Protectionism is Nothing New for Republicans

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June 16, 2018 — Critics of President Trump’s aggressive trade policy have mostly gotten it right.  His tariffs cause economic damage at home – raising the cost of living for American consumers, hurting industry, and taking foreign sales away from farmers and other exporters.   Moreover the threats have been deployed erratically across trading partners and across time in ways that seem calculated to discourage cooperation with the US and rather to isolate the hitherto leader of the free world from even its closest allies.

But one sometimes hears that these tariffs are a complete departure from historical Republican orthodoxy.   This is not quite right.

It is true that Republican politicians in recent decades have tended on average toward free-trade philosophy more than have Democratic politicians.  But during most of the first 100 years of its existence, the Republican Party was protectionist in both word and deed. Even in the most recent half-century, despite free-trade rhetoric, the three presidents who arguably took the most aggressive protectionist actions, even before Trump, were surprisingly all Republicans.

The Pro-tariff Origins of the Party

The Republican Party favored high import tariffs from its birth in 1854, as had its predecessor, the Whigs.  The party reflected the economic interests of manufacturers in the Northeast who wanted protection against highly competitive imports from Europe.  The Democrats were the pro-trade party.  They represented agriculture-exporting states.  Farmers needed neither textbook trade theory nor concrete retaliation by foreign trading partners to figure out that barriers to imports were bad for them economically.  This is all made admirably clear in Doug Irwin’s authoritative, yet highly readable, recent history of US trade policy, Clashing Over Commerce (University of Chicago Press, 2017).

From the Civil War until the eve of World War I, the Republicans usually dominated the government.  As a result average U.S, tariffs were set high, as high as 50 per cent. Irwin explains that during the first 70 years of American history, the dominant philosophy had been to set tariffs no higher than needed to raise revenue, but that when the South lost power to the North in the Civil War, restriction to protect manufacturing interests from import competition explicitly became the dominant motive.  Some elections were fought largely over the tariff issue, such as the “Great Tariff Debate” of 1888, when a Republican victory led to the McKinley Tariff of 1890.  Other highpoints of Republican trade policy included the Morrill Tariff of 1861 and the Fordney-McCumber Tariff of 1922 [which helped raise tariffs from 16 % in 1920 to 36% in 1922].

The two Congressmen who gave their names to the infamous Smoot-Hawley tariff of 1930 were both members of the Grand Old Party. So was President Herbert Hoover, who signed the legislation despite the objections of virtually the entire economics profession.  (1,028 economists put their names to a petition urging Hoover to veto it.)  The average tariff rate was raised to 48%.  The consequences are well-known. Other countries rapidly retaliated and emulated this aggressive act of protectionism.  Partly as a result, world trade collapsed over the subsequent years (down 60% by 1932), helping to put the “Great” into Great Depression and facilitating the rise of rabid nationalism in Germany and Japan.

The Rise of Free Trade

The transition to a more enlightened period of mutually agreed tariff reductions began when Cordell Hull, Franklin Roosevelt’s free-trader Secretary of State, pushed through the Reciprocal Trade Agreements Act of 1934.  It set the stage for the subsequent trend of trade liberalization.

After World War II, the isolationists were in retreat.  Even so, Republican Senator Robert Taft helped kill the International Trade Organization in 1950 which had been negotiated under US leadership to help liberalize world trade.  As recently as the 1962 Trade Expansion Act and 1967 Kennedy Round of multilateral tariff reductions, Democrats tended to support trade liberalization more than Republicans.

Positions shifted during the 1970s, to be sure.  Since then there have clearly been more protectionists on the Democratic side of the aisle of Congress than on the other side.  When presidents of either party have negotiated international agreements to reduce trade barriers, they have usually had to rely heavily on Republican votes to get Congressional approval.

Nixon, Reagan and Bush

But the three presidents who arguably took the most aggressive actions to interfere with free trade in the last 50 years were all Republicans:  Richard Nixon, Ronald Reagan, and George W. Bush.  Trump has gone extraordinarily far beyond them; but it is worth noting that his tariffs are not without modern precedents.

