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Land Of The Free Trade
Foreign trade—import and export alike—has been indispensable in building America from the very start, and many of our worst economic troubles have arisen when that trade wasn’t free enough. A historic overview.
July/august 1993 | Volume 44, Issue 4
The Civil War changed American foreign commerce profoundly. It dealt a deathblow to the already declining American shipping industry. With Confederate raiders such as the CSS Alabama on the loose, American ships fled to the protection of foreign flags, usually British, and never came back. In 1860 about two-thirds of American foreign trade was carried in American bottoms. By 1865 barely a quarter was; by 1912, less than 10 percent.
Moreover, the cotton trade was temporarily halted by the Northern blockade of the Southern cotton ports. It would be 1875 before cotton shipments again reached their pre-war peak. And the tariff was greatly increased to help pay for the war. This, of course, had the effect of protecting American industry still further from foreign competition, giving it a tremendous short-term boost as it captured market share from foreign companies. The tariff, together with the demands made by the war and the prosperity the war brought to the Northern civilian sector, caused American industry to boom as never before.
By 1865, with the South now politically powerless, Northern industry’s demands for continued high tariffs met little opposition. Fortunately for the common good, the railroad had by this time transformed the once geographically fragmented domestic American market into the largest fully integrated market in the world. This, in turn, provided increasing domestic competition that forced cost savings and innovation, despite increased protection from foreign companies.
Northern industry began to grow so fast that by the turn of the century America was the world’s foremost industrial nation. This was reflected in a fundamental change in the nature of American exports and imports. While the United States remained, then as today, a major exporter of agricultural and mineral products (two new ones, petroleum and copper, were even added), it also became a major exporter of manufactured goods. In 1865 they constituted only 22.78 percent of American exports. By the turn of the century they were 31.65 percent of a vastly larger trade. The portion of world trade, meanwhile, that was American in origin doubled in these years to about 12 percent of the total.
Nowhere was this more noticeable than in iron and steel exports, the cutting edge of late-nineteenth-century technology. Before the Civil War the nation exported only $6,000,000 worth of iron and steel manufactures per year. In 1900 we exported $121,914,000 worth of locomotives, engines, rails, electrical machinery, wire, pipes, metalworking machinery, boilers, and other goods. Even sewing machines and typewriters were being sent abroad in quantity.
Europe had long imported raw materials from the United States and elsewhere and exported finished goods to America and the rest of the world. To alarmist economic commentators—all too often a redundancy then as now—it seemed that an American colossus had suddenly appeared to snatch this profitable trade away, threatening to reduce once mighty Europe to an economic backwater. Books with such ominous titles as The American Invaders , The Americanization of the World , and The “American Commercial Invasion ” of Europe began to fill the bookstores in the 1890s. (Their authors’ spiritual descendants, of course, would be turning out the very same books ninety years later, only with “Japanese” substituted for “American” in the titles.)
Actually, Europe was perfectly able to hold its own market for manufactured goods in the twentieth century, and it was in what we now call the Third World that the American-European rivalry in industrial products reached its height. And with a rapidly growing worldwide market for American manufactures, the high American tariff became more and more a liability to its own political backers, because it tended to generate opposing high tariffs abroad and thus limit American exports. In 1913, with the traditionally antitariff Democrats in control of both the White House and Congress, the tariff was significantly reduced for the first time in more than fifty years. And that year world trade reached heights it would not see again for a generation.
The outbreak of World War I radically transformed the world economy, and the war proved a bonanza for American business. With Russia (a major grain exporter until the advent of communism) cut off from overseas markets, demand for American wheat and meat soared, and American farms boomed. European orders for steel and munitions caused factories to operate around the clock. Lavish government subsidies rebuilt the American merchant marine. Americans were able to capture many markets that had once been firmly controlled by the now-distracted European colonial powers.
New York succeeded London as the world’s financial center, and world trade, which had formerly been financed almost exclusively with sterling acceptances, now used dollar acceptances as well. American loans to Britain and France transformed the United States, a debtor nation since the earliest days of the Republic, into the world’s greatest creditor. By 1916 the United States was running annual trade surpluses, exports minus imports, in excess of $3 billion, twice the total American exports alone at the turn of the century.