Economy & Business

Clashing over Commerce: A Historical View of Tariffs and Trade Policy

Container ships docked at Port of Newark in 2012 (Reuters photo: Eduardo Munoz)
An economist looks back over the centuries and finds that protectionism is usually harmful,

From the beginning of the American republic, trade policy has been a contentious subject for our political leaders. The trade controversies we are seeing under President Trump are nothing new, and in key ways they echo the past, as Douglas A. Irwin documents in his authoritative new book, Clashing over Commerce: A History of U.S. Trade Policy.

Other histories have been written about U.S. trade policy, but Irwin’s is the most comprehensive and useful for guiding our current decision-making on trade. An economist at Dartmouth College with a Ph.D. from Columbia University, Irwin combines scholarly analysis with a historian’s eye for trends and colorful details. This book is readable and illuminating, for the trade expert and for all Americans wanting a deeper understanding of America’s evolving role in the global economy.

Irwin divides U.S. trade policy into three eras. From colonial days to the Civil War, the tariff was primarily about raising revenue for the federal government. One of the many myths that Irwin debunks has to do with the legacy of Alexander Hamilton. Hamilton was not a champion of raising tariffs to protect domestic manufactures. In his famous Report on the Subject of Manufactures of 1791, he recommended “bounties,” or direct subsidies, to support U.S. manufacturing companies. Keen to pay down debt from the Revolutionary War, Hamilton wanted duties to be low enough to encourage foreign trade while raising revenue for the new government.

Another myth Irwin dismantles is that trade tensions helped to bring on the Civil War. It was true that the cotton-exporting South favored lower tariffs while the industrializing North wanted more-restrictive tariffs. But after the Tariff of Abominations of 1828 and the South Carolina Nullification Crisis of 1832, President Jackson supported a reduction in tariff rates, and they continued to trend downward for the rest of the antebellum period.

The Civil War upended U.S. trade policy, as it did so much else, and ushered in a second era marked by high tariffs to protect certain U.S. industries. One sad fact that comes through clearly from Irwin’s meticulous scholarship is that the protectionism of this era did a lot more to build the lobbyist swamp than it did to build the U.S. economy. Every trade bill that moved through Congress invited a feeding frenzy of special interests seeking protection. Hundreds of pages of the Congressional Record were filled with speeches justifying higher tariffs on sugar, wool, glass, pig iron, and hundreds of other domestically made products.

What did all this high-tariff lobbying and legislating do for the U.S. economy? Not much. Putting on his economist hat, Irwin concludes that the impact of the protective tariffs was modestly negative. The United States grew into an industrial power after the Civil War not because of protection, but because of rapid labor-force growth from immigration, along with capital accumulation and high savings due to the development of financial markets. The biggest rise in productivity, according to Irwin’s analysis, was not in protected sectors but in service sectors, such as railroads and urban housing. To the extent that high tariffs raised the price of capital goods and steel for railroad tracks, the protectionism of that era acted as a small drag on U.S. growth.

The Republican era of restrictive trade protection reached its culmination with the Tariff Act of 1930, referred to by Irwin as the Hawley-Smoot tariff after, respectively, its chief House and Senate sponsors. The bill began, a few months before the 1929 stock-market crash, as an effort to aid farmers hurt by the deflation of the 1920s, but soon the familiar pattern of domestic trade-policy politics took over. The resulting bill, signed by President Herbert Hoover in June 1930, raised tariffs on hundreds of industrial and agricultural products. The tariff did nothing to revive U.S. industry and instead provoked retaliation against U.S. exports. Irwin notes that Hawley-Smoot played a relatively small role in deepening the Great Depression, but that the bill has rightly “achieved eternal notoriety as an ill-timed piece of legislation that reflected special-interest logrolling run amok.”

The twin shocks of the Great Depression and World War II brought about the third and current era of U.S. trade policy. The Democratic sweep of 1932 brought into office President Franklin Roosevelt and his pro-trade secretary of state, Cordell Hull. Hull was a traditional low-tariff Southern Democrat from the backwoods of Tennessee. A leader of the opposition in Congress during the heyday of Republican protection, Hull was the chief architect of America’s historic turn away from protectionism and toward leadership and engagement in the global economy.

In the post-war era of U.S. trade policy, the United States has pursued trade agreements with other nations to reduce trade barriers worldwide on a reciprocal basis.

Irwin gives Hull his due as a key figure in the evolution of U.S. trade policy: “Of all the people who have left a mark on US policy, none has had a greater or more lasting impact than Cordell Hull,” he writes. “Hull’s lifelong project, the reciprocal trade agreements program, fundamentally changed the direction of US trade policy over the course of the 1930s and 1940s. His success demonstrates that individuals, not just impersonal economic and political forces acting through Congress, can shape policy at critical moments.”

In the post-war era of U.S. trade policy, the United States has pursued trade agreements with other nations to reduce trade barriers worldwide on a reciprocal basis. The bipartisan U.S. policy has been aimed at promoting prosperity as well as peace among nations knit closer together through deepening commercial ties. “The worldwide economic boom after World War II stands in marked contrast to the dismal two decades after World War I,” Irwin writes. “While many factors account for the different outcomes over the two postwar periods, many economists believe that US leadership in helping reduce trade barriers and create the GATT [General Agreement on Tariffs and Trade] contributed to the economic growth that followed World War II.”

Irwin brings us up to recent times by recounting the battles over the North American Free Trade Agreement with Canada and Mexico, China’s entry into the World Trade Organization, and the flurry of bilateral and regional agreements negotiated by President George W. Bush’s able and ambitious United States trade representative, Robert Zoellick.

Irwin’s history ends on the cautiously optimistic note that support for trade rests on a firmer foundation today than in the past. In contrast to the 1930s, Irwin notes that today governments can use fiscal and monetary policy to respond to downturns, taking the pressure off trade policy. Trade agreements and institutions such as the World Trade Organization encourage governments not to backslide on trade liberalization. The spread of foreign investment and multinational companies with global production and supply chains as well as retailers sensitive to consumer interests all provide a political counterbalance to protectionist interests, one that did not exist decades ago.

Douglas Irwin’s Clashing over Commerce deserves a wide audience. With the invaluable perspective his grand view offers us, we can see that President Trump’s arguments against free trade are nothing new in our political discourse. In fact, they are old arguments, going back not just to the 1920s but to the recesses of the 19th century, where they belong.

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