Trade and the American Dream

A Social History of Postwar Trade Policy

Susan Ariel Aaronson

• Publisher: The University Press of Kentucky
• Year: 2021
• ISBN:
  9780813184357
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

Every hour of every day Americans see, smell, taste, or hear goods and services traded between the United States and other nations. Trade issues are front-page news but most Americans know little about the potential impact of global economic interdependence on their jobs, standard of living, and quality of life.

In Trade and the American Dream, Susan Aaronson highlights a previously ignored dimension of the United States trade policy: public understanding. Focusing on the debate over the three mechanisms designed to govern world trade—the International Trade Organization (ITO), the General Agreement on Tarriffs and Trade (GATT), and the World Trade Organization (WTO)—she examines how policymakers communicate and how the public comprehends trade policy.

Since 1947 the U.S. has led global efforts to free trade, and support for freer trade policies and for an international organization to govern world trade has become dogma among policymakers, business leaders, and economists. Relaying on archival research, polling data, public documents, interviews, and Congressional testimony, Aaronson shows that the public also matters in trade policy decisions. If concerns about the implications of economic interdependence remain unaddressed, American trade policy and an international trade organization are vulnerable to a surge of populism and isolationism.

While Americans became addicted to imported cars, radios, computers, and appliances, a growing number saw the costs of freer trade policies in the nation's slums, poverty statistics, crime rate, and unemployment figures. Concerns about freer trade policies reached a crescendo in the mid-1990s, especially as Congress debated U.S. participation in the North American Free Trade Agreement (NAFTA). Aaronson suggests ways to create greater public understanding for the GATT/WTO and international trade. If national trade policy is to play in Peoria, Americans must first understand it.

1

The Roots of Multilateral Trade Policy

Tennessean Cordell Hull was a “good old boy,” a respected member of Congress, and chairman of the national Democratic party. Like many of his southern colleagues, Hull believed high tariffs were an abomination. But Hull went further. He linked trade barriers (such as tariffs and preferences) with war, whereas “unhampered trade dovetailed with peace.” This good old boy’s disdain for high tariffs spurred him to action during his many years in Congress.¹

Hull deserves credit as one of the fathers of the GATT, but his obsession with trade was not shared by most of his fellow Americans. As early as 1916, Congressman Hull called for an international economic conference to promote fair and friendly trade relations. At such a conference, America would reduce its tariffs in response to reciprocal trade barrier reduction by other nations. But his ideas gained little support in the prosperous twenties. In 1929, he warned his congressional colleagues, “Our neglect to develop foreign markets for surpluses is the one outstanding cause of unemployment.” But his warnings fell on deaf ears.²

Hull achieved his dream of freer trade policies as Franklin D. Roosevelt’s secretary of state. In 1934, Congress passed the Reciprocal Trade Agreements Act (RTAA), ostensibly to increase exports. Hidden in this path-breaking legislation was a growing belief that American jobs and the American standard of living were linked to open world trade. The legislation implied that the health of the U.S. economy could not be divorced from that of the world at large.³

The legislation also broke tradition in another important way—by shifting some of the responsibility for determining trade policy from the legislature to the executive branch.⁴ This transfer of responsibility to the executive branch began the process of “internationalizing trade policy;” a process that would culminate in the ITO and the GATT. But the Reciprocal Trade Agreements Act also created a system of governmental experts to decide trade policies. The initiative for trade policy was thus placed in the hands of people not directly accountable to the public.⁵ It also allowed protectionists to argue that freer trade policies were not democratically determined.

This chapter briefly describes the development of U.S. trade policy.⁶ I focus on the 1934 reforms, which made bilateral and ultimately multilateral trade liberalization possible. Supporters of freer trade policy rooted these reforms in American economic conditions; they argued that tariff reduction would create jobs. For all his political skills, however, Hull did little to convince Americans that freer trade policies would be in their economic interest. Although the public was receptive to new economic policies to mitigate the Depression, most Americans still believed that tariffs protected jobs and their ability to achieve the American dream. This perception would make it difficult to build a constituency in support of radical change to U.S. trade policies. To understand opposition to the development of multilateral trade policies, we must begin with America’s long history of protection.

