Economic History Association
The Political Instability of Reciprocal Trade and the Overthrow of the Hawaiian Kingdom
Author(s): Sumner J. La Croix and Christopher Grandy
Source: The Journal of Economic History, Vol. 57, No. 1 (Mar., 1997), pp. 161-189
Published by: Cambridge University Press on behalf of the Economic History Association
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ThePolitical Instabilityof Reciprocal
Tradeand the Overthrowof the Hawaiian
Kingdom
GRANDY
SUMNERJ. LA CROIXAND CHRISTOPHER
Theoverthrowof theHawaiianmonarchyin 1893offersan illuminatingcase study
betweenlargeandsmall
tradingrelationships
of thepoliticaleconomyof preferential
treatyof 1876betweenHawaiiandtheUnited
reciprocity
countries.Thelimited-term
strategicdynamics,as thenormaloperationof thetreaty
problematic
Statesgenerated
position.Thisallowedthe UnitedStatesto
graduallyworsenedHawaii'sbargaining
in
extractbettertermswhenthe treatyexpiredin 1883andto act opportunistically
of
the
treaty
The
economy
political
of
the
McKinley
Tariff.
1890 withthe passage
contributedsignificantlyto theoverthrowof the Hawaiianmonarchy.
n January 1893 a small group of Caucasian residents overthrew the
anactionthatledto theannexationof Hawaiiby the
lHawaiian monarchy,
UnitedStatesin 1898.Theoverthrowof the Hawaiianmonarchyoffersan
illuminatingcase study of the politicaleconomyof preferentialtrading
relationshipsbetweenlargeand smallcountries.The reciprocitytreatyof
1876 betweenHawaiiand the United StatesgreatlyexpandedHawaii's
exportsof sugarandrice to the UnitedStatesas well as U.S. exportsof
to Hawaii.However,the treatyalso generatedproblematic
manufactures
strategicdynamics,as structuralchangelaunchedby the treatygradually
worsenedHawaii'sbargainingpositionvis-'a-visthe United States.This
allowedtheUnitedStatesto extractbettertermswhenthe treatyexpiredin
Hawaii'sinternalpoliticsby massively
1883. The treatyalso transformed
ownersof sugarplantations.Finally,
increasingthewealthof theCaucasian
U.S. opportunismin 1890 with respectto the tradetreatythreatenedthe
The Journal of EconomicHistory,Vol. 57, No. 1 (Mar. 1997). C The EconomicHistory
Association.All rightsreserved.ISSN0022-0507.
of Economics,Universityof Hawaii,Honolulu,HI
SumnerLa Croixis Professor,Department
96822. ChristopherGrandyis an economistwith the Stateof Hawaii,Departnentof Business,
EconomicDevelopment,andTourism,P.O.Box 2359, Honolulu,HI 96804.
For commentsand assistancewith this article,we thanktwo anonymousreferees,David Allen,
TorbenAndersen,JeremyAtack,PhilipCoelho,TrevorDick,AlanDye,DavidFeeny,PriceFishback,
GinaHara,Bob Kamins,Noel Kent,PaulineKing,DeniseKonan,NaomiLamoreaux,JoelMokyr,
Alan Olmstead,Angela Redish,Paul Rhode,AndrewRutten,Masao Suzuki,WernerTroesken,
at:theEast-WestCenter,Barnard
in presentations
RayburnWilliams,SusanWolcott,andparticipants
College, Universityof Hawaii,the 54thAnnualMeetingsof theEconomicHistoryAssociation,the
19thAnnualMeetingsof theSocialScienceHistoryAssociation,Universityof California(Davis),and
StanfordUniversity.Wealsoappreciatethemanyresponsesreceivedto ourqueriesfromsubscribers
Theviewsexpressedin thisarticlearethe sole responsibilityof
to ECONHIST@CS.MUOHIO.EDU.
theauthors.
161
162
La Croixand Grandy
wealthof theplantersandtherebyplayeda criticalrole in the overthrowof
the Hawaiianmonarchy.
explanationsof the overthrowdidnot directlyemphasize
Contemporary
the long-termrole of the reciprocitytreaty.Some commentatorsdid,
however,focus on the desireof sugarintereststo securethe two-cent-perprovidedin the McKinleyTariffof
poundbountyon U.S. sugarproduction
1890.1JuliusPrattchallengedthisview, arguinginsteadthatthe overthrow
William
bid to securea morestablegovernment.2
was a racially-charged
of
Asian
labor
the
that
immigration
RussJr.tookup thistheme,suggesting
to work the sugarfields threatenedthe whiteelite.3MerzeTateindicated
thatthe sourceof theoverthrowwasthegoalof the economiceliteto secure
propertyfromexcessivetaxation.4RalphKuykendallnotedthe opposition
butsuggestedthatthe
of nativeHawaiiansto theoverthrowandannexation,
daysof the monarchywerenumberedin anycase.5
This article builds on the well-documentedpolitical history of the
overthrowby assemblingeconomicevidenceandusingeconomictheoryto
illuminate several importantpoints with respect to the U.S.-Hawaii
reciprocitytreatyandits subsequenteffects.6Firstthe U.S.-Hawaiitreaty
providesa case studyof how a preferentialtradingagreementbetweena
largeanda smallcountrycanhaveproblematicdynamics.7If the treatyhas
will
a limitedterm(orcanbe canceledby eithercountry),thenrenegotiation
occur in an environmentthat has been alteredby the structuralchange
positionwill
inducedby thetreaty.Ingeneralthelargecountry'sbargaining
be enhanced,as the reciprocitytreatyredirectsand expandsthe small
country'sexportstowardthe largecountry,therebycreatingassetsspecific
1 See,forexample,comments
pp. 274-75;
Revolution,"
in theU.S.pressquotedin Pratt,"Hawaiian
andBeardandBeard,Rise,pp. 359-60. Williams(Politics,pp. 13-25) has recentlyemphasizedthe
theoverthrow.
importanceof theMcKinleyTariffin precipitating
2Pratt,"HawaiianRevolution."
3Russ,HawaiianRevolutionandHawaiianRepublic.
4Tate,UnitedStatesandHawaii.
HawaiianKingdom,vol. 3. Tate(UnitedStates,p. 308) wrotethatherworkcould
5SeeKuykendall,
butpoliticalanddiplomatic
of theHawaiianRevolution,"
bearthesubtitle"AnEconomicInterpretation
Hawaiiin a broader
heranalysis.Kent(Hawaii)discussednineteenth-century
dominated
considerations
and
As theirtitlessuggest,Budnick(StolenKingdom);
hypothesis.
workthatputforwarda dependency
Dougherty(ToSteal a Kingdom)coverthe periodfor a generalaudiencefroma distinctpolitical
perspective.
6Tate(UnitedStates,p. 308) has assertedthat"[n]oeventin historyhas been morethoroughly
thantheHawaiianRevolutionof 1893."Althoughnotwillingto go thatfar,we agreethat
documented
the episodehasreceivedits shareof scholarlyresources.
7In this context,we referto a country'ssize as measuredby GDPbutalso in termsof the relative
A countrywitha largeGDPis likelyto findthata tradetreaty
agreement.
of thereciprocal
importance
effectsin comparisonwiththeeffectson a country
withanothercountrywill haveminimalstructural
with a muchsmallerGDP.Otherexamplesof reciprocitytreatiesbetweenlargeandsmallcountries
with problematicdynamicswerethe 1876 treatybetweenJapanandKorea,whichultimatelyled to
tradingagreementswith central
Japan'sannexationof Koreain 1910;and Germany'spreferential
Europeancountriesin the 1930s.
Reciprocal Tradeand Hawaii's Overthrow
163
to the reciprocitytreaty.When the treatyexpires and is due for renegotiation, the largecountrycan demandbetterterms.The diminishedposition of
the small country combined,with the heightened demands of the large
countryhave the potentialto sparka politicalcrisis in the small country.
Second the U.S.-Hawaii treatyillustrateshow a reciprocitytreatycan
transformthe domesticpoliticsof the small country.The groupowning the
specialized assets used to producethe export good(s) enumeratedin the
reciprocitytreatybecomes wealthierand has greaterpotentialto influence
the political process. Since the group's new wealth depends on the
preferentialtradingrelationship,it has incentivesto takeadditionalpolitical
action to ensurethe maintenanceof the internationalpoliticalrelationship
and the flow of rentsfrom specializedassets.
Thirdas the workof othershas noted,the originsof the overthrowwere
not monocausalbutwere also relatedto otherspecifichistoricalevents.The
precipitousdeclinein thenativeHawaiianpopulation,the massivemigration
of Chinese and Japaneselaborersto Hawaii, the Caucasianownershipof
sugar plantationsin Hawaii, and the domestically-drivenpolitics of the
McKinleyTariffall representspecifichistoricaleventsthatplayedimportant
roles in the evolutionof the two countries'economic andpoliticalrelations
as well as Hawaii's domesticpoliticaleconomy.
In sum this studysuggeststhatthe long-termrelationshipconditionedby
the reciprocity treaty between Hawaii and the United States was an
importanteconomicfactorin thepoliticaloverthrowof Hawaiianmonarchy.
The greaterreliance by some Hawaii interest groups on treaty benefits
changed the internationalpolitical economy of the relationship,thereby
allowingthe United Statesto extractbettertermsat treatyrenewalin 1887
and to act opportunisticallyin 1890. Combinedwith domestic political
conflictandthe detailof specifichistoricalevents,theproblematicdynamics
of the reciprocitytreatyled to the overthrowof the Hawaiianmonarchy.
