Importance of Domestic Political Institutions in Shaping the Outcomes of Tariffs and Trade Policies - Essay Example

Module Importance of Domestic Political s in Shaping the Outcomes of Tariffs and Trade Policies INTRODUCTION Since the 1980s, many countries have created free trade agreements, introduced tariffs and become members of preferential trade agreements (PTAs). However, what role has domestic political institutions played in shaping the outcomes of tariffs and trade policies? Many scholars have argued that domestic political institutions are the biggest influencers of tariffs and trade policies. For example, virtually every country in the world is part of a PTA and 60% of world trade happens in preferential trading blocs. However, the riddle researchers face is why so many nations have rushed to introduce tariffs, change their trade policies and become members of PTAs. In this paper, the writer will present arguments that show the impact that domestic political institutions have had on countries’ trade policies and tariffs. The aim of this paper is to convey a comprehensive understanding of the dynamics involved in domestic political institutions’ impacts on trade policies and tariffs. DISCUSSION Why have trade barriers been reducing worldwide since the 1980s? Current and past theories show that there are at least three feasible answers. The first answer involves evolving preferences concerning trade policy among domestic parties. Clearly in the 80s, many politicians and some lobby groups in countries across the world altered their views on what their perfect trade tariffs and trade policies were (Oatley 2011, p. 26). However, the biggest factors are the domestic political institutions that dictate most countries’ approach to tariffs and trade policy. The use of these institutions as agents of change in global trade started centuries ago. The United States is a perfect example of what stable and progressive domestic political institutions can do to countries’ tariffs and trade policies. Political parties in America have always had different approaches to political situations, but they somehow share a common goal in that they wanted and still want to give the United States a clear advantage in trade agreements and policies (Oatley 2011, p. 29). Across the world, countries that sign numerous trade agreements between each other have been shown to share one thing: stable, old, and progressive domestic political institutions that inspire their approach to the creation and implementation of tariffs and trade policies. Political leaders had bigger political motivations to sign trade agreements as the number and size of victorious coalitions grew. The probability of introducing new tariffs and signing trade agreements increased when the longevity of political leaders started becoming reliant on the aid of larger victorious coalitions. Studies show that democratic leaders signed more trade agreements with each compared to undemocratic counterparts. In addition, government structures and the number of veto parties had a major impact on international commercial cooperation. Based on current and past studies, the results show that domestic institutional limits offered a huge incentive for political leaders to pursue tariffs, trade policies and PTAs. This is to say that domestic limits clearly influenced policy action at the global level (Oatley 2011, p. 33). Findings not only show that the type of domestic regimes influenced the possibility of leaders to introduce new trade policies and sign trade agreements, but also that more unstable domestic institutions affected this likelihood. In doing so, these findings highlight the fact that institutional evaluation makes a huge contribution to governments’ and the public’s understanding of global political economy, particularly in showing how and which domestic political outfits were most supportive to leaders’ decision to sign trade agreements. Findings show that political bodies, and not preferences, were crucial in deconstructing trade policy. Although preferences also played a big role in the signing of PTAs, for example, the biggest impact came from domestic political institutions. These institutions aggregated amalgamated such preferences, and different institutions approached it differently, therefore resulting in different trade policies (Oatley 2011, p. 47). Domestic institutions gave special interest organizations increased access to policymakers, making their demands harder to counter. For example, studies show that the US Congress manipulated trade policy exclusively prior to 1934, making it very vulnerable to protectionist lobbying from interest groups. Other domestic agencies buffered policymakers from such demands, enabling them to gain more freedom in policy design and implementation. Consequently, some scholars argued that allowing the executive more power over trade after the Reciprocal Trade Act of 1934 strengthened trade policy and made it less vulnerable to such influences, as well as increasingly free-trade oriented. According to Oatley (2011, p. 36), consolidating trade-policy-making powers in the executive led to the introduction of trade liberalization in many countries. As noted by several scholars concerning trade liberalization in less developed countries, in all successful reform initiatives, politicians assigned decision-making responsibility to departments within governments that were protected from regular bureaucratic processes, interest group and legislative pressures, and even – in some instances – from executive pressure. The administrative powers of the state were also an influential factor in defining trade policy. For example, it is well known that developed countries had, for a long time, fewer trade barriers in comparison to less developed countries. In fact, less developed countries started developing putting in place measures to remove trade barriers when developed nations already had firmly-entrenched policies that reduced the number of trade barriers between themselves as well as between less developed countries and themselves. However, what could be the source of such huge disparities? According to Oatley (2011,p. 107), the answer lies in domestic political institutions. Between 1960 and 1990, developed countries introduced policies that were favorable to the signing of PTAs and the introduction of favorable trade policies. During this time, less developed countries went through some of the longest periods of political and economic instability. The domestic political agencies less developed countries lacked not only the will, but also the structures to institute trade policies that brought development and prosperity. While less developed countries were wasting their time through infighting, propaganda and unfavorable trade agreements with developed nations, their developed counterparts were using the systems put in place by their political leaders to exploit all possible weaknesses in other countries’ political structures (Oatley 2011, p. 54). The difference between developed and less developed countries in trade policies and agreements is now clear as day, and will remain that way as long as domestic political institutions in less developed countries fail in the creation of effective trade policies. One may look at the existing variations and think that they started appearing yesterday, when in truth they have existed for almost fifty years. Democratic countries that have stable and progressive domestic political institutions are less likely to seek protectionist policies. Autocratic countries were more interested in short-term and skewed trade policies that served their interests. Their insistence on pursuing protectionist policies was just another way of rent-seeking. According to Oatley (2011, p. 109), countries that had democratic political institutions tended to be cooperate more with others that had democratic institutions in order to reduce trade barriers and sign agreements to liberalize trade between them. This was more prominent in countries with democratic political institutions than those with autocratic political institutions. Countries with many domestic political institutions frequently experienced coalition regimes that were unable to alter the status quo. Countries with unstable and polarized political outfits were – and still are – unable to institute and drive economic reforms, including liberalization. They could not even sustain them. Other Factors that could have influenced the Outcomes Domestic political institutions are not the only factors that affected trade policy and tariffs. International politics, through several factors associated with its dynamics, has been linked to the trade policy choices of countries (Oatley 2011, p. 85). A common argument among realists is that the distribution of powers in the international system had a major impact on trade. The so-called theory of HST (hegemonic stability) held that when the international economy or system was dominated by a few countries – or one country – hegemonies were created, and free trade was more likely. CONCLUSION The impact of domestic political institutions on tariffs and trading policies cannot be understated enough. One only needs to look at the difference between developed and less developed countries to understand the contribution of domestic political institutions to trade development across the world. The increase in PTAs and trading blocs has been fuelled by stable and benevolent political institutions that look out for their countries’ interests. Friendly tariffs and the reduction of trade barriers have also been supported by increased negotiations driven by political bodies in different countries. In this regard, developed countries clearly stole a march on less developed nations by recognizing their political entities as economic machineries that can be used to champion favorable tariffs and trade policies (Oateley 2011, p. 67). Finally, more research is needed in this topic so that countries that are lagging behind can learn and use the potential of domestic political institutions to gain advantages in trade. Work Cited Oatley, Thomas. International Political Economy. 5th Ed., International ed. Harlow: Pearson Education, 2011. Print. Read More