The dollar and the demand for protection

Abstract

Postwar trade politics in the USA have exhibited intermittent periods of rising industry demands for protection from imports. At present, however, we do not fully understand why industry demands for protection rise and fall overtime. We argue that intermittent protectionism in postwar USA has been driven by changes in the real exchange rate. To do so, we incorporate the real exchange rate into a basic model of sectoral trade policy preferences to show how the number of sectors that expect to benefit from protection grows as the real exchange rate appreciates. We test two hypotheses generated from this model: first that the number of antidumping and escape clause petitions rises as the dollar strengthens and falls as the dollar weakens. Second that competitive sectors are more sensitive to exchange rate movements than comparatively disadvantaged and comparatively advantaged sectors. We evaluate these expectations with a Bayesian statistical analysis of data on antidumping and escape clause petitions in the USA between 1974 and 2012. The empirical models provide robust support for the study’s principal hypotheses.