Wednesday, February 27, 2008

Personal Aside: The Democrats’ Anti-Trade New Wave.


For one with an historical reach…extending back to the 19th century and up to the present when Democrats from William Jennngs Bryan on embraced free trade…the bickering between Barack Obama and Hillary Clinton over who is more protectionist is a revelation. Free trade was a firm principle of the Democratic party since Andrew Jackson and the 1820s—and even before. As with all the colonies founded in the Western hemisphere, the U.S. began as an exporter of raw materials and an importer of almost everything else. The southern colonies exported tobacco, rice and deerskins; the northern colonies wheat, flour, pig iron, furs and lumber. Jealous of the colonies, Britain required them to pass through its own middlemen and be subject to British tariffs—a prime cause of the American revolution.

After the revolution, a tariff on imports here became a major source of revenue for the new government. When the Brits imposed a naval blockade on the U. S. in the war of 1812, domestic manufacturing rose, especially in the North. After the war, southern textile mills, fearing the intense competition from more efficient British mills, lobbied and got protection—a duty of 25 cents a yard that effectively blocked British cloth from entering the U. S. market. While this was salutary for the North, it was not for the South which depended on moving raw cotton to Northern and British mills while importing most manufactured goods. Thus in 1828 a higher tariff, called by the South “the tariff of abominations” precipitated the nation’s first secessionist threat. Andrew Jackson won the election of 1828 by insisting that tariffs be cut to the bone: and the lower tariff with the accompanying goal of free trade became a major plank in the Democratic party. Four years later Jackson ended the abominable tariff crisis by doing two contradictory but politically wise things: (a) defending the constitutionality of tariffs while (b) at the same time pushing a lower tariff through Congress.

With the Civil War and the need to increase revenue to fight it, higher tariffs became de rigeur but following the war the economic architecture of the nation changed. The South was the epicenter of free trade while the new industrialists of the North—Republicans all—supported higher tariffs and there was very little the South, subservient under Republican presidents, could do about it. But the Northern high tariffs hit the South hard and by the time of William Jennings Bryan there were the seeds of economic revolution. Bryan in Chicago in 1896 (at the Coliseum, delivering a speech my Irish Democratic grandfather thrilled to) launched a fight against high tariffs. He crusaded for a low tariff and the free coinage of silver, to induce inflation to help debt-strangled farmers pay their bills. This would be the Democrats’ crusade until World War I.

It took a dispute within the private confines of Carnegie Steel to show a dispute within the privately held company on the tariff. The battle led to the public release of documents that showed the company was garnering unheard of profits which created quite a scandal. The split between William H. Taft and Teddy Roosevelt in 1912 led to the victory of Woodrow Wilson for president and enabled the Democrats to win Congress. In 1913 tariffs were significantly lowered and the economy prospered. But, aha, the Republicans came back in 1920 and with them higher tariffs. In 1928 Herbert Hoover campaigned for the farm vote by promising legislation to protect farmers from cheaper foreign imports. When Congress met after his election, there was a line a mile long of corporate lobbyists seeking similar protection. And with the stock market crash in October, 1929 there came the blind nonsense of the Smoot-Hawley tariff which raised tariffs to the highest point in U.S. history. It signed a reaction from overseas against American goods which triggered an even worse great depression: Smoot-Hawley being considered one of the most disastrous pieces of legislation in U.S. history and Hoover one of the most disastrous (albeit well-meaning0 presidents.

FDR turned the situation around with lower tariffs. Two years after Roosevelt’s death, Harry Truman established GATT (the General Agreement on Trade and Tariffs) to cut tariffs and promote world trade leading to creation of the World Trade Organization in 1995. Thus world trade prospered; there was a tripling of trade in farm products between 1950 and 1970 with the following decade producing even more spectacular increases. World exports of manufacturing, farm and mining increased by a factor of 80 against which in contrast world GDP, net of inflation, grew by a factor of only six. The beginnings of NAFTA came with George H. W. Bush but it is to Bill Clinton’s credit that it was negotiated under his aegis. It was a far-sighted deal. Most trade agreements were conducted between two countries or at least a group of countries sharing economic circumstances. Not here. NATA involved three countries, the U.S., Canada and Mexico, with each member facing greatly different sets of circumstances. The U.S. and Canada were highly developed with educated populations and high per-capita GDP. Mexico with the world’s 14th largest economy had a much smaller GDP than Canada or the U.S. It is fair to say that Hillary Clinton weighed in against NAFTA inside the Clinton White House councils but lost the battle.

