A Trade Policy for the 21st Century or the 18th Century?
March 19, 2018
President Trump’s trade policy agenda came out several weeks ago, and I planned to write about it at the time but was distracted by steel and aluminum just like everybody else. This week, in the brief gap before likely action on China, I want to spend a few minutes on it. The agenda quoted liberally from George Washington’s Farewell Address on the dangers of expecting favors from other nations and the value of making trade agreements temporary. It then goes on to advocate a policy that is more in line with the eighteenth century than the twenty-first century—or, more accurately, the seventeenth century—since it is profoundly mercantilist. Louis XIV would be proud.
For a long time, the United States took Washington’s advice, which was really Alexander Hamilton’s advice, and pursued essentially isolationist and protectionist policies designed to protect and build up our nascent manufacturing industries and on the political front to protect us from “foreign entanglements.” In doing that we also had the luxury of geography. Instead of being in the middle of Europe with cranky neighbors, we were two oceans away from everybody else, bordered only by an underpopulated Canada and a distant Mexico. It would have taken a lot of effort to overcome our natural isolation, and that was effort we had no interest in making.
So, we grew as a well-protected, high-tariff country, particularly after the Civil War when Southern agricultural interests that favored more trade were effectively out of power. Woodrow Wilson began to change our policy in 1913, but World War I intervened, torpedoing (literally) further trade liberalization plans. The 1920s featured a return to Republican rule and historically high tariffs, culminating in the Tariff Act of 1930, more commonly known as Smoot-Hawley. While it cannot be blamed for starting the Depression—it was not enacted until well after the 1929 market crash—it certainly made it worse as other countries responded in kind and trade declined.
The Depression brought the election of Franklin Roosevelt and the Reciprocal Trade Agreements Act of 1934, which laid the foundation for what has been our trade policy of promoting liberalization ever since—up until now. World War II led to the Bretton Woods agreements and a determination to construct a world where global war could not recur. Despite some blips along the way, that effort largely succeeded, and the United States was one of the biggest beneficiaries, both in terms of jobs and growth but also in terms of maintaining our position of global leadership, winning the Cold War, and structuring a world that largely supported our geopolitical interests.
The president’s report, however, does not see it that way:
“…the United States continued to passively adhere to outdated and under performing trade deals and allowed international bureaucracies to undermine U.S. interests. This has left U.S. workers and businesses at a disadvantage in global markets, as unfair trading practices flourish in the absence of a strong U.S. response.”
The first odd thing about this assertion is the reference to “outdated and under performing” trade deals. Which ones are those? The Trans-Pacific Partnership (TPP) can hardly be considered outdated, and it is hard to call it under performing since it never got started. So far, the only ones he’s identified are the North American Free Trade Agreement (NAFTA) and the Korea-U.S. Free Trade Agreement (KORUS FTA), which is hardly a long list. That is also not surprising, since we have trade surpluses with most of the other countries with which we have trade agreements, and our biggest deficits, aside from Mexico, are with countries with which we have no agreements: China, Japan, and Germany. If you look at all our agreements, it is hard to argue with a straight face that they’ve hurt us.
The second odd and disturbing thing is the reference to International bureaucracies undermining U.S. interests. This is related to the emergence of “globalist” as a new dirty word. Globalists are, apparently, people who are not looking out for America First but instead care about the larger common good for all people (as in climate change, for example) and the institutions—largely designed by the United States—that work to improve the common good.
Most distressing of all, it also implies a rejection of the idea that doing things for the common good is also good for America—that international cooperation, not to mention trade, is win-win. The president comes from a zero-sum environment in real estate development and clearly has a hard time grasping the idea that the United States winning does not require someone else losing.
The truth is that America has prospered economically and become the world’s strongest power in the post–Bretton Woods era, and we should not toss the structures we created onto the trash heap lightly. It is true that other countries are growing faster and catching up, but that does not mean we are losing. It means that we have created a system that works for everybody, not just a few. Pulling away from those institutions is not a winning strategy. The end result will be the gradual transition of world leadership from us to countries that do not share our values and do not value the role we play in the world. That will not make America great again.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).© 2018 by the Center for Strategic and International Studies. All rights reserved.