Monday, May 01, 2000

The Truth About Trade In History

This week I happened upon the www.freetrade.org site and found an interesting article titled “The Truth About Trade In History” by Bruce Bartlett. The gist of the article is succinctly captured in the opening lines. “Pat Buchanan contends that the United States grew economically strong and prosperous because of trade barriers. … It is more accurate to say that the country grew in spite of import restrictions.”

I felt this article pushed home many of the ideas discussed in this week’s readings and thus would make a good review candidate. Bartlett quotes Buchanan as attributing nearly the entire past economic success of the US to “the success of the policy called protectionism that is so disparaged today.” Well, as they used to say, “them there are fighting words” especially for discussion in a class on International Economics!


Impact

After such an attention getting opening, Bartlett proceeds to complete a quick review of trade history setting the stage for his summation that protectionist policy has not been the source of the US’s strength. Along the way, he touches on the top level of each of the tariff definitions discussed in this week’s text.

Bartlett begins with the British and their mercantilistic approach to the American colonies where the “mother country expected to gain materially from all colonial trade.” This not only forced a great burden on the colonies but ultimately it contributed significantly to the Revolution itself.

The article then notes that the first US Congress adopted tariff of 1789 was simply meant to raise revenue for the government. It was not until 1816 when the Congress adopted the first “explicitly protectionist tariff.” From that point forward until the 1930’s a protectionist attitude prevailed.

Bartlett cites economist Frank Taussig whose work found that the tariffs of the early 19th century did nothing to fundamentally advance the economy of the US. From this conclusion, Bartlett points out how Taussig questioned the feasibility of the infant industry argument. Bartlett then confirms the weakness of the infant industry protectionist approach by quoting its ineffectiveness and high degree of likelihood that it would transform into a permanent duty as per the work of Gottfried von Haberler.

Skipping forward, Bartlett then argues that tariffs, especially the Smoot-Hawley tariff of 1930 if “not the single cause of the Great Depression, … certainly made a bad situation worse.” The only saving grace from that period Bartlett claims, is the memories (read nightmares) of the Smoot-Hawley tariff and the way it has kept Americans committed to a free-trade policy for the 60 years since the Depression. His fear however is that today’s prominent politicians such as Buchanan and Ernest Hollings, who proudly wear their protectionists views, are threatening a return to a protectionist past that did not work then and will not work any better today.

These popular leaders along with the likes of Ross Perot, raise protectionist issues on an emotional appeal basis which rings like music to many American voters’ ears. Some attribute this shift to a dwindling understanding of and support for true free-trade which has taken place since the mid-1980’s. The reality is that the case for free-trade needs to be re-sold to the American public based on it’s outstanding record. The result of which includes an annual world trade level which has grown from around $100 billion in 1960 to some $3 trillion today while average worldwide tariffs have fallen from around 40% to about 4% today.


Summary

In putting this review together, I realize that I have recapped the article more than the syllabus suggests. However, I thought the content made a great extension of the week’s readings. I also thought it made a solid reminder of the need to really focus on being “pro-trade” in our day-to-day business dealings in spite of the short term advantages dangled in front of us by those professing the potential power of protectionist tendencies. Like churning out dot.com ideas to simply take advantage of a short term supply and demand imbalance in the public financial markets, seeking or accepting tariff protection can fuel the same bubble about to burst syndrome.

As Edward Hudgins points out in his article entitled The Fundamental Freedom to Trade, “countries do not trade, individuals do.” And so it is on the backs of those individuals who pursue the acquisition and subsequent sale of goods everyday to remember to push their political systems for solutions which enable rather than restrict the growth of the world economy. The answer must lie in building solid, profit-making businesses and embracing (almost fanatically) the notion of free trade and the required role of the individual.


Sources

Bartlett, B. The truth about trade in history [Online]. http://www.freetrade.org/new/buch1.html

Hudgins, E. The fundamental freedom to trade [Online]. http://www.freetrade.org/pubs/freetotrade/chan1.html


Pugel, T. A., & Lindert, P. H. (2000). International Economics. New York: Irwin McGraw-Hill.

1 comment:

  1. Anonymous1:09 PM

    Correction, it is http://www.freetrade.org/pubs/freetotrade/chap1.html.

    ReplyDelete