HAWAIIPOLITICAL
ECONOMYBEFORERECIPROCITY
The tradeimplicationsof Hawaii's geographiclocationprovedof more
economic importancethandid sugarproductionpriorto 1860.8Supplying
whaling vessels provided the dominantsource of income for Hawaiian
businesses in the 1840s and 1850s.9Althoughthe Americanfirm of Ladd
and Companyestablishedthe firstcommercially-viablesugarplantationon
Kauai in 1835, sugar played a moderaterole in the Hawaii economy.10
Andrew W. Lind reportedthatby 1840 sugarrepresentedaboutthe same
8LaCroixand Roumasset,"Evolution."
9SeeKuykendall,HawaiianKingdom,vol. 1, pp. 309-10; andMorgan,Hawaii, chaps. 5, 9.
'OSeeKuykendall,HawaiianKingdom,vol. 1, pp. 175-76.
La Croix and Grandy
164
90
80706050
4030
1836
1844
Il
l
l
l
l
1852
1860
1868
1876
1884
1892
1900
FIGURE 1
HAWAII IMPORTS FROM U.S.
Source:Schmitt,HistoricalStatistics,pp. 541-42.
value of exportsas hides and skins ($25,000 at a time when the value of
importsrangedbetween $218,000 and $455,000).11By 1853 Hawaii sugar
acreagereached2,750, but this comparedto 4,000 acresin taro.12
Tradesparkedthe interestsof foreignersin Hawaii.Britain,France,and
the United States engaged in significantjockeying over access to and
influenceon the island-nationbeforethe overthrow.BritainandFranceeach
threatenedHawaii's sovereigntyin the 1840s, and Americandiplomacy
helped maintain Hawaii's independence in both episodes. Indeed, in
responseto the Frenchcrisis,KamehamehaIII secretlyceded the islandsto
the United States,thoughSecretaryof StateDaniel Websterinstructedhis
ministerto returnthe deed of cession to avoid antagonizingFrance."3Over
this period several Americansplayed prominentroles in the Hawaiian
government:GerrittP. Juddessentiallyformedthe governmentunderthe
firstconstitutionof 1840, holdingthe offices of Ministerof ForeignAffairs,
Minister of Interior,and Minister of Finance. Another American, John
Ricord,held the remainingcabinetpositionof AttorneyGeneral.The high
"1SeeLind, Island Community,p. 67; and Schmitt, Historical Statistics, p. 539. The value of exports
is unavailablefor this time period.
"Lind, Island Community, p. 71.
13Kuykendall (HawaiianKingdom,vol. 1, pp. 199-226, 388-407) providesan overviewof these
events. A documentaryhistoryfromthe Americanperspectiveappearsin U.S. Senate,S. Executive
Doc. 77.
Reciprocal Tradeand Hawaii's Overthrow
165
70 6050 40
40
30
o
~20
10
1800
1815
1830
1845
1860
1875
1890
FIGURE2
U.S. TARIFFON RAW SUGAR
Sources:1800-1859: WholesalerawsugarpricefromU.S. Bureauof the Census,HistoricalStatistics,
pp. 208-09. 1860-1879: Raw sugarpricefromTaylor,"HawaiianSugar,"pp. 167-68. 1880-1900:
96 degreesugarpricefromU.S. TariffCommission,RefinedSugar,p. 17. TariffscompiledfromU.S.
Senate,"SugarSchedule,"pp. 19-36; Taussig,TariffHistory,p. 313; and Wright,Sugar, p. 93.
and rising U.S. shareof Hawaii imports(Figure 1) also provides indirect
evidence of growthin relativeAmericaninfluence.
The importanceof tradegenerally,andthe growthof the U.S. WestCoast
market in particular,motivated sugar interestsin Hawaii to find a way
aroundthe high U.S. tariffwall. Between 1850 and 1870 the populationof
Californiaincreasedsix-fold (from93,000), and the combinedpopulations
of Washington,Oregon,and Californiareached675,000.14The U.S. tariff
(see Figure2) posed a majorobstacleto expandingsugarproduction,with
percentageratesvaryingfrom20 to 42 percentbetween 1850 and 1870.15
Hawaiiandthe UnitedStatesreachedreciprocityagreementsin 1855 and
1867, but the American Senate rejected both treaties. Both agreements
permitted duty-free access of specified Hawaii goods to the United
States-most importantly,raw sugar-in exchange for similar access to
'4SeeU.S. Bureauof the Census,HistoricalStatistics,part 1, pp. 25, 33, 36. This comparesto an
1870 Hawaiipopulationof about60,000. See Schmitt,HistoricalStatistics,p. 223.
'5Wehave convertedperpoundtariffsinto ad valoremtariffs.
La Croix and Grandy
166
1000000
100000f
10000
04
X
o8
1000
100
10
1837
1846
1855
1864
1873
1882
1891
1900
FIGURE3
HAWAII SUGAR EXPORTS, 1837-1900
Source: Shoemaker,Labor,p. 12.
Hawaii of specified Americangoods."6Reciprocitypromisedthe United
States some precedence in its relationshipwith Hawaii vis-a-vis other
nations.But the oppositionof Louisianasugarplanterskilledthe 1855 treaty
in the Senate.17 The AmericanCivil War affected whaling and sugar in
oppositeways. The warhalvedthe activewhalingfleet andthe Confederate
frigatesAlabamaandShenandoahsank46 vessels.18By contrast,Hawaii's
sugarexportssoaredduringthe waryears,as seen in Figure3. Althoughthe
end of the Civil Warsaw the demiseof whalingandthe ascendanceof sugar
as the basis of Hawaii'seconomy,the cessationof hostilitiesalso endedthe
boom in Hawaii sugar.In 1867 the Americanadministrationdeclaredits
willingness to discuss a reciprocityagreement,and a treatywas rapidly
'6The 1855 treaty,reproducedin U.S. Senate,S. Doc. 231, pp. 407-409, referredto "unrefined
sugar."The 1867treaty,transmitted
by PresidentAndrewJohnsonin a confidentialmessage,allowed
duty-freeaccessforsugar"notabovenumbertwelve(12) Dutchstandard."
See U.S. Senate,"Message
of the Presidentof the United States."The Dutch Standardclassifies sugarby using sugarcolor as a
measure of purity,with purity increasingwith the classificationnumber.Gradesbelow No. 7 are
typicallycrudesugarspurgedof molasses.GradeNo. 12 generallyrepresentsthe dividingline between
manufacturedsugarsand sugarsthat have been subjectto an independentprocess of refining.See
Wells,SugarIndustry,pp. 24-29.
'7Kuykendall,
HawaiianKingdom,vol. 2, pp. 45-46.
'8lbid.,p. 138.
Reciprocal Tradeand Hawaii's Overthrow
167
approvedby the Hawaii government.The U.S. Senate failed to ratifythe
1867 treaty,thoughin this case the loss of tariffrevenueproved the main
point of opposition.'9
Annexationandreciprocityissues intertwinedin theseyears.On the heels
of the dispute with the French,the Hawaii and Americangovernments
negotiated a formal annexationtreaty in 1854. The treaty provided for
admissionas a state,U.S. citizenshipof all subjects,and an annuityto the
royalfamily.A "secret"articleprovidedthat,if priorto ratification,another
power threatenedHawaii,the Kingcould declarethe islandsannexedto the
UnitedStatesandthe U.S. Commissionerwouldprotectthe islandsuntilthe
KamehamehaIIIdied beforethe treaty
U.S. Senatevoted on ratification.20
was signed and his successor, KamehamehaIV, opposed annexation.
Indeed, one of the new king's first acts was to break off annexation
negotiationsand begin reciprocitydiscussions.2"In the following decade
U.S. proponentsof annexationactuallyhelped defeatthe 1867 reciprocity
treaty.ExpansionistAmericansin bothcountriesopposedthe treatybecause
they thoughtit would interferewith the largergoal of annexation.Proponents of the treaty respondedthat reciprocitywas a prelude to annexation-and more easily shepherdedthroughthe U.S. Senate.Many native
Hawaiians apparentlyagreed with this view-and opposed the treatyon
those grounds.22
In sum, Americanshad establisheda substantialpolitical and economic
presencein Hawaiiby 1870. The U.S. governmenthad made clearto other
nationsthatit "couldnever with indifferenceallow [Hawaii]to pass under
the dominionor exclusivecontrolof any otherpower."23
And the stage was
set for a dramaticallycloser tie betweenthe two countries.
THE 1876 RECIPROCITYTREATY
The U.S. Governmentfavored a reciprocitytreatywith Hawaii as an
inducementfor the two countriesto formn
closerpoliticalties andto exclude
foreigngovernmentsfromusingthe islandsfor strategicadvantage.In 1872
U.S. Generals Schofield and Alexander had traveled to Hawaii on a
governmentmission to evaluatethe strategicvalue of Hawaii's ports and
submitteda secretreportemphasizingthe valueof PearlBay as a harborfor
19Robinson(History,pp. 115-16); and Tate (Hawaii, pp. 74, 76) noted that the level of U.S.
governmentdebtcasta pall overthe prospectof losing revenuefromany source.Tate(Hawaii,p. 70)
also observedthatthe Louisianasugarindustryhadnot yet recoveredfromthe war.
'OAcopy of the treatyappearedin U.S. Senate,S. ExecutiveDoc. 77, pp. 123-24.
21Kuykendall,
HawaiianKingdom,vol. 1, p. 426 andHawaiianKingdom,vol. 2, p. 38.
22Kuykendall
(HawaiianKingdom,vol 2, pp. 220-30) discussedtherelationshipbetweenreciprocity
and annexationat the end of the Civil War.Also see Tate,Hawaii, pp. 71, 76.
