International trade Part I

International Trade

The exchange of goods and services across national borders. Countries export (sell to foreigners) and import (buy from foreigners). International trade allows countries to specialise in producing goods and services in which they have an advantage and exchange for others → higher total world output and living standards than if each country produced everything itself. Trade is a key driver of economic growth, especially for small open economies.

Exports

Goods and services produced domestically and sold to buyers in other countries. Exports represent a LEAKAGE of domestic production to foreign markets but an INJECTION into the circular flow of domestic income — foreign spending on domestic output → income for domestic producers → supports domestic employment and GDP. VISIBLE EXPORTS: physical goods (cars, wheat, machinery). INVISIBLE EXPORTS: services (tourism, financial services, education for foreign students).

Imports

Goods and services produced abroad and purchased by domestic buyers. Imports represent a WITHDRAWAL from the circular flow of domestic income — domestic spending that goes to foreign producers rather than domestic ones. However imports benefit consumers (lower prices, greater variety) and may be necessary inputs for domestic production. VISIBLE IMPORTS: physical goods. INVISIBLE IMPORTS: services purchased from abroad (foreign holidays, foreign financial services).

The Principle of Absolute Advantage (Adam Smith)

A country has an ABSOLUTE ADVANTAGE in producing a good if it can produce more of that good from a given amount of resources than another country (i.e. it uses fewer resources per unit of output). Smith argued countries should specialise in goods where they have absolute advantage and trade → both benefit. EXAMPLE: Country A produces 10 units of wheat per worker; Country B produces only 6 → A has absolute advantage in wheat. LIMITATION: what if one country has absolute advantage in ALL goods? Smith's theory cannot explain trade in this case → Ricardo's comparative advantage is needed.

The Principle of Comparative Advantage (David Ricardo)

A country has a COMPARATIVE ADVANTAGE in producing a good if it can produce it at a LOWER OPPORTUNITY COST than another country — even if it has no absolute advantage in anything. A country should specialise in the good in which its opportunity cost is LOWEST relative to its trading partner. FUNDAMENTAL INSIGHT: as long as opportunity costs differ between countries, BOTH can gain from specialisation and trade — even if one country is absolutely more efficient at producing everything.

Comparative Advantage — Worked Example

Country A: 1 worker produces either 10 wheat OR 5 cloth. Country B: 1 worker produces either 6 wheat OR 4 cloth. OPPORTUNITY COSTS: Country A — 1 wheat costs 0.5 cloth; 1 cloth costs 2 wheat. Country B — 1 wheat costs 0.67 cloth; 1 cloth costs 1.5 wheat. COMPARATIVE ADVANTAGE: A has lower OC for wheat (0.5 cloth < 0.67 cloth) → A specialises in wheat. B has lower OC for cloth (1.5 wheat < 2 wheat) → B specialises in cloth. Both gain from trade — A exchanges wheat for cloth at a price between their domestic opportunity costs (between 0.5 and 0.67 cloth per wheat for A to gain; between 1.5 and 2 wheat per cloth for B to gain).

Terms of Trade — Introduction

The rate at which one country's exports exchange for another country's imports — the relative price of exports in terms of imports. For trade to be mutually beneficial: the terms of trade must lie BETWEEN the two countries' domestic opportunity costs. In the example above: trade price for cloth must be between 1.5 wheat (B's domestic OC) and 2 wheat (A's domestic OC) → any price in this range benefits BOTH countries.

Gains from Specialisation and Trade

When countries specialise according to comparative advantage and trade: (1) TOTAL WORLD OUTPUT RISES — same resources produce more goods globally. (2) CONSUMERS BENEFIT — access to goods at lower prices than domestic production would allow. (3) ECONOMIES OF SCALE — specialisation allows larger-scale production → lower average costs. (4) INCREASED COMPETITION — exposure to foreign competition forces domestic firms to improve efficiency. (5) TECHNOLOGY TRANSFER — trade spreads technology and knowledge across countries. (6) DYNAMIC GAINS — specialisation may generate learning-by-doing and innovation.

Assumptions of the Comparative Advantage Model

The basic model assumes: (1) Only two countries and two goods. (2) Labour is the only factor of production (labour theory of value). (3) Labour is perfectly mobile within countries but immobile between countries. (4) Constant returns to scale (opportunity costs are constant). (5) No transport costs. (6) No barriers to trade. (7) Perfect competition. (8) Full employment. These assumptions are highly simplifying — the real world differs in all these respects. Despite limitations, the model's core insight (gains from specialisation according to OC) remains the foundation of trade theory.

