How Protectionist Rhetoric Endangers America

How Protectionist Rhetoric Endangers America

Ignore the politicians—free trade is in the U.S. national interest.


WASHINGTON HAD the easiest time finessing protectionist sentiment in the 1940s and 1950s, right after the Smoot-Hawley experience had taught its painful lesson. In 1940, the Roosevelt administration even tied free trade to the Lend-Lease Agreement to help Britain against the Nazis. It stipulated that any recipient of the aid must cooperate with the United States in constructing a liberal, global trade system after the war. The Atlantic Charter of 1941 delivered the same message. The founding documents of the United Nations made the need for free trade explicit, establishing the precursor to today’s WTO. After the war, Washington pushed hard to set up the General Agreement on Tariffs and Trade (GATT) specifically to reduce trade barriers of all kinds across the globe. In 1947, when France’s Prime Minister René Pleven resisted tariff cuts, President Harry Truman bluntly told him, “High Tariffs have not worked for the U.S. and they will not for France.” During this time, Washington resisted the urge to retaliate against the tariffs of other nations. Instead it used its diplomatic and economic leverage to reduce trade restrictions everywhere, using a series of negotiations, which largely succeeded.

This powerful protrade drive began to weaken in the 1980s. Protectionist rhetoric intensified. Moreover, it was then that Washington began to give up on efforts to reduce barriers globally. Policy instead began to pursue exclusive bilateral or multilateral trade deals. The first was NAFTA between the United States, Canada and Mexico. U.S. trade efforts have proceeded along these lines since, through the recently negotiated TPP. While such preferential trade agreements (PTAs to trade economists) are far from protectionist, they nonetheless fall far short of promoting a liberal, global trade system. Only their signatories gain the advantages of free trade. Otherwise PTAs pointedly exclude the rest of the world. Now, many running for office and their constituents would exclude the entire world.

If Washington is to promote the nation’s prosperity, a vital national interest if ever there was one, it must combat these trends. It must first reacquaint itself with the benefits of trade and the shortfalls of protectionism, as it learned the hard way in the 1930s. It must argue rigorously against those who call for protection, in political debate and as informed citizens at the ballot box. Meanwhile, politicians must cease the ever more common practice of courting special interests in contradiction to the needs of the commonweal. In this effort, policymakers must turn away from their practices of the last quarter century, cease the pursuit of PTAs and return to earlier efforts that sought to open trade globally.

On this last point, though the United States will effectively return to older policy principles, it will have to use very different tactics than it once did. The old way counted on a hegemonic dominance that the country no longer has. Then, the United States produced more than a third of the entire world’s output, averaged a significant trade surplus of exports over imports, its capital markets dominated more than half the world’s trading in financial assets and the country was the world’s greatest creditor. It could bully other nations into cooperating with its free-trade agenda and did, a point to which Truman’s blunt advice to Prime Minister Pleven speaks. Since then, the world has grown up around this country. Today, the United States produces less than a quarter of the world’s GDP, the economy grows at a halting rate, it runs a deficit of exports over imports, Europe’s capital markets can claim parity with America’s and the country borrows considerably more abroad than it lends. Bullying and direct confrontations to alter the illiberal policies of others will no longer work, at least not as they once did.

Efforts to promote freer trade globally do not, however, need to wait for the country to strengthen its economic and financial situation. Even relatively diminished, as it is, the United States retains enough economic and diplomatic muscle to alter global directions on trade. To do so, it will have to make efforts to marshal allies to the cause of a liberal agenda and work more within international institutions then it has in decades. These bodies—the WTO, the International Monetary Fund (IMF) and the like—have rules and means to discipline nations that pursue unfair trade policies. Washington can rely more on these, something it has done insufficiently in recent decades. By going a step further and rallying other nations within these institutions, it can gain in two additional critical ways. First, by arguing for a group instead of itself, the approach will deflect suspicions that the country is only seeking partisan advantage. Second, its allies, even if their narrow interests lie elsewhere, will gather more diplomatic and economic power to the free-trade agenda than this country can manage alone, making the effort more likely to change illiberal policies where they occur.

Take, for the sake of argument, the efforts this country has made during the last fifteen-some years to move China toward a more open, less manipulative approach to trade. Alone, Washington has had only limited success, even when Senators Schumer and Graham went so far as to threaten hefty tariffs in 2005. For all this relative failure, Washington’s insistence on acting on its own has painted the country in the eyes of the world as a partisan scrapper. Better to take advantage of the fact that other nations and groups of nations also object to China’s illiberal trade policies—including the European Union, India, Indonesia and Japan. Leading such a group of dissatisfied countries at the G-20, for instance, where China feels it has a special place, might meet with more success. Nor does it matter that these allies might harbor their own illiberal trade agendas. In such an alliance, they would nonetheless serve interests of the liberal, global trade order. The United States would look more like a principled leader than a partisan, while Beijing, with its overweening sense of self, might have an easier time accommodating global pressure than it would bowing to the demands of a Washington that it has chronically characterized as a bully.

Such a shift in policy, strategy and tactics will hardly be easy. It will face stiff headwinds in today’s domestic political climate, especially after years of unchallenged protectionist rhetoric and the official pursuit of partisan advantage in PTAs. It would also demand less grandstanding and more serous diplomatic effort on trade matters than this country has made in a long time, neither of which seems to fit with the day’s domestic political practice. But since a liberal, global trade order remains a clear and vital national interest, the country, for its own sake, has little option but to counter protectionist impulses, suppress the short-term satisfaction of securing partisan advantage in preferential trade deals and cease using foreign bodies for domestic parochial political advantage. Otherwise it might learn the lessons of Smoot-Hawley as it did the first time—the hard way.

Milton Ezrati is a contributing editor at the National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY) and recently retired as Lord, Abbett & Co.’s senior economist and market strategist. His most recent book, Thirty Tomorrows, describes how the world can cope with aging demographics.

Image: Container ship Ever Given. Wikimedia Commons/NOAA’s National Ocean Service.