23Secretaryof State John Clayton to WilliamC. Rives, U.S. Ministerto France,5 July 1850,
reproducedin U.S. Senate,S. ExecutiveDoc. 77, pp. 83-84.
168
La Croix and Grandy
U.S. ships.24As early as 1873 the Hawaii governmentofferedthe United
Statesexclusiveuse of PearlBay in exchangeforreciprocity,but subsequent
opposition by the native Hawaiian public forced the government to
withdrawthe offer.25
Sugarinterestshelpedelect KingKalakauato the throneover the Britishin February1874,andtheking immediatelyrenewed
leaningQueenEmma26
the questfor a reciprocaltradeagreement.Laterthatyearthe two countries
concludeda reciprocitytreatythatdid not mentionPearlBay.27However,
the U.S. Senate inserteda clause thatpreventedthe king from leasing or
disposing of any "port,harbor,or otherterritoryin his dominions"to any
foreign government for the life of the treaty. The Senate ratified the
amendedtreatyin March 1875 by a vote of 51 to 12. Because reciprocity
affected tariff revenue, a separatebill implementingthe treaty had to
originate in the House of Representatives;the House passed the bill on 8
May 1876 on a vote of 115 to 101. The Senate approvedthe bill on 14
August 1876 on a vote of 29 to 12. KingKalakauaproclaimedthe treatyon
17 June 1876, and the Hawaii Legislaturepassed an act carryingit into
effect on 23 June 1876.28
Congressionaldebateover the treatyfocusedon a commonset of critical
issues thatsupportersandopponentsof the treatyevaluatedvery differently.
Supportersof the treatyemphasizedthe strategicvalue of Hawaii to the
UnitedStatesandsoft-pedaledthe loss of U.S. tariffrevenue.For example,
the MajorityReportof the House Committeeon Waysand Means asserted:
The slightloss of [tariff]revenueis of smallvalue as comparedwith the manyhigher
and more importantintereststo be subserved.
The Pacific Oceanis an Americanocean,destinedto hold a farhigherplace in the
futurehistoryof the world thanthe Atlantic.It is the futuregreathighwaybetween
ourselves and the hundredsof millions of Asiatics who look to us for commerce,
Theseislandsrestmidwaybetweenus and them as the
civilization,andChristianity.
necessarypointprovidedby the GreatRulerof the universeas pointsof observation,
rest, supply, military strategy,and command, to enable each other to unite in
29
protectingboth hemispheresfromEuropeanassault,aggression,and avarice.
By contrast,the MinorityReportfearedenormoustariffrevenue losses
and emphasizedthe lack of benefitsto U.S. consumersof sugar:
24SeeKuykendall,HawaiianKingdom,vol. 2, pp. 247-50.
25Kuykendall,
HawaiianKingdom,vol. 2, pp. 249, 255; and Tate,Hawaii, pp. 95-100.
26Emma Naea RookemarriedKing KamehamehaIV in 1856 and was knownthereafteras Queen
Emma.
27Kaldkauaopposed the proposed cession of Pearl Bay in 1873. See Kuykendall,Hawaiian
Kingdom,vol. 3, p. 19. PearlBay couldonly serveas a majorharborif substantialimprovementswere
madeto widen the channelprovidingaccess fromthe bay to the Pacific Ocean.
28SeeKuykendall,HawaiianKingdom,vol. 3, pp. 30, 34, 39.
29U.S. House, Committeeon Waysand Means,p. 11.
Reciprocal Tradeand Hawaii's Overthrow
169
Should we, therefore,securethe whole tradeof the islands by this treaty,it would
cost us a dollar [in tariffrevenue]for the privilege of selling goods of the value of
another,andduringthe seven years' continuanceof the treaty,should it be ratified,
it will cost us at least $10,000,000.
Neitherwouldthis give us cheapsugar;the quantityimportedis only one per cent
of our consumption,nor can it exceed (for naturalcauses, such as the limited
quantityof arablelands) five or six per cent of our consumption;and this cannot
reducethe prices in our market.30
The minority also noted the strategic importanceof the Islands but
distinguishedbetween excludingEuropeanpowers and obtaininga "foothold"in the islandsvia treatyconcessions:
Much stressis laid by the reportof the majorityupon the importanceto the United
States of obtaining a foot-hold upon these islands in the safety of our Pacific
commercewith the continentof Asia, and of our safety in case of futurewars with
any greatnavalpower.
[I]tis one thingto decidethatno othernationshalltakehold uponthe islands,and
quite anotherto determinewe will not do so ourselves.The policy of annexingthe
islandsto the UnitedStatesis one full of difficulty.It would entailuponus enormous
expense, and would make it as importantto extend our domainbeyond them to
protectourpossessionin them as it is now plausiblyarguedthe possession of them
is essentialto the securityof ourPacific seaboard.
The debatesin the House and Senate,as well as Hawaii's acceptanceof
the PearlHarborclause in the final treaty,can be fruitfullyanalyzedusing
the theory of internationaltrade.32We begin with a simple partialequilibriumanalysis(Figure4) illustratingthe effect of a unit tariffon sugarin the
U.S. sugar market.The analysis assumes that the United States, which
importedover 90 percentof its sugarin 1875, was a pricetakerin the world
sugar marketand thatHawaii,which suppliedless than2 percentof U.S.
imports,was a price takerin the U.S. market.The U.S. sugarprice, Pus.,
equalsthe worldprice,P,' plus the tariffrate.Domesticsugarfirmssell OX
and Hawaii firms sell OY. The reciprocityagreementincreasesthe price
receivedby Hawaiiproducersby the amountof the tariff,expandingHawaii
output to OY'. The expansion of Hawaii output is offset by an equal
contractionin foreign supply to the United States. In the literatureon
preferentialtariff reductions,this diversion of supply from a lower-cost
exporterto a higher-costexporteris knownas the "tradediversioneffect."33
30Ibid.,p. 16.
3"Ibid.,p. 5.
32Taussig("Reciprocity")anticipatedsome of ourarguments.
33SeeVousden(Economics)for a more completediscussion of preferentialtariffreductions.De
containsan excellentanalysisof preferentialtariff
Melo, Panagariya,andRodrik("NewRegionalism")
reductionsinducedby the formationof a free-tradearea.We treatthe U.S.-Hawaiireciprocitytreaty
as a free-tradeareaagreement,althoughthe treatycoveredonly a subsetof the tradedgoods between
the two countries.
La Croix and Grandy
170
$
HawaiiSupply
os/
;19--
Supply
z~~~~~~~~U.S.
Hawaii+ U.S. Supply
Pu
B
WorldSupply+ Tariff
us
PwE
WorldSupply
U.S.Dmn
0
Y
Y'
X
Z
SugarOutput
FIGURE4
SIMPLEANALYTICSOF RECIPROCITY
This effect may be comparedto the "tradecreationeffect," in which the
tariff reduction lowers prices, raises domestic consumption, decreases
higher-costdomesticproduction,andincreaseslower-costimports.None of
this happensin this case. Instead,becausethe preferentialaccess of Hawaii
sugarto the UnitedStatesdoes not affectthe priceof sugarreceivedby U.S.
producersor paidby U.S. consumers,reciprocityshouldnot affecteitherthe
U.S. domestic sugar outputor the profitabilityof U.S. sugarplanters.In
otherwords,preferentialaccess of Hawaii sugarto the U.S. marketdid not
generatea tradecreationeffect and representsa special case of pure trade
diversion.
The U.S. governmentwas the only U.S. groupto suffernet losses from
the treaty,as U.S. tariffrevenuefell fromABCD to EBCF.34Partof the lost
tariff revenue is transferredto Hawaii producersand part amounts to a
deadweightloss, dissipatedin the form of higherproductioncosts.35Thus
Figure 4 shows that the reductionin U.S. sugartariffsleaves two groups
unaffected(U.S. sugarproducersandsugarconsumers),one groupworse off
(U.S. government),and one groupbetteroff (Hawaiisugarproducers).
The analysisof the impactof the eliminationof Hawaii's tariffson U.S.
exports of manufacturedgoods differs from the prior analysis due to the
small size of the Hawaiimarketrelativeto the U.S. market.The small size
of the Hawaii marketimplies that additionalsupply to Hawaii from U.S.
34Thereciprocityagreementgeneratedsome transfersacrosssugarrefiners.Hawaii sugarexports
displacedotherforeignsugarexportsthatwere shippedto the East Coastand refinedby East Coast
refiners.The new Hawaii sugarexportswere shippedto the West Coast and were refinedby West
Coastrefinersthatwereindependentof the East Coastfinms.Since the tradediversionleft East Coast
refinerswith excess capacity,they were generallyopposedto the reciprocitytreatywith Hawaii.
3"Some of the tariff revenuemay have accruedto factorsof productionif the expandingsugar
industrybid up factorprices.The treatyalso stipulatedthatneithercountrycould imposean export
levy.