Limitations of Comparative Advantage Theory

(1) CONSTANT OC ASSUMPTION — in reality, as countries specialise more, opportunity costs typically rise (increasing OC) → complete specialisation may not occur. (2) TRANSPORT COSTS — ignored in basic model → reduce gains from trade. (3) FACTOR IMMOBILITY — in practice, workers cannot easily move between industries (structural unemployment costs of specialisation). (4) INFANT INDUSTRY ARGUMENT — new industries may need protection before they can compete → comparative advantage is dynamic, not static. (5) TERMS OF TRADE — the division of gains from trade is not necessarily equal → powerful countries may capture most benefits. (6) DOES NOT ACCOUNT FOR EXTERNALITIES — specialisation may increase carbon emissions, resource depletion. (7) IGNORES DISTRIBUTION — gains from trade may be concentrated at the top → inequality rises even if total gains are positive.

The Heckscher-Ohlin Model

An extension of comparative advantage: countries have comparative advantage in goods that intensively use the factor of production they possess in relative abundance. LABOUR-ABUNDANT countries (developing economies): comparative advantage in LABOUR-INTENSIVE goods (clothing, basic manufacturing). CAPITAL-ABUNDANT countries (developed economies): comparative advantage in CAPITAL-INTENSIVE goods (machinery, aircraft, pharmaceuticals). EXAMPLE: Bangladesh has comparative advantage in garment manufacturing (labour-intensive); Germany in cars and industrial machinery (capital-intensive). Supported by much empirical evidence — but the Leontief Paradox (USA exported labour-intensive goods despite being capital-abundant) challenged it → human capital matters too.

Free Trade

International trade conducted without government-imposed barriers — no tariffs, quotas, subsidies, or other restrictions. Based on the principle that comparative advantage determines what each country produces and trades → global efficiency is maximised and all countries benefit. The theoretical case for free trade is one of the strongest in economics — virtually all economists support the principle. REALITY: all countries impose SOME trade restrictions — the debate is about degree and circumstances.

Benefits of Free Trade

(1) LOWER PRICES — consumers benefit from access to cheaper imports; competition from imports forces domestic producers to lower prices. (2) GREATER VARIETY — access to a wider range of goods and services. (3) ECONOMIES OF SCALE — producers can sell to larger markets → longer production runs → lower average costs. (4) INCREASED COMPETITION → efficiency gains, innovation, lower costs. (5) TECHNOLOGY TRANSFER AND KNOWLEDGE SPILLOVERS — trade spreads technology. (6) ECONOMIC GROWTH — export-led growth (East Asian model). (7) POLITICAL BENEFITS — trade creates mutual economic dependence → reduces likelihood of conflict (Kant's argument; EU's founding rationale).

Costs of Free Trade

(1) STRUCTURAL UNEMPLOYMENT — import competition destroys domestic industries → workers displaced. (2) INCOME DISTRIBUTION — gains may be concentrated at the top; costs (job losses) concentrated among low-skilled workers. (3) LOSS OF STRATEGIC INDUSTRIES — may become dependent on foreign suppliers for critical goods (defence, food, energy). (4) ENVIRONMENTAL DUMPING — countries with weaker environmental standards attract production → pollution increases. (5) EXPLOITATION OF WORKERS — production may move to countries with lower labour standards → global race to the bottom on wages and working conditions. (6) VULNERABILITY TO EXTERNAL SHOCKS — high trade dependence → exposed to foreign economic crises (COVID supply chain disruption). (7) DEINDUSTRIALISATION — permanent loss of manufacturing capacity may be hard to reverse.

Protectionism

Government intervention to restrict imports and/or promote exports in order to protect domestic industries from foreign competition. Main instruments: tariffs, import quotas, export subsidies, and non-tariff barriers (NTBs). Protectionism reduces the volume of international trade → global efficiency falls. BUT may be justified in specific circumstances (infant industries, national security, correcting market failures).

