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 1820sand 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 tariffsa 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 protectiona 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 nations 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 NorthRepublicans allsupported 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 Roosevelts 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 Clintons 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 worlds 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 columnistinfluential 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? Well look at that next time.