Reciprocal Tradeand Hawaii 's Overthrow
171
industriescould be accommodatedwithoutan increasein marginalcost or
industryprice.Thuswe would expect thatU.S. firmswould respondto the
preferentialeliminationof Hawaiitariffswith a perfectlyelastic increasein
output.CompetitionamongU.S. firmswould reduceprices fromthe world
priceplus the Hawaiitariffto the worldprice,therebystimulatingadditional
importsof U.S. manufacturedgoods. The tariffrevenueson manufactured
goods lost by Hawaii's government would be transferredto Hawaii
consumers and sugar plantationspurchasingmachines and parts. Thus,
firmsfromadditionalsales in Hawaii
surplusearnedby U.S. manufacturing
would be close to zero. In sum, the theoryof preferentialtradeagreements
indicatesthatno U.S. interestswouldgain from the reciprocitytreaty,the
U.S. governmentwould lose tariffrevenueon the importof Hawaii sugar,
and the United States would experiencea reductionin welfare from the
preferentialtrade.36
It is notablethatbothproponentsandopponentsof the treatyin Congress
correctly recognized that the treaty's commercialprovisions would not
produce gains for U.S. interests or the governmentand that debate in
Congressfocused on the size of the loss in tariffrevenue.The size of the
loss in tariffrevenuedependedcriticallyon the exportelasticityof Hawaii
sugaras well as the size of the U.S. sugartariff.U.S. tariffson sugarwere
approximately30 percentin 1874,indicatingsignificantex antepotentialfor
largeU.S. losses fromthe treaty.
This analysis suggests that in terms of direct economic benefits, only
Hawaii producersand consumersstood to gain from the treaty;this may
explain why the United Statesdemandeda compensatingpayment.While
some legislatorsmight have been satisfied with the implicit promise of
enhanced influence in Hawaii, inclusion of a provision more clearly
advancingU.S. interests,suchas a restrictionon foreignaccessto PearlBay,
could have acted as a sweetener to make the treaty more palatable to
Congress.
Interestinglythe treaty's structureis consistentwith recent theoretical
models of equilibriumtariffsbetweenlargeand small countries.It is wellknownthatfortwo countriesof sufficientlydifferentsize, a free-tradetreaty
lies outsidethe core;thatis, given the small country'szero tariff,the large
countryprefersa positive tariff.37Buildingon this analysis,JohnMcLaren
shows thata largecountryrequiresa sidepaymentfromthe smallcountryin
order to accept a free-tradetreaty that imposes zero tariffs on both
In the U.S.-Hawaiicase, the sidepaymentwas the U.S. Senate's
countries.38
amendmentrestrictingthe king from leasing or disposing of any "port,
(Contribution)demonstratedthatthe formationof a free-tradeareabetweentwo countries
36KemW
could reducethe welfareof one countryif it was not compensatedwith a sidepayment.
and Kennanand Reizman,"Do Big Countries."
"TheoreticalConsiderations";
37Mayer,
38McLaren,"Size."
172
La Croixand Grandy
harbor,or otherterritoryin his dominions"to any foreigngovernmentfor
the life of the treaty.39
Viewed in this light the Houseand Senatedebatesmakeconsiderable
sense. Supportersandopponentsof the treatyclashedovertheirdisparate
evaluationsof themagnitudes
of U.S. economiclosses fromthe treaty.The
U.S. Senateamendment
to thetreatyhadtheeffectof addinga sidepayment
from Hawaii,therebyallowingthe treatyto gain supportfromlegislators
who doubtedtheeconomicvalueof thetreatyyethighlyvaluedthepolitical
sidepayment.
EXPANSION
OFTHESUGARINDUSTRY
Therapidexpansionof Hawaii'ssugarindustryquicklysettledthe U.S.
Congressionaldebateoverthe extentof reciprocity-induced
sugarexports
from Hawaii in favor of the treaty'sopponents.Figure3 illustratesthe
expansionof Hawaiisugarproductionafterreciprocity.The realvalue of
Hawaii'snet sugaroutputmorethandoubledbetween1870 and 1880 and
thenalmosttripledbetween1880and 1890.40Sugarexportsto the United
Statesrosefrom21 millionpoundsin 1876,to 114millionpoundsin 1883,
andto 224.5 millionpoundsin 1890.Acreagedevotedto sugarproduction
increasedfrom8,500 in 1870,to 26,019 in 1880,andto 87,016 in 1890.41
Sugar plantationsexpandedtheir acreage by purchasingprivate and
governmentlandsandby leasingCrownlands.42
Thephenomenalincreasein sugarproductionalso requireddramatically
largerinvestmentsin capital.Investmentstook the form of large-scale
irrigation
projects,adoptionof themostrecentadvancesin sugarprocessing,
and expandeduse of fertilizer.Thevalueof capitalin Hawaiisugar(1910
to 1914 dollars,excludingland)rose from$1.4 millionin 1870, to $4.5
millionin 1880,andto $14.7 millionin 1890.43
39The1876provisionrepresents
a compromise
betweentheU.S. government's
demandforexclusive
access to PearlBay in 1873 andthe Hawaiigovernment'srejectionof this provision.In 1887 the
UnitedStates,as we discussbelow,wasableto extractitsoriginaldemandforexclusivepropertyrights
overPearlBay in thenegotiationsovertreaty.renewal.
40SeeMollett,"Capital,"p. 35. In line with our partialequilibriumanalysis,Louisianasugar
production
notonlyfailedto decline,butit continuedits postbellumrecoverythroughout
thisperiod.
See "TheTariffBill,"(20 May 1890)p. 4995.
4'Determined
by multiplyingthe numberof plantationsby the averageplantationsize in Mollett,
"Capital,"
p. 28.
42By1893 sugarplantationsrented14,126acresof Crownlands,representing
approximately
14
percentof cultivatedcanelands.See Iaukea,BiennialReport.TheKing,ratherthanthe government,
receivedincomefromCrownlands.KingKalakaua'sincomefromsugarleaseson Crownlandsmay
help to accountfor his supportof the reciprocitytreatyin the face of strongoppositionfrommany
nativeHawaiians.
43Mollett,
"Capital,"
p. 21.
Reciprocal Tradeand Hawaii's Overthrow
173
TABLE1
ETHNIC HAWAIIAN POPULATION
Year
Hawaiian
1853
1860
1866
1872
1878
1884
1890
1896
70,036
65,647
57,125
49,044
44,088
40,014
34,436
31,019
Percentage
Change
-6.3
-13.0
-14.1
-10.1
-9.2
-13.9
-9.9
Part
Hawaiian
Percentage
Change
Combined
983
1,337
1,640
2,487
3,420
4,218
6,186
8,485
36.0
22.7
51.6
37.5
23.3
46.7
37.2
71,019
66,984
58,765
51,531
47,508
44,232
40,622
39,504
Percentage
Change
-5.7
-12.3
-12.3
-7.8
-6.9
-8.2
-2.7
Source: Schmitt, Historical, 25.
Reciprocityalso radicallyalteredthe demographiccompositionof the
islands and laid the groundworkfor laterpolitical concernsby both native
Hawaiians and the white elite. Sugar expansion sharply increased the
demand for labor: Plantationemploymentrose from 3,921 in 1872, to
10,243 in 1882, andto 20,536 in 1892."4The increasein overallplantation
employment was, however, accompaniedby a fall in the number of
HawaiiansandPart-Hawaiiansemployedon sugarplantations,from 3,299
in 1872, to 2,575 in 1882, and to 1,717 in 1892, or a decline of 48 percent
over the period.45The 21 percentdeclinein the native Hawaiianpopulation
duringthis period(see Table1) accountsforpartof this fall in employment,
but it clearly fails to explain all-or even most-of the fall in Hawaiian
employmenton sugarplantations.
The enormous increase in the plantationworkforce consisted of first
Chinese, then Japanese, contract laborers who came to Hawaii after
reciprocity.As Table2 indicates,this largeflow of immigrantsdramatically
changedHawaii's demographicpicture.
As laborcontractswith the plantationsexpired,most formerplantation
workers moved to urbanareas, competing with both whites and native
Hawaiians in retail and labormarkets.46Both groupsexpressed concerns
aboutthe economicandpotentialpoliticalthreatsto the statusquo posed by
the flow of immigrantworkersfromthe plantation.47
RENEWAL OF THE TREATY
By 1883 groups were organizingin the United States to abrogateor
modify the treaty. U.S. Congressionalcommittee reports on a bill to
44Shoemaker,
Labor,p. 34.
45Ibid.
46Morgan,
Hawaii, p. 190.
47SeeKuykendall,HawaiianKingdom,vol. 3, chaps.5 and 6, especiallypp. 172-85. In 1892 "An
Act RestrictingChineseImmigration"
prohibitednew immigrants
fromengagingin anybutagricultural,
sugaror rice mill, and domesticoccupations.Ibid.,p. 546.
La Croixand Grandy
174
TABLE2
BY PLACEOFBIRTH
HAWAII'SPOPULATION
Year
Hawaii
1872
52,380
(92.0)
48,455
(84.0)
46,272
(57.0)
48,117
(53.5)
53,237
(49.0)
58,931
(38.0)
1878
1884
1890
1896
1900
UnitedStates
China
889
(1.6)
1,276
(2.2)
2,066
(2.6)
1,928
(2.1)
2,266
(2.1)
4,238
(2.7)
1,938
(3.4)
5,916
(10.2)
17,939
(22.0)
15,301
(17.0)
19,382
(18.0)
21,741
(14.0)
Japan
116
(0.1)
12,360
(14.0)
22,329
(20.5)
56,234
(36.5)
Portugal
395
(0.7)
436
(0.7)
9,377
(11.6)
8,602
(9.6)
8,232
(7.5)
6,512
(4.2)
arethepercentagesof thetotalpopulation.