No sooner had NAFTA been concluded than Mexico found itself in a terrific financial crisis and a radical curtailment of its economy. But thanks to Clinton and Bob Rubin, the crisis was resolved in 1996. Mexican GDP has doubled in the past ten years, poverty has fallen and exports have been surging. Thus on the basis of earlier results, there is every reason to expect that Mexico can finally emerge as an industrial and post-industrial economy. But since it has not occurred yet, politicians are claiming that NAFTA is to blame for flooding the U.S. with illegal immigrants, that NAFTA has kept down wages on the bottom rung of the economic scale here. The Democratic party has recoiled and reexamined its position. Thus we have Hillary Clinton and Barack Obama both railing against free trade. In the short range, as prominent economist Paul Krugman of Princeton (and an influential “New York Times” columnist—influential with Democratic party thinking--says, growing U.S. trade with third world countries reduces the real wages of many and perhaps most workers in this country, although he realizes that in the long run free trade will help everyone.

What is likely to happen in the eventuality of a Democratic president? We’ll look at that next time.


  1. As always, Obama ignores the poor, while Clinton shifts her record to try to be more hostile to the poor.

    The great beneficiary of Free(r) Trade is the Consumer. Buying less expensive items is truly important to those on the poverty line, though it certainly is not all that important to Sen. Clinton or Obama.

    Just think of it, tariffs (still in place despite NAFTA or CAFTA) add 55 cents per gallon to the price of gasoline. Yes, in addition to taxes, you pay a bonus 20% so that ADM (uh..wasn't Obama flying around with them a while back) can make more money.



  2. Excellent read and historical synopsis, Tom.

    I have blanked out, as have most of the public, all of the babble from the current politicians. With few exceptions (most notably Senator Tom Coburn), today's professional politicians have zero capitalist experience.

    Instead, they are experts on in protecting their own free loading paid positions.

    The dirt involved with most of these folks needs to be raked up and it takes passionate people like you, Tom, who want to clean things up and pass along a better society to the next generaton, to do so.

    The majority of current professional politicians continue to take and waste money.

    Please join my a new policical party - VOIP - Vote Out Incumbent Policicians.

  3. Mr. Roeser it is obvious that you have not personally seen the economic carnage in Ohio, Indiana, Michigan, Pennsylvania, and Upstate New York. Your invalid arguments shrivel in light of the horrendous economic decline in these once strong Republican areas. It is my view that these areas were sacrificed in the name of high markup greed which leaves the region open to massive Democratic gain. Travel to Gary, Decatur, Joliet to see locally what decline has meant. The large private debt of the American citizens combined with mammoth dollar value destroying trade or current account deficits are not good for this country and can ruin it in the long run. You can't build a country on paper profits that can be gone with the wind. Our massive trade deficit can be compared to that of Germany in the 20's which led to hyper inflation and decline in the value of the Mark. Our housing market credit crunch rivals that of Japan in the 90's where even almost 0% interest rates could not lift the economy from a real property deflation. It is a dangerous economic mix. Mr. Roeser you have your economics wrong. Such failed economics will result in a Democratic win as Republicans fail to realize that they turned their back on the Reagan Democrats.

  4. Charles,

    You description of a Decatur and Joliet in decline is symptomatic of why trade restrictions and industrial policy do not work.

    Decatur and Joliet are booming. Manufacturing operations are working three shifts and 7 days a week on export related business. These cities are in better condition than any time in the last 30 years.

    Restricting trade kills these gains AND brings higher prices and inferior products to the consumer.

    Why not let successful export business (Caterpillar for example) succeed rather than choking them with failed, Leftist, trade policy?


  5. John, I live in Joliet. I have watched Joliet go from a high wage manufacturing area to an area requiring two low wage household incomes to exist. Of course the economists who push your invalid position look only to total household income and not to the fact that one income used to be sufficient. The development in the area has been warehouse operations for imports not exports offering mainly low wage forklift jobs.

    The so called boom in housing in the area has now gone bust. In addition the housing was mainly lower income cluster condo construction. And back to Joliet it is full of gang crime. Maybe you look at a gangland economy as an economy but I don't.

    And as to Decatur, my brother lives there and has shown me personally the empty factory properties. The only success there has been ADM which relies heavily on government subsidy to exist. This mirrors Kankakee, another economic failure with over 1000 homes for sale at the present time.

    John Powers you do not know what you are talking about sir.

  6. Charles,
    (Leaving the nearly unrelated housing market questions aside...)

    I suppose if you discard all quantitative abilities and only look to emotional responses, you may have a point.

