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International Trade and Finance

Notes an important determinant of NTBs, then their incidence should be greatest in large states characterized
by (1) high levels of unemployment and appreciated currencies and (2) political institutions that
bolster the insulation and autonomy of public officials with respect to pressure groups. As noted
above, deteriorating macroeconomic conditions elicit demands for protection, and public officials
who fail to respond to these demands may suffer accordingly in subsequent elections. Further, in
contrast to small states, large states often have an incentive to impose protection; and public officials
that are well-insulated and vested with considerable autonomy will be in a position to act on those
incentives, and would be expected to do so.
A high degree of institutional insulation and autonomy is essential in this regard. Although we
expect high levels of unemployment and appreciated currencies to yield widespread demands for
protection, some societal groups are likely to retain an interest in lower trade barriers. These groups
include multinational corporations, industries that depend on or are highly sensitive to the price of
imports, and industries that depend on exports and fear either that increases in protection by their
government will elicit retaliation by foreign governments or that protection will reduce foreign exports
and hence the ability of foreign consumers to purchase their imports. Moreover, in a study of U.S.
trade policy, I. M. Destler and John Odell found that the political pressure exerted by these
antiprotectionist forces increased during those periods when macroeconomic downturns led to broad-
based societal pressures for protection. Their influence, like that of other societal groups, depends on
the structure of domestic institutions. Thus, large states characterized by high levels of unemployment
and appreciated currencies should experience a higher incidence of NTBs when institutions insulate
policymakers from those groups that prefer lower trade barriers than when porous institutions enhance
the influence of these groups on trade policy.
10.4 The Relationship between Tariffs and NTBs

In addition to the hypotheses described above, we also examine the effects of preexisting tariff levels
on NTBs. Doing so is important because preexisting tariff levels may influence both the strength of
societal demands for NTBs and the willingness of public officials to meet these demands. Groups
already well protected by tariffs may bring less pressure for new NTBs and face more governmental
resistance to their demands than less well protected groups. This suggests that tariffs and NTBs are
substitutes, which is consistent with the view expressed by some economists that NTBs are often
used to protect industries that have lost tariff protection due to successive rounds of the GATT.
Jagdish Bhagwati refers to this dynamic as the “law of constant protection.” As he points out, “The
evidence of increased nontariff barriers and administered protection just as tariffs had been reduced
to new lows suggests the intriguing possibility that there may be a Law of Constant Protection : If
you reduce one type of protection, another variety simply pops up elsewhere. (You then have a
Displacement Effect, not evidence of any increase in protectionist pressure.)”
In contrast to this view, another prominent position holds that tariffs and NTBs are complements.
Those who advance this argument maintain that NTBs are often used to protect those industries that
are also the beneficiaries of high tariffs, while states avoid using NTBs to shield industries that receive
little tariff protection. Edward John Ray, for example, mentions that U.S. NTBs may be concentrated
in industries least affected by the Kennedy Round of the GATT. In contrast to the law of constant
protection, a direct relationship between tariffs and NTBs might suggest that NTBs are used to counter
new foreign challenges to important sectors that are already the beneficiaries of tariff protection.
Indeed, the results of a number of single-country analyses seem to support this position. Cross-
national studies, however, have produced more ambiguous evidence on this score.
A related reason to include tariffs in our model is that they might account for any observed relationship
between societal and statist variables, on the one hand, and the incidence of NTBs, on the other hand.
Various studies have found that the unemployment rate, the exchange rate, economic size, and
institutional factors are related to patterns of tariffs; and the research discussed in this section links
tariffs to patterns of NTBs. It is therefore important to determine whether tariffs influence the effects
of macroeconomic and institutional factors on NTBs.

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