Notes:Thenumbersin parentheses
Source. Schmitt,Historical,p. 90.
terminatethetreatylet loosea barrageof criticism.TheMajorityReportof
the HouseCommitteeon ForeignAffairsassertedthat:
to thepeopleof thetwo countriesappearto haveessentially
Therelativeadvantages
changedsince the treatywent into effect. The changeof these relationshas been
of sugar... which[has]
chieflyeffectedby theverylargeincreasein theproduction
beenexportedtherefromto the UnitedStatesunderthe treatyin question.48
The Committeenotedthat"thisresultis entirelywithoutthe intentof the
contractingpartiesat the timethetreatywas made."Despitetheseadverse
results,the Committeerecommendedrenewingthe treatywith modifications,as "itwouldbe follyto takeanystepwhichmightlose to us the most
importantkey to the commercialandnavalsituation[in the Pacific]."49
The MajorityReportof the SenateCommitteeon Financeechoedthese
themesbutdifferedin its strategicevaluationof the Islands.Notingthatthe
countrywith the most powerfulnavy would alwayscontrolHawaii,the
Committeestatedthat"[i]tcannotconcernus whotherulersof theseislands
may be, as they can neverbe formidablefor aggressions,being over two
thousandmilesdistantfromthe Pacificcoast..*. ' The SenateCommittee
recommendedabrogationof the treaty,possibly as a "firststep"to its
ultimatemodification.
Ourroughcalculations(see Table3) of thelossesto theU.S. government
duringthe treaty'sinitialseven yearsprovideconsiderablesupportto the
48U.S.House,H. Rept.1860,p. 1.
49IJbid.
50U.S.Senate(1883),p. 5..
Reciprocal Tradeand Hawaii 's Overthrow
175
TABLE3
U.S. LOSSESFROMRECIPROCITY
(Dollars)
Year
1877
1878
1879
1880
1881
1882
TariffRevenueLost on
HawaiianSugar
986,475
989,602
1,266,555
1,881,563
2,427,778
3,314,939
Less SugarDuties to
American-ownedSugar
in Hawaii
U.S. Losses
246,619
247,401
316,639
470,391
606,945
828,735
739,856
742,201
949,916
1,411,172
1,820,833
2,486,204
Sources: Laughlinand Willis, Reciprocity,p. 86; and Searle,Few, p. 9.
argumentsof the treaty's opponents.51U.S. losses consisted of foregone
tariff revenue on sugarreducedby an estimateof the shareof Americanowned sugarproductionin Hawaii.This calculationuses Searle's estimate
of 25 percent as the Americansharein Hawaii sugarplantationcapital.52
LargeU.S. losses would still remainif we increasedthe Americanshareto
50 or 75 percent.Since ourcalculationdoes not includeU.S. losses on other
Hawaii goods exportedduty-freeto the United States-notably rice-our
analysis underestimatesU.S. losses. Nonetheless, these losses grew from
$740 thousandin 1877 to $2.5 million in 1882.
In spite of Congressionalconcernsover renewal,the two governments
agreedon a seven-yearextensionof the treatyin December1884. In a move
reminiscent of its actions in 1876, the U.S. Senate then attached an
importantamendment:
[H]is Majesty... grantsto the Governmentof the United States the exclusive right
to enter the harborof Pearl River, in the island of Oahu, and to establish and
maintaintherea coalingandrepairstationfor the use of vessels of the United States,
andto thatend the UnitedStatesmay improvethe entranceto said harborand do all
otherthings needfulto the purposeaforesaid(emphasisadded).53
With this amendmentthe Senateapprovedthe treatyby a vote of 43 to 11
in January1887.
Fourfactorsallowedthe United Statesto extractmore concessions from
Hawaii at renegotiation.First the grantto the United States of exclusive
rightsto PearlHarborreflectedthe unexpectedlylargeexpost gainsaccruing
to Hawaiifromthe rapidexpansionof the sugarindustryand the accompa5"0urresults coincide with those of Davis and Huttenback(Mammon),who found that Britain
probably sufferednet losses from its empire(despite gains by particularmanufacturinginterests).
Coehlo("Profitability")
calculatedthatBritainexperiencedsignificantlosses in its commercialrelations
with its West Indies colonies in the eighteenthcentury. We have not included gains to U.S.
manufacturinginterestsin our calculations,as our theoreticalanalysis indicatesthat such gains are
implausible.
52Searle, Few Facts, p. 9.
53Thetreatyextensionappearedin U.S. Senate,S. ExecutiveDoc. 77, pp. 166-68.
176
La Croix and Grandy
nying transferof tariff revenue from the U.S. government.Because the
economiclosses to the UnitedStatesexceededexpectationsand could have
reasonablybeen expectedto grow duringthe courseof the extendedtreaty,
the United States would requirea largercompensatingside paymentto
restorea Nash equilibriumduringthe extendedtermof the treaty.Strengtheningthe treaty'sPearlHarborclauseto the advantageof the United States
constitutesthe additionalcompensation.
Second Hawaii's bargainingposition had deteriorateddue to the
expansionof its sugarindustryandplantationinvestmentin specificcapital.
Most of the investments in large-scale irrigationprojects and in land
improvementswere specific to the sugar industry,since most sugarcane
lands could not produceothercropsof similarvalue. McLarenhas shown
that when small-countryinvestmentin specific, export-sectorcapital is
coupled with futuretradenegotiationswith the large country,the small
Dependenceon exportingto the largecountry
countryprovesvulnerable.54
hampersthe small country'sbargainingpower.In fact McLarenfinds that
wheneverexportsinsufficientlysubstitutefor imports,negotiatedfree trade
is worse thanautarchyfor the small country.55
The decentralizeddecisions by individualsugar plantersto invest in
specific capital have a cumulativeeffect of eroding the small country's
future bargainingposition. Because each firm's investment in specific
capitalcontributesonly a smallamountto the strategicextemality,eachfinrn
will find it rationalto ignore its contributionsto the externality.Since
investmentsin Hawaii'ssugarindustryduringthe 1870sand 1880swere not
coordinatedby eitherthe industryor the government,the strategicexternalitywas ignored.56
GeneGrossmanandElhananHelpman'smodelof bilateraltradetalksand
It emphasizesthattradeagreementswill reflect
tradewarsis also relevant.57
In this context,
the relativestrengthsof interestgroupsin both countries.58
the huge increase in the wealth of Hawaii's sugar plantersconferreda
negotiatingadvantageon the United States, as the sugarplanters'wealth
dependedon the continuationof the treaty.Theywere, therefore,less likely
to objectto an increasein Hawaii'ssidepaymentsas long as sugarcontinued
to enterthe United Statesfree of duty.
54McLaren,
"Size."
55Ibid.,pp. 45-46.
56However,ClausSpreckels'ssharein the sugarindustry'scapital,about25 to 35 percent,was surely
largeenoughfor him to considerthe effectsof his investmenton the strategicexternality.
57Grossmanand Helpman,"TradeWars."
58Bycontrastin a tradewareachgovernment
actsunilaterallyanddoes not considerhow its actions
affect interest groups in the other country. If politicians in both countries can switch from
noncooperativechoices of tradepolicy to a cooperativeagreement(negotiatedin tradetalks), the
welfareof both countriescould be improved(with appropriate
lumpsumtransfers).
Reciprocal Tradeand Hawaii's Overthrow
177
The expected decline in Hawaii's bargainingposition was clearly
understoodby Hawaii officials when they negotiatedthe 1867 reciprocity
treaty (which the U.S. Senate failed to ratify). Charles de Varigny,the
ForeignMinisterof the Kingdomof Hawaii,hadwarnedKingKamehameha
V of futureproblemsassociatedwith a limited-termreciprocitytreatywith
the United States. He noted that a reciprocitytreatywould immediately
benefit Hawaii's "agriculturalinterests,"but would also expose Hawaii to
"appallingdangers"at the treaty'srenewal.S9
Supposethe tariffwere in effect for a periodof seven years ... and thus assuredus
a remarkable
prosperityfor this periodof time.Whatif, at the expirationof this term,
the United Statesgovernmentshould exertthe rightto annulthe treatyand impose
on oursugara tariffrateof fifteencentimesperpound,as it was alreadydoingat that
moment? Would not such a shift in futurepolicy result in a terriblecommercial
crisis? Threatenedby imminentruin, would not our plantersall rally round the
notion of annexationto the United States, if only that nation would assuage the
planters' fears of the futureby permanentlyabolishingthe tariff on sugar? Such
circumstanceswould be a formidabletest of our political autonomy.How would
Hawaii surviveit?
De Varigny'scommentaryraises a difficultquestion:Why would Hawaii
enterinto an agreementthatwouldreduceits welfareat treatyrenewal?De
Varignyprovidesa partialanswerto his own question:
But was it feasible to reject the overturesof the United States and, out of fear of
possibledangerto Hawaii,ignorethepresentandverypositiveeconomicadvantages,
contributingat exactly the rightmomentto the success of ourpolitical programfor
Hawaii?. . . [S]even yearswould give us time to establishour sugarproductionon
a solid basis. Above all, we wouldhave an opportunitythroughsimilarnegotiations,
to openup othermarketsthatwouldcompensateus for the loss of California,in the
event thatour gloomiest forecastswould be fulfilled.60
De Varigny's comment modifies McLaren's analysis of the interaction
betweensmallandlargecountriesby introducingpotentialcompetitionfrom
other large countries for the small country's political favor.61Such
competitionlimitsthe rentextractionthatthe largecountrycould achieve in
negotiationsto extendthe termof the reciprocitytreaty.
Third despite De Varigny's hope for developing alternativemarkets,
Hawaii's alternativesto a reciprocitytreatywith the United States significantly diminished during the course of the treaty. Although Hawaii
consideredreciprocitytreatieswith GreatBritain,Canada,or Australiaas
alternativesto a treatywith the United States in 1874, these options were
less promisingin 1883. GreatBritainhadrepealedits tariffon sugarin 1874
59DeVarigny,Fourteen Years,p. 205.