In August 1971 Nixon blind-sided US trading partners by imposing a 10% surcharge on imports and embargoing essential foodstuffs to Japan. This “Nixon shock” was part of the same “New Economic Policy” that included wage price controls and the closing of the gold window.

Reagan was a free trader, right?  He thought he was.  But his administration gave in to political pressures. Most egregiously, it forced Japan to adopt so-called Voluntary Export Restraints on auto exports to the US in the early 1980s.  Other moves followed, including against imports of steel, textiles and apparel.  To quote Bill Niskanen, a Member of Reagan’s Council of Economic Advisers, “…the administration imposed more new restraints on trade than any administration since Herbert Hoover” [Reaganomics: An Insider’s Account of the Policies and the People (Oxford Univ. Press), p.137].

Similarly, Bush in 2002 imposed steel tariffs of up to 30% under “safeguards” protection even though the industry blatantly failed to meet the legal requirements for it.  Bush knew that the WTO would rule the tariffs inconsistent with US obligations and they would have to be removed; but he also knew that would take time.  The tariffs had the same adverse effects on the US economy that Trump’s tariffs will have today, raising costs in steel-using industries like autos where they cost more jobs than they saved in steel.  The steel tariffs and other measures led Bruce Bartlett, another former Reagan official, to suggest in 2006 that it was he, Bush, who had the worst record on trade since Hoover. [Imposter: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy (Doubleday), Chapter 5.]

In short, Trump’s fondness for tariffs has some precedent, not just in early Republican history but also in the actions of some of the party’s more recent presidents.  There is an analogy with fiscal policy.  The presidents in recent decades who have arguably taken the most steps to lastingly raise the federal budget deficit have been Republicans.  It is as if the two parties have traded places.

Actually, fiscal policy is more than an analogy.   The rise in political pressure  for protectionism during the Reagan Administration was largely a reaction to record trade deficits which in turn originated in his record budget deficits.   Today, Republican fiscal stimulus is again leading to larger budget and trade deficits.

Free-trade Republicans as well as protectionist Democrats – there are plenty of Americans in both categories – are unhappy to learn of the history of tariff policy.  It is awkward when the “good guys” and “bad guys” don’t line up in the neat way that is desired.  But this is a stubbornly common pattern in history.  After all, as many people already know, Abraham Lincoln was a Republican.

[A shorter version appeared at Project Syndicate.  Comments can be posted there or at Econbrowser.]

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The “G-6 vs. 1” Summit

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June 8, 2018 —  I did an interview today as the G-7 Leaders Summit got underway in Canada.

In the video at BNN Bloomberg, I said I thought that if Trump’s tariffs are met with united and calibrated retaliation, he might eventually have to back down.

Here are the questions they sent me ahead of time and my responses,  

– Q:  Ideally – what do you want to see come from the Group of 7 leaders’ meeting that starts today in Canada?

– A:

  • If we were truly talking about an ideal world, one would aspire to progress on the issues that the Canadian hosts plan to talk about: environment, inclusive growth, equality, etc.
  • Closer to the real world, one would ideally see the G-7 cooperating to form a common front regarding economic issues with China (reduction of excess steel capacity & enforcement of IPRs) or geopolitical issues (esp. vis-a-vis North Korea & Iran & Russia).
  • This meeting will accomplish no such G-7 cooperation, and to the contrary will almost certainly go down in history as the “G-6 vs. 1” meeting.

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Trump’s On-Again Off-Again Trade War with China

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May 31, 2018 — The Trump Administration on May 29, nine days after having said that the China trade war was “on hold,” flipped the switch back to “on”.  As of now, the White House again plans to move forward by June 15 with plans for 25% tariffs on $50 billion of imports from China.  But the areas where Trump is pushing China the hardest are the ones that make the least sense. Continue reading

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