A Brief History of U.S.Trade Policy

America’s founding fathers were trade policy realists. The memory of years of “taxation without representation” underscored the dangers of protection as well as the need to encourage new markets for America’s fledgling economy. The Constitution delegated responsibility for trade policy “to regulate commerce with foreign nations” and to “lay and collect . . . duties” to the Congress.⁷

Policymakers utilized tariffs to protect specific sectors of the economy, but they also signed treaties of navigation and commerce and emphasized a reciprocity policy on shipping. They directed their efforts toward developing America’s vast and rich internal resources.⁸ However, some Americans (notably Alexander Hamilton and eastern industrialists) began to see tariffs as a tool to stimulate U.S. economic development. The notion of using tariffs to protect America’s infant industries gained ground as the country struggled to develop. By raising the price of imports, tariffs served as an incentive to buy domestical goods. Government officials liked the selective nature of tariffs as well as the fact that the Treasury captured tariff revenue.⁹ Support for this “Hamiltonian” approach grew after the War of 1812. A “new nationalism” provided the ideology for protecting America’s burgeoning manufacturing and textile industries.¹⁰

Protecting the domestic market remained the focus of American trade policies in the years 1820-70, when modern corporate institutions had yet to become a significant factor in shaping policy. The federal government rarely intervened to encourage exports, although the United States relied on foreign capital and had a growing international trade.¹¹ Nevertheless, although general tariff levels remained moderate, tariff protection spread to many sectors. Legislators learned it was simpler to compensate those injured by tariffs by protecting them too rather than to reduce the protection given to the first party. Any one interest, once granted protection, tended to regard that level of protection as its prerogative. But America’s growing recourse to tariffs was not universally supported; in fact, the spread of tariffs stimulated heated and divisive debate.¹²

Policymakers’ focus on the domestic market and their growing use of tariffs was understandable. America’s growing population, abundant resources, and expanding industry contained ample opportunity. Some businessmen began to build a nationwide market for their products. As Alfred Chandler delineated, large firms prospered when they achieved cost advantages from economies of scale and scope. Soon these efficiencies enabled some firms to move into foreign markets.¹³

By the early twentieth century, growing numbers of American producers sought foreign markets to counteract downturns in U.S. demand or to gain further economies of scale. Trade statistics reflect this growing internationalization: in 1890, the United States had a relatively small share of world trade, 3.9 percent, but by 1913, the United States had 11 percent. By the end of World War I, America had become a large producer and exporter of manufactured goods. Some segments of U.S. industry and agriculture were now dependent on overseas markets.

Yet American policy did not keep pace with America’s growing trade; the United States continued to rely on relatively high tariffs. A lower U.S. tariff would have facilitated foreign sales by making it easier for foreigners to earn dollars to purchase U.S. exports and service debts to U.S. creditors.¹⁴ Business and labor leaders as well as members of Congress still believed that the nation needed high tariffs to prosper, even though growing numbers of workers, farmers, and producers depended on exports.¹⁵

By the turn of the century, policymakers and business leaders did develop new mechanisms and institutions to reshape trade policy. The Department of State as well as the Department of Commerce and Labor developed closer relationships with businessmen and nurtured a constituency supportive of increasing American exports.¹⁶

At the same time, some reformers proposed radical changes to the nation’s economic policy. They believed that American consumers had long paid high hidden taxes when they purchased imports and that tariffs were the “mother of trusts.” They called for a two-pronged solution: the income tax would replace the tariff as the principal source of government revenue, and “experts,” rather than Congress, would “scientifically determine” tariff rates.

Some business leaders joined these reform efforts. These leaders were not free traders—they wanted tariffs to be maintained—but they regarded tariff fluctuation as the greater evil and therefore accepted modest revisions in the hope of achieving tariff certainty. Without the traditional vociferous opposition, in 1913 Congress passed the Underwood Tariff, a significant tariff reduction, and the income tax, which reduced government reliance on tariffs to fund government. In 1916, Congress established the Tariff Commission.¹⁷ As historian Robert Wiebe noted, these reforms signaled a stronger voice for more internationally oriented business in business associations and a new governmental emphasis on stimulating exports as well as providing protection. But they did not moderate or end America’s broad system of protection. Trade policy continued to lag America’s economic position.¹⁸ Moreover, these reforms did little to alert Americans to the nation’s economic interdependence or to the costs of protection.

