Essay: International Trade Agreements

International trade agreements are an extremely important economic factor because they can positively or negatively effect the economic performance of a country.  These agreements, however, require the compliance of foreign nations which can take several years.  Beginning with the customs war of the 1920’s, the United States has made several trade agreements in collaboration with other countries that have impacted the American economy.  It is exceedingly difficult to establish the benefits or detriments of these deals because of the different lenses (mainly Democratic or Republican) they are viewed through.  To fundamentally understand these international trade agreements, one must incorporate the context in which the agreements were signed, the direct impacts they had, and how they affected deals made in the future.
After World War I, farmers dealt with a severe drop in the price of agriculture which led to an inability for them to afford the required machinery.  In 1922, the Fordney-McCumber Tariff was signed by Warren G. Harding attempting to protect farms and factories.  The tariff on imported goods was raised to 38.5% which was much higher than that set in 1913 and was the highest in U.S. history.  The roaring 20’s was a time of prosperity for everyone but the American farmer.  The tariff was supported by the Republican party and was meant to compensate these farmers by increasing the purchasing power of farmers by 2-3%.  Democratic Senator David Walsh argued that the tariff wasn’t beneficial at all because farmers weren’t exporting goods and therefore don’t need to be protected.  He also stated that the tariff increased the cost of living for the average American.  Republican Frank W. Murphy took an opposing view saying that the tariff was intended to help farmers afford the required machinery they needed to farm.  The Fordney-McCumber tariff discouraged international trade which angered foreign nations.  To oppose the tariffs, these foreign countries raised their own tariffs.  France increased the toll of automobiles from 45%-100%, Spain set a tax on imported American goods at 40%, and Italy and Germany put tariffs on wheat.  This customs war of the 1920’s is seen as one of the main causes of the Great Depression.
In 1934, the Reciprocal Trade Agreements Act was signed by Franklin Delano Roosevelt.  He said, “a full and permanent domestic recovery depends in part upon a revived and strengthened international trade.” This act allowed for the president to increase or decrease American tariffs by up to 50% based off the levels set by the Smoot-Hawley Tariff set in 1930.  The Reciprocal Trade Agreements Act provided a model for the General Agreement on Tariffs and Trade signed in 1948 to improve international trade.
During the Bretton Woods Conference in 1944, President Harry S. Truman tried to establish the International Trade Organization or ITO.  The idea was sparked from Democratic Congressman Cordell Hull in 1916.  He wanted to create ‘a permanent international trade congress’ which would be an institution to regulate trade.  His focuses were based off the high U.S. tariffs that only benefited Northern manufacturers and he believed there was a link between trade barriers and war.  Since the Organization was unable to receive sufficient backing from Congress, the Truman Administration was forced to abandon it.  The ITO was mainly centered around the U.S. economy while The General Agreement on Tariffs and Trade, or GATT, was established after the ITO as a more reasonable agreement for world-wide multilateral free trade agreement.
GATT was signed in 1948 and lasted until the 1st of January, 1995.  The goal of GATT was to eliminate unfair competition from foreign corporations that was the reason for decreased global trade (up to 65%) during the Great Depression.  It sought to remove tariffs which would, in turn, increase international trade.  Through GATT, all members would be treated equally regarding tariffs.  The agreement also set a restriction on the number of imports and exports a country could complete with three main exceptions: if a country had a surplus of agricultural goods, if the nation had low exchange reserves and therefore needed to protect their balance of payments, and if developing countries needed to protect underdeveloped industries.  GATT’s impacts on stronger countries would create an increase in the number of middle-class consumers internationally in the long-run.  The General Agreement on Tariffs and Trade began with 15 countries that agreed to eliminate trade restrictions.  These 15 countries affected a fifth of the world money in trade.
In the mid 60’s, the Kennedy Round added the Anti-Dumping Agreement, in the 70’s, Tokyo improved trade, and from 1986-1994, Uruguay created the foundation for the World Trade Organization signed on the 1st of January, 1995.  GATT had many positive impacts as well as a few negative impacts on international trade.  The agreement reduced tariffs, encouraged countries to join, improved communication, and promoted world peace further creating an argument that trade could prevent war.  On the contrary, some industries were hurt because of the agreement (agriculture) and since GATT was signed in 1948, it didn’t address rising industries such as globalized financial services and foreign direct investment.  These problems along with the Uruguay Round beginning in 1986, sparked the creation of the World Trade Organization.
The World Trade Organization, or WTO, was a global membership body that promoted free trade through three central areas.  The first being to automatically receive lower tariffs for exports which made it beneficial for exporting countries.  This way, the two involved countries are receiving the best trade terms.  Low tariffs, fewer trade barriers, and highest import quotas are what is incorporated in these trade terms.  Second, the World Trade Organization settles trade disputes.  These disputes are fundamentally caused when a country accuses another of dumping.  If the organization finds the accusations to be true, they will put sanctions of that nation.  Lastly, the WTO manages negotiations for new trade agreements.  The most significant being Doha 2006, emphasized the development for growing nations.  Major impacts from the WTO can be seen in 1997 where they negotiated agreements for trade in telecommunication amongst 69 countries, removed tariffs on informational technological products amongst 40, and improved trade in banking, insurance, securities, and financial information amongst 70 nations.  Since the WTO, many countries have arranged their own trade agreements.  Two of the biggest being the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership.
The Trans-Pacific Partnership (TPP), signed on the 4th of November, 2016, was a deal signed between twelve of the Pacific Rim countries excluding China.  It writes rules for global trade that are designed to benefit the U.S. by increasing Made-in-America exports, grow the American economy, strengthen the middle class, and create jobs in industries such as electrical, plastic, and agricultural.  A problem is that most income gains don’t benefit the lower and middle-lower classes.  The TPP is bigger than the North American Free Trade Agreement (NAFTA) but is smaller than the Transatlantic Trade and Investment Partnership (TTIP).  Similarly, TTIP connects the U.S. economy and the European Union across the Atlantic.  TIIP is similar to TPP in that it would expand the economy but the Transatlantic Trade and Investment Partnership would increase competition in several industries creating job loss.
Lastly, NAFTA is another highly debated trade deal.  Signed in December 1993 by Bill Clinton, the North American Free Trade Agreement eliminated most tariffs between Canada, Mexico, and the United States triple regional trade.  It’s supporters also claim that 14 million jobs rely on trade with Canada and Mexico.