking
help—and no longer will the countervailing pressures from successful exporters be as effective.”
Public officials in liberal democracies are expected to meet demands for protection that arise due to
high levels of unemployment and an appreciated currency because these variables influence the
voting behavior of constituents. There is evidence that voters cast ballots on the basis of their personal
economic circumstances, especially if they are recently unemployed. However, substantial evidence
also indicates that voters cast ballots on the basis of macroeconomic conditions, regardless of whether
they are directly affected by these conditions. In fact, some studies have concluded that macroeconomic

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