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When Tariffs Were In Flower
In the past century the two major opponents on the question of free trade have changed sides completely
July/August 1998 | Volume 49, Issue 4
But a reaction was brewing. The trouble was that the “infant industries” had long outgrown their cribs and could easily lower prices to undersell foreign competitors even without the tariff, thanks to which, however, they didn’t have to do so. Meanwhile, the growth of trusts was stifling domestic competition. So the tariff looked more and more to progressives like a handmaiden of monopoly, a gift to manufacturers that allowed them to gouge consumers at will. But congressional free traders often voted for tariffs if protection was provided for commodities produced in their own districts, so the tariff hung on. A Democratic administration pushed through a reduced tariff (the Underwood) in 1914, but the resurgent Republicans in the twenties pushed levels back to an all-time high in the Smoot-Hawley Tariff of 1930.
Then came the Depression. It made sense in 1933 and 1934 for all major countries to drop protection and try to revive their economies by stimulating more exchanges through mutual lowering of barriers. There has been no major backward movement toward overall high tariffs since then.
Why has that trend persisted through some sixty post-Depression years? A nutshell summary would run like this. During the immediate post-1945 years, American industrial supremacy was unchallenged, and as the world’s major exporting nation, we could only stand to gain by free trade. The problem in fact was reviving war-shattered foreign economies so that they could generate some purchasing power to buy our goods—one argument behind the Marshall Plan. But what about the last three decades, when foreign competition began to “invade” American markets and we started to run trade deficits instead of surpluses? Why wasn’t there a major move toward protectionism then? In fact there was, in a limited way, through the imposition of negotiated import quotas on Japanese automobiles and numerous other products, largely reflecting the clout of different special interests within Congress and the Executive Branch.
But the simple solution of a return to McKinley-era policies was not adopted because it ran afoul of reality. Given the technological revolutions of our time—automation, computerization, instantaneous communications, swift transportation—it made more sense for U.S. corporations to move headquarters and operations abroad, tap new markets and resources in developing areas, and in general work for increasingly free flows of international trade—in short, to try to open doors everywhere, rather than close our own to foreign goods.
Which is where philosophy comes in again. In the arguments advanced by free traders, I see evidence of a new ideology, the current counterpart of Clay’s American System, globalized. Multilateral agreements that sweep away all inhibitions (like local environmental or labor codes or regulatory taxes) to the free movement of goods and capital between nations are defended as forerunners of a new order that will promote peace and international understanding; nations that trade with each other presumably will not lift up the sword against each other. And permitting the free market alone to determine the best allocation of resources will in the long run guarantee economic growth for everyone despite the temporary inconvenience to those who lose out to more efficient producers elsewhere. Do I exaggerate? Listen to the statement of one free trade advocate, William H. Peterson: “The market system is a moral system, a system of voluntary social cooperation. ... it is the Golden Rule in action. . . . The market . . . says, let’s cooperate, let’s work for each other, let me help you so you can help me. . . . Let us ... educate on the case for unhampered world commerce as a key way to help each other at home and abroad. International free trade is a way to bind the world together and elevate it to a new vista of world peace and prosperity . .. respect and understanding.”
If I appear to have singled out a particularly vulnerable example of overstatement, let me add that opponents of free trade can also speak in slogans. A full-page ad in The New York Times on February 13, 1998, opposes a multilateral agreement on investment with this simplistic lead question: “Should Corporations Govern the World?” I don’t mean to endorse one side here or the other; I mean simply to note that as the nineteenth century drew to its end, the powerful centralizing forces of corporate industrialism and nationalism were, in the United States, associated with a policy of protectionism, and it was those interests displaced by the process that protested most loudly. Now, at the end of the twentieth century, the story seems to be repeating itself on a global scale, and this time those on the side of corporate centralization find themselves defending free trade as, so to speak, the American system. In the long run their protectionist opponents, I suspect, will lose the big battle but have significant impact on the social and political effects of globalism here at home. Fortunately, the American System is always a work in progress.