6SIbid.
"iSee, however, McLaren, "Size," pp. 43-44.
178
La Croixand Grandy
andthereforecouldnot offerdirectreciprocitybenefitsto Hawaii.Hawaii
had consideredthe possibilityof a reciprocitytreatywith the Australian
colonies in 1874, but Queensland'ssugaroutputgrewrapidlyafter 1870,
andit exportedrawsugaras earlyas 1880.62Moreover,in 1883the tariffs
on raw sugarin New SouthWalesand Victoriastood at only 20 to 35
percentof theU.S. levels,andAustralia'spopulationin 1880was only 4.4
percentof the U.S. figure.Only Canada,with a tariffof more than 25
percenton raw sugar,but a populationonly 8.8 percentas large as the
in 1883.63
As Hawaii's
UnitedStates,remaineda potentialtreatyalternative
alternativetreatyopportunitiesworsened,the negotiatingpositionof the
United States improved,allowing it to demandmore from Hawaii at
renegotiation.
expansionof Hawaiisugargreatlyincreasedthe
Finallytheunanticipated
wealth of Hawaiisugarplantersand widenedthe divergenceof interests
among Hawaii residents.The plantershad clear incentivesto expend
resourcesandto takeactionsto ensurethetreaty'ssuccessfulrenegotiation.
The position of the sugarplanterswith respectto extendedreciprocity
differedfromthepositionof nativeHawaiiansin one fundamental
respect.
to theUnitedStatesin theformof extendedrights
Additionalsidepayments
to PearlHarborwere favoredby the sugarplanters,whereasmost native
Hawaiianswere adamantlyopposedto moreconcessions.Sugarplanters
favoredtheadditionalconcessionsas theycementedHawaii'sties with the
UnitedStatesandincreasedthe securityof theirpropertyrights.Fromthe
perspectiveof the UnitedStates,the increasedprominenceof an interest
groupwithin Hawaiifavoringsuch concessionsincreasedits bargaining
position vis-'a-visHawaii, as it would be more difficult for Hawaii's
governmentto musterdomesticsupportforresistingU.S. pressurefor more
concessions.Fromtheperspectiveof nativeHawaiians,concessionson Pearl
a significantloss thatwas not matchedby
Harbor'ssovereigntyrepresented
treaty.Giventhe increased
anyaddedgainsto Hawaiiansin therenegotiated
thehigherdemandsof
stakeof the sugarplantersin maintaining
reciprocity,
the United States,and the oppositionof native Hawaiiansto additional
sidepayments,the stagewas set for confrontation.
who opposedearlyproposalsto cede PearlHarborto the
KingKalakaua,
UnitedStates,vowedneverto signthe new treatyandtherebyjeopardized
62Galloway,
SugarCane,p. 220; andLaughlinandWillis,Reciprocity,
p. 559.
63Canadian
tariffsfromBrown,RevisedAnalyses,p. 41. Tariffsin VictoriaandNew SouthWales
fromPatterson,Tariffp. 67 andconvertedat theprevailingexchangerateof $5.46/? for 1876. See
table4.9 in FriedmanandSchwartz(MonetaryTrends)for$/? exchangerates.Canadianpopulation
for 1881 fromKubatandThornton,StatisticalProfile,p. 16. Australianpopulationestimatefrom
Cameron,YearBook,p. 74. U.S. populationfor 1880 fromU.S. Bureauof the Census,Historical
Statistics,p. 15.
Reciprocal Tradeand Hawaii 's Overthrow
179
his throne.' The King's oppositionto the treatycame againsta background
of risingHawaiianandforeignresidentoppositionto a numberof his other
policies, includingthose relatingto governmentfinance.
The sugarboom dramatically
raisedthe revenuesavailableto the Hawaii
government.As Table 4 reveals total receipts grew at an annualrate of
almost 9 percentbetween the bienniumending in 1874 and the biennium
ending in 1886. Customsreceiptsfinanced30 to 40 percentof the Kingdom's budgetin thisperiodandgrewat a 7.5 percentratebetween1874 and
1886. Receiptsfrominternaltaxationrose at a faster10 percentrate,causing
theirsharein totalreceiptsto rise. Furtherthe shareof receiptsfromrealand
personalpropertytaxationjumped from 11 percentin 1874 to almost 20
percent in 1884 before declining to over 17 percentin 1886.65Over the
twelve-yearperiodrealandpersonalpropertytax receiptsgrew at an annual
rateof 13.5 percent.
Yet the government'sappetitefor revenuequicklyexceeded even these
resources, sowing the seeds of discontent in the business community.
Expendituresmore thankeptpace with the growthin receipts,forcingthe
Kingdomto resortto debt financingof the resultingdeficits. Bonded debt
rose over the periodfrom$340,000 in 1874 to just over $1 million in 1886.
In the next bienniumthe debtwould almostdouble.The increasedexpenditures might have been devoted to infrastructurecomplementaryto sugar
production. Yet planters complained that the Hawaii government had
"shamefullyneglectedroads,harbors,andotherpublicworks"andthatthere
hadbeen "misapplication[s]
of fundscontraryto statutoryrequirements."66
Otherissues besides reciprocityand taxationcontributedto the king's
unstableposition. An ill-fated diplomaticmission to Samoa, rumorsthat
bribery was a factor in awarding the opium concession, charges of
extravagantspendingby the king, and a disputewith Claus Spreckels(the
leading sugarplanter)over a largegovernmentloan from Londonbrokers
had all placed the governmenton a precariousfooting.
Thus although there were several complaints against the king and
governmentthathelpedtriggerrevolt,the king's threatenedrejectionof the
amended reciprocitytreaty must rank high among them. In July 1887,
backed by an armedforce (consistingmostly of Caucasians),government
opponents forced the king to accept a new cabinetand constitution.The
weakenedthe king's veto power by allowing an
"BayonetConstitution"
64See Kalakaua'scommentto British Commissioner,J. H. Wodehouse,quoted in Kuykendall,
Hawaiian Kingdom, vol. 3, p. 395. Further,his cabinet urged Kallkaua to initiate reciprocity
negotiationswith Canadain late February1887. Ibid.,p. 393.
65Thistemporarydecline in the propertytax sharemay have motivatedthe increasein real and
personalpropertytax ratesfrom0.75 percentto 1.0 percentin October1886. Hawaii Session Laws,
1886, chap. 32, 8 October1886.
66Kuykendall, HawaiianKingdom,vol. 3, p. 355.
180
La Croix and Grandy
c
b
a
For
1898
1895
1896
1892
1888
1894
1894
1890
1886
1882
1878
1876
1884
1880
1874
Yeara
1897c
Source:
nine
Customs
Bienniums
Total
duties
Ministry
months
ending
of and
(dollars)
2,680,843
2,779,155
2,188,828
1,975,322
1,798,065
1,302,652
1,064,513
3,014,106
3,254,320
2,926,636
2,423,185
1,679,837
2,070,260
877,792
867,124
31 2,568,489
Receipts
ending
31
Finance,
internal March
tax
until
932,951
730,875
856,048
563,798
511,758
430,530
306,126
931,268
582,018
350,135
858,094
718,427
360,790
346,909
943,844
(dollars)
Receipts
BiennialDecember
1,204,305
receipts 1894
Customs
Report 1894.
when28.5
25.8
23.5
25.9
23.9
39.5
28.4
37.0
31.9
34.7
34.6
34.7
30.9
39.0
33.9
40.4 ge
Duties
of
Total
reportedthe
of
Percenta
the
for
fiscal
the
Minister
year
Total
of
Taxes
Internal
523,831
901,803
331,163
752,006
706,542
592,692
963,496
811,819
766,422
596,615
206,723
465,252
(dollars)
696,869
680,397
987,414
213,930
biennium
began
to
Finance,
HAWAII
of
25.1
28.1
31.1
31.6
35.8
40.2
32.8
30.8
28.6
34.4
33.0
29.6
28.8
23.8
27.7
24.4
Total
coincide
1896-1897.
Percentage
with
The
1874-1898.
TABLE
4
the
Real
1897
GOVERNMENT
240,971
268,203
167,083
246,829
196,608
358,745
252,362
227,195
339,390
338,894
58,645
187,929
143,716
94,584
53,892
223,100
(dollars)
data
Estate Internal
calendar
were
year.
Taxes FINANCES
found
266,621
164,272
329,908
155,945
210,194
242,719
151,580
313,126
341,206
94,378
262,307
254,286
208,096
47,988
42,708
299,974
(dollars)
Personal
Property
by
Property
Taxes
Total
699,951
318,663
299,661
489,548
451,165
396,025
106,633
669,298
552,336
360,880
652,020
489,502
477,386
188,962
96,600
subtracting 534,824
(dollars)
Property
the
1896
data.
ge
20.1
12.1
19.1
11.1Total
20.8
22.8
24.5
21.5
21.6
22.4
20.6
17.6
22.9
19.7
17.8
17.8
of
Percenta
2,126,181
944,081
2,673,622
3,425,732
2,102,059
1,099,656
2,445,044
2,092,109
1,822,494
1,347,187
2,932,519
4,246,237
3,088,564
3,097,464
894,357
1,055,806
(dollars)
Expenditures
898,800
299,200
388,900
444,800
340,200
445,600
(dollars)
3,785,500
3,679,700
3,330,200
3,005,300
2,314,000
2,833,800
2,693,700
1,934,000
1,936,500
1,065,600
Debt
Bonded
Reciprocal Tradeand Hawaii 's Overthrow
181
overrideon a two-thirdsvote of the legislatureand by requiringa cabinet
member'ssignatureto makeany royalact effective.67The new constitution
also changedthe franchisefrom "subjects"to "residents.. . of Hawaiian,
American,or Europeanbirthor descent,"therebyremovingthe franchise
from Asians.68A special election in September 1887 brought a proAmericangovernmentto power. After an exchange of notes that limited
U.S. Pearl Harborrights to the life of the treaty,Kalakauasigned the
amendedextensionof reciprocityin October.69
Thus in little more than a decade after 1876, Hawaii had seen its
economic and political situationchange dramatically.Hawaii had establisheda formalreciprocitytreatywiththe UnitedStatesthatvastlyexpanded
the sugarindustryand raisedthe wealthof planters.On two occasions the
U.S. Senatehad addedprovisionsto the treatiesthat made clear the U.S.
interestin acquiringcontrolof the futurePearl Harbor.The effect of the
treatyin Hawaiiwas to lay barethe divisionof politicalinterestin whichthe
native Hawaiianpopulationbecame opposed to more concessions while
plantersandmerchantswerewillingto takepoliticalactionto tradea portion
of Hawaii's sovereignty in exchange for greater security of wealth.
