THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Monday, March 4, 1996 TAG: 9603020151
SECTION: BUSINESS WEEKLY PAGE: 04 EDITION: FINAL
SOURCE: BY J.R. BULLINGTON
LENGTH: Long : 122 lines
Pat Buchanan has brought international trade once again to the forefront of American political debate. With the largest-tonnage seaport on the U.S. East Coast and a host of trade-related businesses, Hampton Roads has a special interest in the policies which this debate may engender.
Although the struggle between free trade and protectionism may seem to have emerged as a major subject of national concern only in the past three years, historically it has been one of the defining issues of American politics.
In fact, restrictions imposed by England on the trade of the 13 colonies were among the most important causes of the American Revolution. The Declaration of Independence indicts Kings George specifically ``for cutting off our trade with all parts of the world.''
Moreover, the intellectual leaders of the Revolution were strongly influenced by The Wealth of Nations, Adam Smith's 1776 classic which first established the theoretical foundation for the doctrine that free trade enhances national prosperity.
Soon after independence, however, the overwhelming need to raise revenue for the new national government, reinforced by a desire to protect from foreign competition the ``infant industries'' which had developed during the war, led to the imposition of higher and higher tariffs on imports. The protected industries and their workers developed great political power.
They found a persuasive champion in Henry Clay, one of the triumvirate of senators (the others were Daniel Webster and John C. Calhoun) who dominated national politics in the years before the Civil War. Clay sounded the theme of protectionists which continues today, that any reduction of tariffs would result in ``want of employment and consequent reduction of the wages of labor.''
In 1828, Clay and his followers had enough strength to pass what opponents called the ``Tariff of Abominations,'' boosting duties to unprecedented levels.
By this time, the struggle had taken on a distinctly sectional cast. Most politicians from the North (where the protected industries were located) favored high tariffs; while most Southern politicians (whose primarily agricultural constituents suffered from the resulting higher prices for manufactured goods) championed free trade.
South Carolina reacted to the ``Tariff of Abominations'' by passing an ``Ordinance of Nullification,'' declaring it null and void within that state and provoking a serious national crisis.
President Andrew Jackson forced the Carolinians to back down, but they had made their point. With the support of the other Southern states and a strong minority of commercial interests in the North, a much lower tariff schedule was passed in 1833.
However, the new Republican Party formed in 1856 adopted protectionism as one of its guiding principles, and when it came to power in 1860 proceeded to raise tariffs again. Republican political domination assured high tariffs throughout most of the next 70 years. The subject remained extremely contentious, however, with Democrats, who strongly favored free trade, adopting reduced tariffs on the rare occasions when they had the chance, such as under President Grover Cleveland.
Republican-led protectionism reached its zenith in 1930 with passage of the Smoot-Hawley Tariff, which most economists believe served to deepen and prolong the Great Depression.
With the election of Roosevelt in 1932, free-trading Democrats again gained the upper hand. Moreover, with the experience of the Depression as a guide, plus growing U.S. prosperity as trade increased dramatically in the years after World War II, the Republicans joined in what amounted to a national consensus in favor of free trade. GATT, the General Agreement on Tariffs and Trade, was created in 1946 and soon embraced all the major trading nations.
Seven major ``rounds'' of reductions in tariffs and other trade barriers were negotiated under GATT during the next three decades, mostly with American leadership. To the extent they were debated at all domestically, these trade agreements enjoyed overwhelming political support from both parties.
This bipartisan consensus for free trade began to unravel with the heated debate over ratification of NAFTA, the North American Free Trade Agreement, in 1933.
A powerful coalition of labor unions, right-wing populists, environmentalists, companies in declining but protected industries, and other special interest groups very nearly defeated NAFTA, and in the process galvanized long-dormant protectionist sentiment throughout the country. Trade was once again an important national political issue.
The debate begun over NAFTA continued in 1994 over ratification of the GATT Uruguay Round, another set of broad reductions in trade barriers. The free traders again won.
However, it became clear that strong minorities in both political parties, and strong interest groups without special allegiance to either, had coalesced to try to reverse the direction of U.S. trade policy for the past six decades. Ross Perot led the protectionist forces in the 1994 election, and Pat Buchanan has now emerged as their new champion.
It remains to be seen whether these minorities will become majorities, and whether the 1994 GATT victory will prove to be the high water mark for free trade.
The outcome of this debate matters a great deal, even more than it did when Henry Clay prevailed over John C. Calhoun to pass the Tariff of Abominations or when the Smoot-Hawley Tariff exacerbated the Great Depression of the 1930s.
Now, two generations of increasingly free trade have helped bring unprecedented prosperity and opportunity to America; but they have also helped integrate us more and more closely into a truly global economy.
Even as late as the years just after World War II, international trade (exports plus imports) was less that 10 percent of the total U.S. economy. Today, it amounts to about a quarter of our economy.
International investment and capital flows have increased even more dramatically, while new technologies have made national borders less and less relevant to economic interaction.
In the 19th and early 20th Centuries, when the United States was expanding to occupy a rich but largely empty continent and global connections were much less important, we could grow economically in spite of (certainly not because of ) protectionism.
This is no longer the case. International trade is now crucial to our prosperity and prospects for growth.
The solution to the recent stagnation in worker wages is not a return to the protectionism of a vanished past, with more and more government interference in free markets, but greater investment in the human resources and economic infrastructure we need to compete effectively in the global economy of today and tomorrow. MEMO: J.R. Bullington is director of the Center for Global Business and
Executive Education at Old Dominion University.
by CNB