However, these reforms did signal that members of Congress felt increasingly overwhelmed by pressure to provide protection to these interests. According to political scientist I.M. Destler, members began to “channel that pressure elsewhere, pushing product-specific trade decisions out of the committees of Congress and off the House and Senate floors to other governmental institutions.”¹⁹

U.S. protectionism actually increased in the 1920s. Because of the problems of postwar adjustment, Congress imposed high duties on about forty agricultural products in 1921. In 1922, manufacturers joined in a growing stampede for protection. Americans wanted it all—open markets for their products, a reasonable amount of imports, a protected home market, and “economic self-sufficiency.”²⁰ The gap between American trade policies and America’s growing dependence on trade was growing wider.

Between 1922 and 1933, neither the country’s policymakers nor business and community leaders acknowledged the linkage between America’s economic health and that of other nations. American multi-nationals and American investment spurred U.S. and global economic growth. By 1922, American companies held 16.9 percent of total world exports and 12.9 percent of total world imports, and American business increasingly relied on imports for the raw materials for its manufactured goods.²¹ Nevertheless, Americans clung to protection as the basic tenet for trade policy while subsidizing the merchant marine and agriculture and exempting agricultural products from the nation’s traditional trade principles. Although some representatives of business, labor, academic, and civic groups worried about growing protectionism in the U.S. and overseas, they could do little to change American trade policy. Most Americans had little insight into America’s growing economic interdependence.²²

Trade, Employment, and International Economic Interdependence

By 1930, with the Great Depression under way, a growing number of business, agricultural, labor, and governmental leaders began to see trade policy, and tariffs specifically, in a different light. Some of these individuals were internationalists, who recognized that there was a fundamental imbalance between the international accounts of the United States and the rest of the world. Others concluded that the only way out of the Great Depression was to create larger (foreign) markets for American goods. Others were traditional freer traders who thought that lowered trade barriers were in the national interest. All of these groups recognized that access to foreign markets could create jobs for Americans. The most direct way to gain such markets would be to reduce reciprocal trade barriers between America and its trading partners. Nonetheless, most policymakers continued to support protectionist measures. The potential to create jobs through lower trade barriers and increased trade seemed riskier than preserving jobs through the proven tool of protection.²³

Some analysts believe the scope and level of tariffs reached a high water mark in 1930, during the presidency of Herbert Hoover. The Smoot-Hawley Tariff Act of 1930 raised rates on many items, even products the United States did not produce. Many members of Congress thought higher tariffs would protect them from the political fallout from jobs lost in their communities and help their chances for reelection. In addition, some politicians continued to believe that tariffs were a domestic policy tool not subject to international negotiations.²⁴

As the Great Depression deepened, the United States and world economies faltered. American exports fell from $5.157 billion in 1929 to $1.576 billion in 1932. World markets for U.S. agricultural products shrank dramatically. America’s trading partners adopted a wide range of trade restrictions, including exchange controls, bilateral trading arrangements, and quantitative limits on imports. As they lost their jobs or livelihoods, growing numbers of Americans now understood that there was a linkage between tra...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of Illustrations
• List of Tables and Figures
• Forewords
• Acknowledgments
• Introduction
• 1. The Roots of Multilateral Trade Policy
• 2. Linking Jobs to Trade Policy, 1939-1942
• 3. Gaining Congressional Approval for Multilateral Trade Liberalization, 1943-1945
• 4. The Planners and the Public, 1943-1946
• 5. Public Response to the ITO, 1946-1947
• 6. The ITO, the GATT, and U.S. Trade Policy, 1947-1948
• 7. Congressional Challenges and Public Apathy toward Trade, 1948-1949
• 8. Dead on Arrival: The Fate of the ITO, 1948-1951
• 9. The Rise and Erosion of the Freer Trade Consensus and the Debate over NAFTA, 1949-1994
• 10. Present at the Creation of the WTO, 1986-1994
• Conclusion: Democracy and Economic Interdependence
• Notes
• Bibliography
• Index