Tariff

A TAX imposed on IMPORTED goods. Raises the domestic price of imports → makes imports less competitive relative to domestically produced goods. REVENUE: tariff generates government revenue (unlike quotas). TWO TYPES: SPECIFIC tariff (fixed amount per unit, e.g. €50 per car) or AD VALOREM tariff (percentage of the import price, e.g. 20% of value).

DIAGRAM — Tariff (Small Open Economy)

Draw domestic supply (Sd) and demand (Dd) curves. World price (Pw) shown as a HORIZONTAL line below domestic equilibrium. At Pw: domestic production = Qs1 (low — domestic producers cannot compete fully). Domestic consumption = Qd1 (high — imports make up gap Qd1 − Qs1 = imports). Now impose tariff: price rises from Pw to Pw + tariff. At new price: domestic production rises to Qs2 (more domestic supply is profitable). Domestic consumption falls to Qd2. New import volume = Qd2 − Qs2 (smaller). Label: (A) = gain in producer surplus. (B) + (D) = deadweight loss. (C) = government tariff revenue. Consumer surplus falls by A + B + C + D. Net welfare loss = B + D (DWL triangles). Government gains C. Producers gain A. Consumers lose A + B + C + D.

Welfare Effects of a Tariff

At world price Pw (no tariff): CS is large, PS is small (domestic producers cannot compete fully with world price), no government revenue. After tariff (price rises to Pw + t): CS FALLS — consumers pay higher prices and buy less. PS RISES — domestic producers receive higher price and sell more. Government GAINS tariff revenue (rectangle C). NET WELFARE LOSS = triangles B + D. B = production DWL (domestic producers inefficiently expand production above what they could do at world price — resources wasted). D = consumption DWL (consumers who valued the good above world price but below tariff price are priced out of the market — lost consumer welfare). TOTAL EFFECT: income redistribution from consumers to producers and government, plus net welfare loss of B + D.

Import Quota

A PHYSICAL LIMIT on the quantity of a good that can be imported over a given time period. Raises domestic price (same effect as tariff on price and quantity) but: GOVERNMENT RECEIVES NO REVENUE — instead, the economic rent (equivalent to tariff revenue rectangle C) goes to the holders of import licences (domestic or foreign). If foreign exporters receive the licences: the rent goes abroad (worse than a tariff for the domestic economy). EXAMPLES: EU sugar quotas, US steel quotas, voluntary export restraints (VERs — quotas negotiated with exporting countries under threat of more severe restrictions).

DIAGRAM — Import Quota

Identical to tariff diagram in terms of price and quantity effects. At world price Pw: imports = Qd1 − Qs1. Quota imposed limiting imports to Qd2 − Qs2 (same quantity as tariff case). Domestic price rises to Pw + equivalent tariff. CS falls by A+B+C+D. PS rises by A. DWL = B + D. But rectangle C (equivalent to tariff revenue) = QUOTA RENT — goes to import licence holders, NOT government. If domestic importers hold licences: C redistributed domestically. If foreign exporters hold licences: C leaves the country. Net welfare loss potentially LARGER than equivalent tariff.

Tariff vs Quota — Key Differences

TARIFF: raises price, government gets revenue, quantity of imports adjusts endogenously (depends on demand), allows adjustment to foreign price changes. QUOTA: fixes import quantity, no government revenue (quota rent goes to licence holders), price adjusts to clear the market, does not automatically adjust to world price changes. GENERALLY: tariffs are preferred to quotas from an efficiency standpoint (government at least collects revenue). HOWEVER: in practice governments often prefer quotas (politically easier — less visible than a tax; can negotiate VERs with exporting countries).

Export Subsidies

Government payments to domestic producers to lower their production costs → allows them to sell exports at lower prices → makes exports more competitive internationally. EFFECT: domestic price RISES (more output goes to export market → less available domestically → domestic consumers pay more). Foreign consumers gain (lower prices). WELFARE EFFECT: domestic consumer surplus falls, producer surplus rises, government expenditure (cost of subsidy), net welfare loss (DWL). TRADE DISTORTION: export subsidies are heavily restricted by WTO rules (prohibited for manufactured goods; limited for agriculture). EXAMPLE: EU Common Agricultural Policy (CAP) export subsidies → EU farmers could sell below world price → devastated farmers in developing countries. Most CAP export subsidies eliminated after WTO pressure.