    However, appeals to emotion as being practiced by Sen. Clinton and Obama are horrible management policy in practice, whereas low unemployment, low inflation, and high productivity growth are measurable and observable results of the nods to Free Trade we have had in the last 15 years.

    Just read unemployment is at a 5 year low in Decatur, while Caterpillar, Tate & Lyle (Staley) and ADM are working 3 shifts, all of which are huge net exporters. My relatives at Caterpillar are complaining about never getting time off, NOT about a lack of work.

    Are there boarded up factories? Of course. Other than being rather ugly, does that effect humans? Nope. Story last night on McNeil Leher, an excavator factory in Milwaukee is short-handed by 500 employees.

    If this is your idea of economic decline, please, can we have 8 more years of economic decline which so torments Sen's Obama and Clinton?


  7. John the quality of the jobs is everything to these areas. You look only to numbers and not to quality of the jobs. The fork lift jobs and low end service jobs have locked many into a hand to mouth lifestyle that is perfect for Democrat exploitation. It has nothing to do with emotional appeal. The success that you point to is only a fraction of what it used to be in these areas. The evidence is all over these areas. If everything is as rosy as you say there would not be the intensity of urban blight, the desire for casinos as economic development of last resort, the desire for tiff zones and sales tax rebates for Walmart, Walgreens, Home Depot, and there would not be the intense foreclosure issues in these areas. I will admit that Illinois is doing better than Michigan and Ohio which were once strong Republican areas. It is sad to see places like Cleveland, Sandusky, Lansing, Flint, and more turn into perpetual Gary and Detroit style economic blighted ghost towns. But for arrogant people like you, you would be willing to sacrifice the Republican party on your unproven trade ideals. Your dogged clinging to clinging to theory is losing the Reagan Democrats forever and is turning the Republican party into a loser.

  8. If presenting you with facts is somehow arrogant, then I am guilty as charged.

    Decatur is booming Joliet is booming. Just because it doesn't fit the doomsday narrative that you share with Sen. Obama and Clinton does not lessen the fact that export (and import) oriented manufacturing jobs in Illinois (and pretty much every where else) are on the upswing.

    Quoting Steve Chapman in this morning's Trib, manufacturing jobs pay have increased in pay 11% above the rate of inflation over the last 10 years.

    Quoting Spiro Agnew, the nattering nabobs of negativism, are what drives people to Leftism. I agree with you..the housing market is a mess, but high-paying, trade-oriented, manufacturing jobs are booming.


  9. John present your evidence of a boom in Joliet. The current dead real estate market in Joliet is not a boom. The import warehouse construction is not a boom because the jobs there are low pay fork lift jobs. And much of this warehouse construction is outside of Joliet along I55. Any so called housing boom in the Joliet area is now full of foreclosues and the housing market is for all purposes, dead. From the Feb. 3 Herald, "Now, Kendall and Will are leading a different list. And this one isn't so much fun. They're one and two in the state for foreclosure filings. It's clear that the area's phenomenal growth had shaky underpinnings. Will County Recorder of Deeds Laurie McPhillips agreed.

    "Many of the mortgages that we have seen come through our office are 'no money down,' 'adjustable rate' or 'interest only' mortgages," McPhillips said."

    Decatur has its subsidized ADM and the other firm you mentioned. But apply your free trade thinking and remove the ethanol perks and farm subsidies, Decatur would sink.

    And your Chapman piece discussed what manufacturing jobs that are left which and ignores the massive number lost. At least increased productivity has helped the dwindling number that are left.

  10. Will County Unemployment is at 5.0% in December of 2007. It was at 11.2% in 1992 (pre-NAFTA). A 5% unemployment rate is significantly less than 11%.

    Inflation is basically beaten. People are working. Will County has dramatically improved, and is doing all right, despite the doomsayers.

    There is likely a high inventory of unsold houses in Will County, much like anywhere else. Trying to tie this to Free Trade is a real stretch. Perhaps the houses are priced too high vs. the value that a buyer places on them, and people in Joliet are sensible enough not to buy at an inflated price?

    I'll throw a guess that 10% of the boom in Decatur is ethanol based, and 90% is the dollar adjusting to the world market, making export from Decatur attractive to foreign buyers.

    There is a group of Leftists out there that can't stand it when US Industry is making money, hiring workers, exporting, importing, and making the economy hum. It takes away the perceived constituency of hapless workers waiting to be saved by the Socialists. News flash: The Socialists are not going to save you with tariffs, taxes and more regulations.