Trump trade: A dead end?
WASHINGTON -- Most Americans likely think that our trade policies have been largely the same since the Republic's earliest days. The assumptions are that we're free traders now and always have been; also, that we've long been a manufacturing power, boosting exports. If we sometimes lose in global competition, the main cause is that other countries don't play fair.
The truth is more complicated, as economist Douglas Irwin of Dartmouth College shows in his monumental study of U.S. trade policy since the Revolution, "Clashing over Commerce." Just published, it is an essential companion to the debate over President Trump's trade agenda.
Irwin quickly dispels the notion that manufacturing has traditionally characterized U.S. exports. To the contrary, the United States initially resembled what would today be called a "developing country." He writes:
"Prior to the Civil War, food and raw materials (wheat and cotton) comprised about two-thirds of exports, and manufactured goods (clothing and metal goods) comprised about two-thirds of imports." Only toward the end of the 1800s did the United States emerge as a true industrial powerhouse.
Similarly, tariffs -- taxes on imports -- were high in the 19th century by modern standards, routinely varying from 30 percent to 50 percent; the steepest average tariff was 62 percent in 1830. In those days, they served as the government's main source of revenue. Later in the century, they were defended as protecting American firms and workers against foreign competition.
Steve Bannon, Trump's former chief strategist, has cited this history as justifying more protectionism to promote American industry. Irwin and many economists disagree.
A number of factors favored U.S. manufacturing, they say: the growing size of the U.S. market; relatively stable government; the ability of U.S. firms to buy or steal new technologies from foreigners -- and their own capacity to innovate. The eminent trade economist Frank Taussig (1859-1940) called this "the ingenuity and inventiveness" of American workers. Tariffs were cut before the Civil War; if protectionism was so critical to U.S. industry, manufacturing's expansion would have stalled. It didn't.
The death of high tariffs occurred during the Great Depression and World War II. The infamous Smoot-Hawley tariff, enacted in 1930, raised rates on 890 products. This was widely seen as aggravating the Depression. After the war, U.S. industry dominated the world economy and there was little fear of imports.
Meanwhile, Europe and Japan were largely destroyed, and in Western Europe, there was a real possibility of communist takeovers of government. Trade liberalization helped Europe and Japan restart their economies by exporting. This enabled them to earn scarce dollars to buy food, fuel and machinery, mostly from the United States.
What made America great in the 1950s and 1960s were the strength of its economy and the recognition that freer trade was a powerful political force promoting prosperity and cementing Western alliances.