Non-Tariff Barriers (NTBs)

Trade restrictions that are not explicit tariffs or quotas. Often used to circumvent WTO rules. Types: (1) TECHNICAL STANDARDS AND REGULATIONS — product safety, environmental, and health standards that imports must meet (can be legitimate or disguised protectionism). (2) ADMINISTRATIVE PROCEDURES — lengthy customs inspections, complex documentation requirements → raise cost and delay of imports. (3) GOVERNMENT PROCUREMENT — favouring domestic suppliers in government contracts. (4) VOLUNTARY EXPORT RESTRAINTS (VERs) — importing country pressures exporting country to "voluntarily" limit exports (e.g. Japan's VERs on car exports to USA in 1980s). (5) CURRENCY MANIPULATION — keeping exchange rate artificially undervalued → exports cheaper, imports dearer. (6) DOMESTIC CONTENT REQUIREMENTS — mandate that a minimum % of a product must be produced domestically.

Arguments FOR Protectionism

(1) INFANT INDUSTRY ARGUMENT — new industries need temporary protection until they achieve economies of scale and become internationally competitive. Most compelling argument; requires government to correctly identify which industries deserve protection and set a clear timeline for removal. (2) NATIONAL SECURITY — strategic industries (defence, food, energy) must not become dependent on potentially hostile foreign suppliers. (3) PROTECTING JOBS — prevents structural unemployment from import competition, especially in communities with limited alternative employment. (4) CORRECTING MARKET FAILURES — environmental dumping (trading partner doesn't price carbon → unfair competition → carbon border adjustment tariff is justified). (5) RETALIATION — credible threat of retaliatory tariffs can deter trading partners from imposing barriers. (6) TERMS OF TRADE IMPROVEMENT — a large country can improve its terms of trade by imposing a tariff (reduces import demand → world price falls → country pays less per import). (7) REVENUE — tariffs raise government revenue, especially important for developing countries with limited tax collection capacity.

Arguments AGAINST Protectionism

(1) EFFICIENCY LOSS — protectionism causes DWL (triangles B + D) → resources misallocated to inefficient domestic production. (2) CONSUMER HARM — higher prices reduce consumer welfare and real purchasing power. (3) RETALIATION RISK — trading partners may retaliate → trade war → BOTH countries worse off (prisoner's dilemma structure). (4) INFANT INDUSTRY PROBLEM — governments rarely remove protection once established (political capture by protected industry) → permanent inefficiency. (5) CORRUPTION AND RENT-SEEKING — quotas and licences create opportunities for corruption. (6) LOSS OF COMPETITION BENEFITS — protected industries have less incentive to innovate or reduce costs. (7) GLOBAL ECONOMIC GROWTH SUFFERS — 1930s Smoot-Hawley tariff contributed to Great Depression by reducing world trade.

The Infant Industry Argument — Detailed Analysis

Rationale: new industries face initial high costs and cannot compete with established foreign producers who benefit from economies of scale and learning-by-doing. Temporary protection allows the industry to grow → achieve scale → reduce costs → eventually compete without protection. CONDITIONS FOR VALIDITY: (1) The industry must have genuine long-run comparative advantage potential. (2) The market failure must be real (typically: capital market failure → firms cannot borrow to fund early losses even if eventually profitable; or learning-by-doing externalities → firms don't capture full returns of their own learning). (3) Protection must be TEMPORARY with a clear exit date. (4) Government must correctly identify which industries to protect. HISTORICAL EVIDENCE: South Korea, Taiwan, and Japan used infant industry protection successfully (POSCO steel, Korean electronics). But many infant industry policies fail (industry never becomes competitive; political economy prevents removal of protection). ALTERNATIVE: R&D subsidies and investment incentives may be more efficient than trade barriers.

WTO (World Trade Organization)

International organisation governing the rules of international trade. Established 1995 (successor to GATT, 1947). 164 member countries (2023). KEY FUNCTIONS: (1) Provides a framework of rules for international trade (non-discrimination, most-favoured nation, national treatment). (2) Provides a forum for trade negotiations (rounds of multilateral trade liberalisation). (3) Dispute settlement mechanism — adjudicates trade disputes between members. CORE PRINCIPLES: (1) MOST-FAVOURED NATION (MFN) — trade concessions given to one member must be given to all. (2) NATIONAL TREATMENT — imported goods must be treated the same as domestic goods once inside the border. (3) TARIFF BINDINGS — members commit to maximum tariff rates (bound rates). (4) NON-DISCRIMINATION — trade rules apply equally to all members.