Subsequentevents would revealjust how much this groupwas willing to
trade.
THE MCKINLEY TARIFF, THE CONSTITUTION, AND THE OVERTHROW
The McKinley Tariffof 1890 provided a second major shock to the
prevailingtradearrangementsbetweenHawaiiand the United States.The
new U.S. tarifflaw generallyraisedrates,yet also placedraw sugar(below
No. 16 Dutch Standard)on the free list. Furthermoredomestic sugar
producers received a two-cent-per-poundbounty on output.70While a
subsidy providesthe same protectionto domesticproducersas a tariffon
foreignproducers,the effecton foreignproducersdependson whetherthey
areexportingundera reciprocitytreaty.Forproducersexportingfromnonreciprocitycountries,the eliminationof the tariffeitherhas no effect on the
net-of-tariffprice (if world supplywas infinitelyelastic) or increasedit by
up to the amountof the rescindedtariff(if the world supplyof sugarto the
United Stateshad a positive elasticity):Forproducersin Hawaiiexporting
under a reciprocitytreaty,the eliminationof the tariff either reducedthe
67Article41. A copy of the 1887 constitutionappearedin U.S. Senate,S. ExecutiveDoc. 76, pp.
50-59. Underthe previousconstitutionof 1864 the king enjoyedan absoluteveto.
68CompareArticle62 of the 1864 constitutionwith Article59 of the 1887 constitution.See U.S.
Senate, Constitutions.Rowland("Orientals")examinedthe franchiseof Asians in Hawaii and the
complicationsfor annexationraisedby the disenfranchisement
of Japanesein 1887. Also see Russ,
Hawaiian Republic,chap.4.
69Kuykendall,
HawaiianKingdom,vol. 3, p. 397.
70Taussig,TariffHistory,pp. 275-77.
182
La Croix and Grandy
price by the amountof the rescindedtariff(if world supply to the United
Stateswas infmiitelyelastic) or reducedit by a smallerbut positive amount
(if world supply had a positive elasticity). The overall effect of the
McKinley Tariffwas to erase completely the advantagesthat reciprocity
provided to Hawaii sugar producersover other foreign sugar producers
selling in the U.S. market.
Tariffrevisions are drivennot only by tradeflows but also by domestic
politics, and it would have been unsurprisingif the effect of tariffchanges
on a small countrylike Hawaii had received little considerationfrom the
U.S. Congress.However,congressionaldebatesextensively consideredthe
reciprocitytreatywith Hawaiiandthe impactof the proposedtariffchanges
on Hawaii'ssugarindustry.On 9 May and 20 May 1890 the U.S. House of
Representativesconsideredthe impactof the Hawaii reciprocitytreatyOn
notedthatthe price
Severalrepresentatives
the priceof sugarin California.71
of sugar on the West Coast still retained a tariff premium despite the
reciprocity.They argued(consistentlywith our analysis) that if the main
effect of the reciprocitytreatywas to transfertariffrevenueto Hawaii sugar
producerswithoutbenefitingU.S. consumers,then sugarshouldbe placed
on the free list to end these gifts. Discussion in the U.S. Senate on 2
September1890 focused on the high price of obtainingpolitical influence
in Hawaii with a reciprocitytreaty.SenatorDolph observedthat "[i]f the
treatystandsfive years more we will have given to the sugarkings of the
Sandwich Islandsand the sugarkings of San Franciscoenough money to
constructandput into operationthe Nicaraguancanal."72
Despite this discussion we do not suggest that the McKinley Tariffs
passagewas eitherprimarilyor secondarilydrivenby opportunisticmotives
toward Hawaii. The tariffhad been a controversialissue in U.S. politics
since the Napoleonic Wars.It is doubtfulthat Congresswould have acted
againstHawaiiif tariffreformhad not been an importantissue at this point
in U.S. history. On the other hand the Congressionaldebates and the
constructionof the bill also indicatethatthe McKinleyTariffs provisions
on sugarconstituteda clearinstanceof opportunisticbehaviorby the United
States. The United States retainedall privileges grantedto it under the
reciprocitytreaty,while the eliminationof the U.S. tariffon sugareffectively
removedthe most importantprivilegeenjoyedby Hawaiiunderthe treaty.73
7"See"The TariffBill," (9 May 1890) pp. 4390-92; and "The TariffBill," (20 May 1890) pp.
4993-5002.
72See"TheRevenueBill,"pp. 953540.
73Hawaiianspecial envoy, John Mott Smith, broachedthe possibility of extending the sugar
bounty to Hawaii, but U.S. Secretaryof State JamesBlaine rejectedthis as apparentlypolitically
impossible. See Kuykendall,Hawaiian Kingdom, vol. 3, p. 492. McKinley returnedlater in the
session with a bill to assurethat the new tariff law would not impairtreatyobligationswith Hawaii.
See U.S. House, H. Rept. 3422. Passed and signedjust beforethe McKinleyTariffwent into effect;
the law's provisions did not restorethe tariffumbrellato Hawaiisugarproducersnor extendto them
Reciprocal Tradeand Hawaii's Overthrow
183
Until the treatyexpiredin 1895 the smallislandkingdomhad littlerecourse
but to allow the now patentlyunfairtreatyto continuein operation.
The effect of the McKinleyTariffwas to plunge Hawaiiinto depression
and again threatenreciprocity-specificinvestmentsand rents in Hawaii
sugar.Sugarpricesfell 38 percenton the daythe sugartariffwas removed.74
Thevalueof Hawaiimerchandiseexportsplungedfrom$13 millionin 1890,
to $10 million in 1891, and to a low point of $8 million in 1892.75The
declinein sugarpricesmeantthatthe reciprocity-specific
capitalin the sugar
industrylost much of its value, despite redeploymentof some land and
capital to otheragriculturalcrops, such as coffee and pineapple.76Fifteen
yearsof reciprocityhadmadeHawaiiincomes dependenton sugar-which
meantdependenton the U.S. marketand its continuanceof a high tariffon
sugar.77
In sum, on the eve of the overthrowof the Hawaiianmonarchy(January
1893), Hawaii's economy had suffered a dramaticreversal of fortunes
primarilyattributableto the McKinley'sTariffs effective renegingon the
reciprocitytreaty.One could legitimatelyspeculatewhetherthe old debate
between reciprocityand annexationof the 1850s was beginning to be
resolved in favor of annexationdue to the uncertaintyattachedto the
Americancommitmentto reciprocity.
THE OVERTHROW
During 1891 the U.S. and Hawaii consideredrevising the reciprocity
treaty to extend preferentialtrade benefits to all Hawaii goods. The
reasoning was thatpreferentialaccess of new Hawaii exportsto the U.S.
marketwouldpartiallymakeup for the loss of preferentialaccessto the U.S.
sugarmarket.In exchangethe Hawaiigovernmentwould extendthe Pearl
the domesticproductionbounty.McKinley's second bill did effectively restoretariffprotectionto
Hawaiirice producers.
74Thequotedweeklyprice for 96 degreesugar(rawsugarcontaining96 percentsucrose)fell from
5.68 to 3.53 centsperpoundin late March1891. The pricehad not fallenbelow 5 centsper pound in
the previous year and did not rise above 3.5 cents per pound in the following year. See Willett&
Gray's,vol. 16, p. 3.
75SeeSchmitt,HistoricalStatistics,p. 540. To put this in context,the value of Cubansugarexports
to the U.S. roseoverthisperiodfrom$35 million in 1890, to $45 million in 1891, and to $61 million
in 1892. Furthermore,worldproductionof cane sugarexpandedover this period.See Laughlinand
Willis, Reciprocity,pp. 556, 570-73.
76Thevalue of realphysicalcapitalinvestedin sugarhad risenby 228 percentbetween 1880 and
1890. See Mollett,"Capital,"p. 23.
"Schmitt's (HistoricalStatistics,p. 164) earliestgross stateproductestimatefor Hawaii is $38
million in 1901. Merchandiseexportsreached$28 million in thatyear,of which $27.9 million went
to the UnitedStates(Ibid.,p. 543). Between 1885 and 1900 the shareof Hawaiimerchandiseexports
to the U.S. never fell below 98 percent (Ibid., p. 542). Pineappleproductionremaineda minor
commercialcropuntilafter1898 whenannexationeliminatedthe 35 percentU.S. tariffon cannedfruit.
See Hitch,Islands,pp. 99-100.
