Politics & Policy

The Second American Trade Revolution

The first was all the way back in 1776.

The Central American Free Trade Agreement, now before Congress, is only the latest free-trade agreement concluded by the Bush administration. In the first term the Senate ratified free-trade agreements with Singapore, Australia, Jordan, Morocco, and Chile. There are plenty of other agreements in negotiations, and in principle, any non-terrorist nation could take advantage and negotiate for a free-trade zone.

As Congress begins to debate CAFTA, President Bush’s trade policy should be celebrated for what it is–a bold return to the outlook on trade embraced by our Founding Fathers. President Bush’s policy most resembles the outlook of one previous American government: the Continental Congress of 1776. And President Bush’s reasons for liberalizing trade with many nations are very similar to those offered by such luminaries as Ben Franklin, John Adams, and Thomas Jefferson in the early days of the republic.

As surprising at it may seem, a few weeks after the Declaration of Independence, Congress passed the “Model Treaty,” which proposed individual, liberal trade treaties between the United States and other nations. The treaty provided that natives of the signing nation would enjoy the rights of Americans and pay no greater duties in our ports and similarly that Americans would enjoy the rights of those natives and pay no greater duties than natives in that nation’s ports. These were the most innovative pacts of their time, and under instructions from Congress, our diplomats–Adams, Jefferson, etc.–fanned out over Europe to sell these pacts.

The reasons our fledgling republic moved toward freer trade pacts are worth recalling today, because they still provide justifications for President Bush’s free-trade strategy today, over 200 years later later. At the time of the American revolution the dominant trade policy, mercantilism, held that the state should tightly regulate trade to promote self-sufficiency and capture the maximum bullion. In 1776 our Founders rejected this policy in favor of more liberalized trade for three reasons:

First, many believed that freer trade, not mercantilism, created economic prosperity. As Chris White, a former law student of mine, has shown, some Founders, like Benjamin Franklin, were steeped in the developing Scottish enlightenment, which tended to promote laissez-faire. Others intuitively grasped that nations would prosper if they specialized in what they did best and traded for the rest, just as individuals prospered by choosing a job that was suitable for their talents.

Second, many followed the thinking of English Whigs and Tom Paine in understanding that mercantilism was in fundamental tension with the republican, politically egalitarian government they wanted to create. A government that could regulate trade would skew those regulations in favor of the powerful, rewarding monopolies to those who would support a current ministry. In contrast, a more liberalized policy shrank the scope of government, and gave those who were not well connected an equal chance to compete.

Third, some Founders believed that mercantilism could be a cause of war as nations jockeyed for access to raw materials. In contrast, free commerce bypassed the machinations of rulers and permitted individuals to establish commercial relations with their fellow man worldwide. Citizens would then have incentives to make their nations keep the peace so that these valuable relations would continue.

All of these justifications for liberalizing trade are even more powerful today than they were in 1776. Economists have proved that free trade benefits all nations in a free-trade zone, even if one nation is better at making every good. Moreover, empirical work has shown that free trade spreads its benefits throughout society. It is also even clearer today that powerful special-interest groups benefit from trade restrictions at the expense of the less politically nimble.

Finally, free trade today continues to put individuals of diverse backgrounds into valuable relations with one another. In a time of terrorism, the knowledge of other societies that trade promotes creates the kind of mutual understanding which in the long run nurtures peace.

Despite the best efforts of Adams and Jefferson, however, the Model Treaty did not bear much fruit. America was then a weak nation and other nations were not confident that it would amount to much, and the idea of liberalizing trade was untested. History has since proved, definitively, that the Model Treaty had it right.

One reason for this past failure remains very relevant: Years after the revolution that gave birth to the Model Treaty, ordinary politics began to replace revolutionary ideals. Iron producers from Pennsylvania lobbied for protection. Shipbuilders from the North wanted all trade to be carried on American ships. Politicians bowed to such pressures and protectionism halted any movement to trade liberalization.

Today, these same kinds of interest groups, most notably sugar producers, appear to be making headway against the Central American Free Trade Agreement. But the Model Treaty of 1776 should remind us that liberalizing trade pacts is a part of our revolutionary heritage. They not only promote prosperity, but restrain factions that undermine the public good for their own private benefit. They create incentives for foreigners to enter into a web of mutually beneficial relations with our citizens–and that in turn helps maintain the peace of the world.

John O. McGinnis is professor of international trade law at Northwestern University.


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