WTO — Trade Rounds and Challenges

Major multilateral trade negotiations under GATT/WTO: Kennedy Round (1964–67), Tokyo Round (1973–79), Uruguay Round (1986–94 → created WTO, agreed TRIPS, GATS, agriculture provisions). DOHA DEVELOPMENT ROUND (2001–present): launched to address developing country concerns → largely stalled on agricultural subsidies dispute between USA/EU and developing nations. KEY CHALLENGE: multilateral negotiations increasingly difficult as membership grows (164 countries → consensus hard to achieve). Rise of BILATERAL and REGIONAL trade agreements fills the gap (EU-Canada CETA, USA-Mexico-Canada USMCA, TPP/CPTPP). Growing protectionist sentiment (Trump tariffs 2018–, China-US trade war) challenges WTO authority.

The Multifibre Arrangement and Trade Liberalisation

The Multi-Fibre Arrangement (MFA, 1974–2005) imposed quotas on textile and clothing imports from developing countries to protect developed-country manufacturers. When MFA ended (2005): dramatic surge in Chinese and Asian textile exports → EU and US imposed temporary safeguards. OUTCOME: massive structural unemployment in textile industries of developed countries; huge consumer gains (cheaper clothing); dramatic growth in Bangladesh, Cambodia, Vietnam garment industries → poverty reduction. This illustrates the real distributional conflict in trade liberalisation — global efficiency gains but concentrated losses for specific workers and communities.

Free Trade Areas (FTA)

A group of countries that agree to eliminate tariffs and other trade barriers AMONG THEMSELVES while each maintaining its own trade policy toward non-members. NO common external tariff. EXAMPLES: NAFTA/USMCA (USA, Canada, Mexico); ASEAN Free Trade Area (Southeast Asia); EFTA (European Free Trade Association). TRADE CREATION: trade that replaces domestic production with cheaper imports from FTA partners → welfare gain. TRADE DIVERSION: trade that replaces cheaper imports from non-members (world's lowest cost producer) with more expensive imports from FTA partners (because tariffs make non-members uncompetitive) → welfare loss. Net effect of FTA = trade creation − trade diversion.

Customs Union

A FREE TRADE AREA plus a COMMON EXTERNAL TARIFF (CET) toward non-members. Members agree both to free trade among themselves AND to the same tariff policy toward the rest of the world. EXAMPLE: EU customs union (all 27 EU members have the same external tariffs). Eliminates trade diversion within the union (same external tariff → no advantage to routing goods through low-tariff member). Requires common trade policy → members cannot negotiate bilateral trade deals individually. More integrated than FTA.

Common Market

A CUSTOMS UNION plus FREE MOVEMENT of factors of production (labour and capital) across borders. EXAMPLE: EU single market (free movement of goods, services, capital, and labour — the "four freedoms"). Eliminates remaining barriers to economic integration beyond just goods trade. Allows labour to move to highest-productivity locations → more efficient resource allocation. Requires deeper regulatory harmonisation (common product standards, mutual recognition of qualifications).

Economic Union

A COMMON MARKET plus HARMONISED ECONOMIC POLICIES — fiscal coordination, common regulatory framework, potentially a single currency. EXAMPLE: The eurozone is an economic union with a common monetary policy (ECB) and single currency (euro), though fiscal policy remains national (with coordination rules). Complete economic union would require common fiscal policy. The EU sits between common market and full economic union.

Trade Creation

The welfare gain that occurs when a free trade area or customs union causes a member country to replace expensive domestic production with cheaper imports from a partner country. The consumer benefits from lower prices; the domestic producer (who was inefficient) loses; but net welfare increases (consumer gain > producer loss). Trade creation is the BENEFICIAL effect of regional trade agreements — it mimics the gains from free trade within the group.

Trade Diversion

The welfare loss that occurs when a free trade area or customs union causes a member country to replace CHEAPER imports from a non-member (the world's most efficient producer) with MORE EXPENSIVE imports from a partner country (who benefits from the internal tariff-free access). The diversion from efficient world production to less efficient partner production → net welfare loss. Whether a regional trade agreement is net beneficial depends on whether TRADE CREATION > TRADE DIVERSION.