184
La Croixand Grandy
Harborconcession to the United States indefinitely.In late fall 1891
Secretaryof StateJamesBlaineandthe HawaiiMinisterof Finance,John
MottSmith,completeda drafttreatybutPresidentHarrisondecidedearly
in 1892 that he could not submitthe treatyto the U.S. Senate.78With
prospectsfor an expandedpreferentialtreatylookingbleak,plantersand
othersindirectlyderivingincomefromthe sugarindustryhadincentivesto
Hawaiiwiththe UnitedStatesin order
takeactionsdesignedto incorporate
associatedwithreciprocity.
to eliminatethe risinguncertainty
The incentivesfor plantersto move closer to the United Stateswere
coupled with importantchanges in Hawaii's domestic politics. King
Kalakaua died in January1891, and his sister, Lydia Kamaka'eha
Lili'uokalani,succeededhim.TheQueenregrettedKalakaua'sacceptance
of the BayonetConstitutionand adamantlyopposedthe cession of Pearl
Under the 1887
Harbor under the renewed reciprocityagreement.79
constitution(Article41), the Legislaturecouldrejectthe crown'scabinet
with a no-confidencevote. Overthe late summerandautumnof 1892,the
Queenrepeatedlyformedcabinetsandthe Legislaturerepeatedlyrejected
them.80Lili'uokalanireportedreceivingseveralpetitionsduringthattime
fromnativeHawaiiansrequestinga new constitution.81
the Queenconsideredwouldhavereversedthe Bayonet
Theconstitution
Theproposedconstitution
Constitutionandthreatenedforeignresidents.82
of thepre-1887law,requiringvotersto
restoredthefranchisequalifications
Thepowerto override
be subjectsandremovinganyreferenceto ethnicity.83
Perhapseven morethreatena royalveto of legislationwas alsomuddied.84
of a new constitution
the
the
promulgation
crown,
forces
opposing
ing to
itself.Declaringa new constitution
revivedthepossibilityof promulgation
would undermineconstraintson the monarch'spower.85Fromthe white
potentialof thereciprocitytreatypaled
elite'sperspective,theopportunistic
besidethis threat.
with
DC,conductedmostof thenegotiations
theHawaiianMinisterin Washington,
78H.A. P.Carter,
Blainebeforehis deathon 1 November1891.
signedthe 1887constitution
(Hawaii' Story,p. 181)suggestedthatKalakaua
79QueenLili'uokalani
Allen(Betrayal,p. 216) quotedLili'uokalani'sdiaryentryopposingthe
underthreatof assassination.
cessionof PearlHarbor.
80Kuykendall,HawaiianKingdom,vol. 3, pp. 548-59.
Hawaii' Story,pp. 230-31.
81Lili'uokalani,
82A draftof theproposedconstitution
appearedin U.S. Senate,Constitutions.
also applied.Thecopy foundin
83Article
62. Usualage,residence,andtaxpaymentrequirements
U.S. Senate,Constitutions,specifieda propertyqualificationfor voting,but the signatoriesto the
validityof the documentquestionedthisfeature.
84Article31 requiredthe Queento sign all laws to makethemvalid. Article49 providedfor an
buttheQueenalso hadto signtheact to
voteof theLegislature,
overrideof a royalvetoby two-thirds
makeit law.
a new constitutionas this
certainlyhadprecedentforpromulgating
85Having
saidthis,Lili'uokalani
effectivelyoccurredin 1852, 1864, and 1887. See Lili'uokalani,Hawaii' Story,pp. 238-39; and
Kuykendall,HawaiianKingdom,vol. 3, p. 547.
Reciprocal Tradeand Hawaii 's Overthrow
185
With the incautiousassistanceof the U.S. Minister,a small, but prominent, groupof whiteresidentsused the new constitutionas the precipitating
event for the overthrow.86
For some monthspriorto January1893, a small
On 14 January
groupof whites preparedfor the possibilityof overthrow.87
1893 the Queensoughtcabinetapproval(as requiredby the 1887 constitution) to promulgatethe new constitution.The Cabinetministersdeclined,
andthe Queenpostponedher announcement.
News of these events reached
the small Caucasiangroup who decided its time had come. The leaders
formedthemselves into a 13-memberCommitteeof Safety dominatedby
Americansor Hawaiicitizensof Americanextraction.88
They solicited and
receivedsupportfromU.S. MinisterJohnL. Stevens,an ardentadvocateof
annexation.On 16 January1893 the U.S. Ministercommandedthe USS
Boston to land troopsto "protectAmericanlives and property."The next
daythe Committeeoccupiedthe nearlyemptyGovernmentBuildingandthe
U.S. Ministerrecognizedthe new ProvisionalGovernment.89
Underprotest,
QueenLili'uokalaniyielded.
CONCLUSION
The overthrowof the Hawaiian monarchycame about because of a
complex interactionbetween U.S. strategicgoals and Hawaii's internal
politicaleconomy.The passageof the reciprocitytreatyin 1876put in place
incentives for the sugar industryto expand, with Hawaii sugar planters
making large relationship-specificinvestments.Those investmentsmade
plantersparticularlyeagerto continuethe preferentialtradingrelationship,
therebyprovidingthe United Stateswith an improvedbargainingposition
at treatyrenewalin 1884. The U.S. Senate'sPearlHarboramendmentto the
reciprocity treaty then significantly altered Hawaii's domestic political
economy,by makingtreatyrenewalunacceptableto native Hawaiiansand
even more compellingto sugarplanters.The reluctanceof King Kalakaua
to renewthe treatywiththe clausecedingPearlHarboraddedanothermajor
grievanceto an alreadylargestockandhelpedto precipitatethe 1887 revolt
and Bayonet Constitution.When the second shock of the McKinleyTariff
in 1890 deprivedthe sugarplanters(and the white professionalelite) of
substantialeconomic rents, attemptsto move Hawaii closer to the United
Stateswere predictable.
86Anumberof workscover the events sketchedin this paragraphin muchmoredetail;the best of
these areRuss (HawaiianRepublic);and Kuykendall(HawaiianKingdom,vol. 3).
87Pratt,
"HawaiianRevolution,"pp. 289-90, 294.
88Onlysevenof the 13 membersowned stock in the sugarindusty. The economicfortunesof other
firmsand most professionalswere, however,closely tied to prosperityin the sugarindustry.
89Russ,Hawaiian Revolution,pp. 87-88.
186
La Croix and Grandy
The reciprocitytreatywas, of course,far fromthe only factorleadingto
the overthrow. Conventionalexplanations of the overthrow still have
considerablemerit. The immigrationof Chinese and Japanese laborers
facilitatedthe rapidaccumulationof planterwealth, but in the late 1880s
Japanbegan to pressurethe Hawaii govenment to grantcitizenshipand
votingrightsto Japaneseimmigrants.Gainsby Hawaiianpoliticalpartiesin
the mid-i 880s also raisedplanterconcernsabouttheirabilityto protecttheir
economic rents from taxation.90The new Constitution that Queen
Lili'uokalaniattemptedto promulgatein January1893, clearlyraisedsugar
planters' fears for the securityof their propertyrights and provided the
U.S. Minister
triggerfor the overthrow.The actionsof the pro-annexationist
to Hawaii, John Stevens, also greatly increased the rebels' chances of
success. It is, however,vital to recognizethe importanceof the U.S.-Hawaii
reciprocitytreatyin producingsecularchanges in Hawaii's economy and
ultimatelypolitical conflict within the kingdom. Otherevents may have
providedimmediatetripwiresfor the overthrow,but the reciprocitytreaty
providedthe foundationfor the conflicts at the heartof the matter.
This case studyof the U.S.-Hawaiireciprocitytreatyserves to remindus
thattradeagreementsbetweenlargeandsmallcountriesmustbe considered
in a dynamiccontext,as they often produceconsiderablestructuralchange
in the small country.Since structuralchange will induce changes in the
power of different interest groups in the small country, the relative
bargainingpositionsof the two countrieswill changeover time. Grossman
and Helpman'smodel of tradetalks finds thatwhen governmentsbargain
efficiently,the resultsof the tradetalkswill reflectthe political strengthsof
special interestsboth at home and abroad.9'Grossmanand Helpmanand
McLarenboth emphasizethat investmentin treaty-specificcapitalby the
small country'sexportindustryis a criticalfactorthatcan leave the small
countryat a disadvantagein futurenegotiations,therebyforcingit to make
Further,as this articlesuggests,
additionalconcessionsto the largecountry.92
the additionaldemandsby the large countrycan sparkpolitical conflict
withinthe small country.The newly expandedexportindustryin the small
countryis likely to supportthe largecountry'sdemands,as thatindustry's
wealth dependson the extension of the tradeagreement.Otherinterests,
forced to sharethe burdenof additionalconcessions to the large country
without correspondingbenefits, are more likely to oppose the treaty.As
political conflict increases,interestgroupsin the exportindustrywill have
90Tate, UnitedStatesandHawaii.
91Grossman
and Helpman,"TradeWars."
92Ibid.See McLaren("Size")for an applicationof this argumentto the 1988 Canada-UnitedStates
FreeTradeAgreement.Canadianopponentsof the agreementemphasizedthatits terminationclause
(six months notice) would leave Canadavulnerableto U.S. demandsafterCanadianindustrieshad
mademajorinvestmentsto servicethe U.S. market.
ReciprocalTradeandHawaii's Overthrow
187
increasingincentivesto takeactionto changepoliticalinstitutions
to protect
theirstreamof rentsfromthe tradetreaty.Thus,whereasmost modelsof
rent-seekingfocus on actionswithinthe existinginstitutionalframework,
actorsmayalso findit in theirinterestto overturnexistinginstitutionsand
replacethemwithmorecompliantalternatives.
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