U.S. Trade Policy

History, Theory, and the WTO

William A. Lovett, Alfred E. Eckes, Jr, Richard L. Brinkman

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317453161
• Edition: 2
• Topic: Business
• Subtopic: Business General
• Index: Business

Lovett (Tulane Law School), Eckes (a former commissioner of the U.S. International Commission during the Reagan and Bush I administrations), and Brinkman (international economics, Portland State U.) evaluate the evolution of U.S. trade policy, focusing on the period from the establishment of the Gen

1

Introduction

WILLIAM A. LOVETT

Britain’s Free Trade Experiment

During the nineteenth century, Great Britain moved away from mercantilist practices in a freer trade experiment.¹ This had great impact on subsequent controversies about trading policy. Although many nations (including the United States, Germany, France, Russia, Japan, Austria, and Italy) used more protectionist policies to catch up with “free trade” Britain, economic thought was focused upon these issues and the extent to which tariffs and other encouragements to industries were desirable. But throughout the British free trade experiment, Britain’s colonies were kept largely secure for British investments, companies, and trading activity. Also, Britain could afford to eliminate tariffs in the 1830s and 1840s because it enjoyed a substantial lead in technology, industrial scale economies, maritime predominance, and stronger banking-investment resources. Yet by 1900, when the United States, Germany, and others had caught up with British industries, British manufacturers began to seek imperial preference tariffs as a means to greater reciprocity. In the 1920s, as Britain suffered adjustment and competitiveness problems, British trade policy became increasingly controversial. The Safeguarding of Industries Act of 1921 was implemented timidly, but finally in 1932 Britain rejoined the great majority of industrial nations by establishing Imperial Preference tariffs.

Despite unequal trade openness, with tariffs and industrial development policies, economic progress flourished in much of Europe, the United States, and other areas. International investments and loans expanded greatly, opening up new markets. Technological progress was dramatic in most fields, including, in particular, armaments, warships, and even aircraft.

Then World War I (1914–1918) disrupted things. Casualties and war costs were heavy. A harsh peace was imposed upon Germany, with unsustainable reparations burdens. The Austro-Hungarian Empire disintegrated, and Russia came under Bolshevik rule. Confidence, trade, and capital flows weakened. Britain’s exports, steel, and coal slumped. Although the 1920s brought unbalanced economic recovery, a boom in the United States proved fragile. The stock market crash of 1929 brought a worldwide depression. Many defaults occurred on international loans. Hard times brought militaristic governments to Germany, Japan, Italy, and some smaller countries. World War II (1939–1945) followed, with heavy casualties and further dislocations.

Bretton Woods, GATT 1947, and Trade Asymmetries

But now the Allied democracies realized that better postwar arrangements were needed. At the 1944 Bretton Woods Conference, Britain, the United States, and other Allies agreed upon more collaboration after the war. This led to the International Monetary Fund (IMF), the World Bank, and the General Agreement on Tariffs and Trade (GATT 1947).² The United States moved away from its long history of protectionist tariff policies (1791–1934); it began to sponsor more open markets, rather like Britain’s efforts toward freer trade between the 1840s and 1931. (Like Britain in most of the nineteenth century, the United States now enjoyed a substantial lead in technology, industrial scale economies, maritime leadership, and stronger banking-investment resources. Like Britain, the United States could now afford freer trade.) Accordingly, in eight GATT rounds between 1947 and 1994, the United States led the way toward reductions in tariff levels among the industrial nations (more recently labeled the OECD countries). U.S. multinational corporations (MNCs) felt an increasing stake in world trade, and they provided support for the multilateral trade process.

Unfortunately, Stalin’s USSR chose not to collaborate with Western-style economic recovery. Instead, Communist governments were imposed in most of Eastern Europe. A rival COMECON was established for the USSR and satellite countries. A Communist government was set up in North Korea, and the Kuomingtang government of China fell to the Red Chinese under Mao Zedong. Communist parties and subversion efforts were encouraged elsewhere. In this way, a Cold War threat of aggression and/or subversion developed against the Western democracies and their allies.

Ironically, in response to this Cold War threat, U.S. policies allowed more generous aid (through the Marshall Plan, military assistance, and help to developing countries) than would have been possible otherwise. Under the slogan “trade, not aid,” the U.S. political establishment was kind to its allies and trading partners. Less than fully reciprocal trade deals were accepted by the United States, especially with developing nations. For less developed countries (LDCs), it was understood that substantial tariffs and other restrictions would promote industrialization and broader prosperity.

However, GATT 1947 allowed safeguard relief under Article XIX, balance of payments relief under Article XII, and antidumping and countervailing duty for subsidy relief under Article VI.³ In addition, imports could be limited to maintain national security or to protect agriculture, product standards, consumer safety, and environmental interests. While GATT signatories accepted an obligation to apply these and other regulatory policies in a nondiscriminatory manner and to give national treatment to foreign companies, implementation was left up to each importing country. Trade disputes among nations were to be negotiated among them, largely by mutual conciliation. GATT dispute resolution panels could be constituted, but their function was essentially advisory and for mediation purposes.

Most nations learned from the Great Depression that Keynesian budget deficit policies would be needed to maintain full employment, at least in slumps or recessions.⁴ Unemployment compensation, education, and social security measures were popular after World War II in the countries with moderate social democratic governments. Farm price support/subsidy measures were well established, too. Industrial growth and export expansion were desired, but few wanted much import disruption or job losses. Trade unions were powerful in most industrial countries, so that GATT safeguard, offset, subsidy, or voluntary import restraint measures were used to limit disruptive imports.

Another lesson from the Great Depression and early post-World War II years was the need for balance of payments discipline in order to avoid large and chronic external deficits.⁵ Most countries were forced, sooner or later, to live within their means and maintain current account discipline. Countries that failed to discipline themselves suffered recurrent devaluations or became dependent upon foreign aid or loans. Accordingly, GATT safeguard and offset mea...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Tables and Figures
• Preface
• Chapter 1. Introduction
• Chapter 2. U.S. Trade History
• Chapter 3. Free Trade: Static Comparative Advantage
• Chapter 4. Dynamics of Absolute Advantage and Economic Development
• Chapter 5. Rebalancing U.S. Trade
• Notes and References
• Index
• About the Authors