Real World Example — Comparative Advantage (Bangladesh Garments)

Bangladesh has a strong comparative advantage in garment manufacturing — one of the world's largest exporters of ready-made garments ($42bn in 2022, ~84% of total exports). SOURCES OF COMPARATIVE ADVANTAGE: (1) Very large, young, low-wage labour force. (2) Preferential access to EU and USA markets (Everything But Arms for least-developed countries → 0% tariffs). (3) Established supply chains, specialised skills, and buyer relationships. (4) Government support for the sector. GAINS: garment sector employs ~4 million workers (mostly women) → massive poverty reduction, female empowerment. Bangladesh GDP per capita rose from ~$300 (1990) to ~$2,800 (2023). COSTS: Rana Plaza factory collapse (2013 — 1,134 workers killed) highlighted dangerous working conditions and the exploitation dimensions of global value chains. Labour standards remain poor. Bangladesh faces vulnerability if comparative advantage in low-wage labour erodes (rising wages, competition from Vietnam, Ethiopia).

Real World Example — Protectionism (US-China Trade War 2018–present)

The US-China trade war began when President Trump imposed tariffs of 25% on $250bn of Chinese goods (2018) and 10% on further $300bn. China retaliated with equivalent tariffs on US goods. Biden administration maintained most Trump tariffs and added new ones (100% tariff on Chinese EVs, 2024). US JUSTIFICATIONS: (1) Reducing large bilateral trade deficit with China ($383bn goods deficit in 2022). (2) Protect US manufacturing jobs and strategic industries (semiconductors, steel, solar panels). (3) Counter Chinese unfair practices (state subsidies, intellectual property theft, currency manipulation). ECONOMIC EFFECTS: US consumers paid ~$50bn more per year in higher import prices. US firms facing higher input costs (steel, aluminium) lost competitiveness. Some US manufacturing jobs returned. Inflation contributed to by tariff-induced price rises. TRADE DIVERSION: some trade shifted from China to Vietnam, Mexico, India. CHINESE EFFECTS: export growth slowed; accelerated move up the value chain; domestic consumption policy shift. BROADER LESSON: trade wars are negative-sum — both sides suffer efficiency losses; DWL is real. But geopolitical and national security concerns may justify some costs.

Real World Example — Free Trade Benefits (South Korea Export-Led Growth)

South Korea's transformation from one of the world's poorest countries ($155 GDP per capita 1960) to a high-income economy ($35,000 GDP per capita 2023) is one of the most dramatic economic success stories in history. TRADE AS ENGINE: export-led industrialisation was the core strategy. Government actively promoted export industries (Chaebol conglomerates — Samsung, Hyundai, LG) through: industrial policy, credit subsidies, technology licensing, infrastructure investment, and education. KEY EXPORTS: initially textiles and shoes (labour-intensive, consistent with comparative advantage) → electronics → cars → ships → semiconductors → K-culture (BTS, Korean films, Korean beauty). GAINS FROM TRADE: export growth → economies of scale → productivity improvement → technology absorption → dynamic comparative advantage. From labour-intensive to capital-intensive to knowledge-intensive production over 60 years. LESSONS: (1) Free trade with active industrial policy can generate rapid development. (2) Comparative advantage is DYNAMIC — can be created through deliberate policy. (3) Export discipline (firms must compete globally) imposes efficiency pressure that domestic-only production does not.

Real World Example — Protectionism Costs (Great Depression, Smoot-Hawley 1930)

The Smoot-Hawley Tariff Act (1930) raised US tariffs to historically high levels (average 45–50%) on over 20,000 imported goods. INTENDED: protect US farmers and manufacturers from foreign competition during the Great Depression. ACTUAL EFFECT: US trading partners retaliated immediately (Canada, UK, France, Germany all raised tariffs on US goods). Global trade COLLAPSED — world trade volumes fell by ~66% between 1929 and 1934. The tariff war deepened and prolonged the Great Depression → unemployment rose further. GDP fell in all major economies. LESSON: protectionism in a recession is self-defeating — when all countries restrict imports, world trade collapses, all countries lose export markets, all suffer. The post-WW2 GATT/WTO framework was explicitly designed to prevent a repeat of 1930s trade wars through multilateral trade rules and dispute settlement. The Smoot-Hawley case is the definitive historical argument against protectionist responses to recessions.