Over the course of the last century, increasingly advanced technologies have brought together people and ideas in ways previously unimagined. This new era of exposure has coincided with growing if inconsistent trends toward international cooperation in the loosely defined process known as globalization. Although the trend itself is not recent, the effects of linking countries together economically are becoming increasingly visible as predicted shifts in economic makeup come to fruition. Regional trade agreements, or free trade agreements, offer the epitome of bi- or multi-lateral economic cooperation. Despite the many benefits of open trade, there are undoubtedly negative aspects. The debate of these pros and cons has taken center stage in recent politics, with high-level political exposure stirring an increasing number of passionate opinions. In the 2016 presidential campaign, president Donald Trump was critical of free trade agreements and their effect on the American industrial sector. Despite wavering appetites for globalization after the 2008 financial crisis, expanding linkages to international economies have brought about significant increases in trade, cooperation, and prosperity around the globe. This paper seeks to provide historical context to American trade posture, utilizing American trade policies between 1930 and 2017 as a lens for admonition and advisement.
A thoughtful analysis of American free trade requires the consideration of the country’s relationship with protectionism. Historically speaking, debates about American trade posture fell neatly along the lines of slave and non-slave states (Destler, 2016). Appetite for more open trade stances tended to be stronger in non-slave states, whose agricultural products, like cotton, fell into the category of export-oriented producers. Manufacturing interests in northern states, whose products faced import competition in the domestic marketplace, tended to side with labor unions in their opposition to the reduction of trade barriers. The American political economy increasingly favored the protectionist standpoint, and in response to the onset of the great depression, congressional Republicans attempted to insulate manufacturing interests from international competition, cumulating in the disastrous Smoot-Hawley act of 1930. Under Smoot-Hawley, tariffs were the highest they had been since 1826, and as other nations retaliated by introducing reciprocal tariffs in the background of economic chaos, American imports and exports fell by 41percent within 2 years. Although, as always, economists disagree about the extent to which Smoot -Hawley depressed American trade, there is a consensus that the act played a major role in exacerbating the conditions of the great depression. In 1934, the passage of the Reciprocal Trade Agreements Act (RTAA) signaled a shift in American trade policy, allowing bilateral and multilateral agreements to be enacted by presidential proclamation. Pres. Roosevelt, in office at that time, utilized this new authority to liberalize American trade and undo the protectionist harm caused by Smoot-Hawley. By 1940, 21 countries accounting for roughly 60 percent of American trade had entered into agreements under RTAA.
After the second world war, appetites for international cooperation was particularly high and plans for reconstruction envisioned increasingly linked countries operating under increasingly open trade conditions for both political and economic reasons. The second phase of globalization was starting. In 1947, the ratification of GATT not only provided a continuous, formal forum and process for international trade negotiations, but created an ostensibly nondiscriminatory international trade environment that engendered a spirit of liberalization that saw the international economy expand significantly. Each successive round of GATT negotiation pushed barriers lower and countries closer. In 1995, the Uruguay round created the WTO, to which the United States is an original contracting party. Between 1950 and 1973, world merchandise exports rose by upwards of 8 percent annually. The United States and did not miss out on these gains despite the bumpy path globalization takes, and became increasingly vocal in support for open trade. Between 1934 and 2007, average tariff rates for the United States fell from 18.4 percent to 1.3 percent, and trade became a larger share of American GDP by percent.
Ever expanding linkages into foreign economies and the market recession in 2008, however, have stirred protectionist feelings in some demographics of the American populace. As workers in import-competing sectors face stiff, international wage competition, both sides of the American political spectrum have experienced an increase in anti-globalist rhetoric. The underlying foundation for this discontent with globalizing tendencies is not entirely recent, but a product of gradual decline in the American manufacturing sector. Since the 1970s, as corporations have begun to outsource the production of their goods in vertically integrated supply chains, the inability for American factory workers to compete with low-wage conditions abroad has left many feeling as though their job was “stolen.” This was a particular point of interest for president Donald Trump in his 2016 presidential campaign, where is he maligned and threatened to dissolve the NAFTA among other free trade agreements.
Examining the realities of NAFTA, however, proves an important case study in American trade policy. The issue of wage differences under NAFTA was contentious even at the time of its ratification, especially given that Mexico was a last minute addition to the negotiation process initially intended to link only the United States and Canada. There is little question that some of the realities faced by those in the American manufacturing sector have roots in globalization, and more specifically in free trade agreements like NAFTA. But as is the case all multilateral agreements, there are trade-offs in labor on all sides. The economy of scale reached by the American agricultural industry vastly outperformed that of Mexico, creating a shift in the Mexican labor markets and raising trans-border migratory patterns – another key issue in American politics with roots in trade. The benefits of the NAFTA agreement were also clear during the Peso crisis, when despite entering into a period of economic recession during which the Mexican government implemented protectionist monetary and trade policies, as Mexico was legally bound to a scheduled reduction of trade barriers, the United States enjoyed increasing access to the Mexican economy at increasingly competitive rates. This allowed trade between the countries to expand during this period, and since the ratification of NAFTA in the 1990s, trade volumes between the United States and Mexico has grown over 250 percent.
Pres. Donald Trump in his 2016 presidential campaign utilized populist rhetoric in an attempt to solidify support amongst a conservative base of voters who felt particularly affected by trends globalization. But it is important to see in mind that the trade-off between having cost-lowering competition within the marketplace and the economic inefficiency that results from protectionism is palpable. The goal of open trade is to produce as many goods and as efficiently as possible at the lowest price point, so as to present the consumer with a wide variety of choice and quality to best suit their needs. Although economic inefficiency can be propped up through restrictive policy, it comes at the cost of choice for Americans consumers at large. Despite recent setbacks in appetite for globalization, integration of international economies is not going to cease anytime soon – appetite for globalization may be taking a pause, but the pendulum will swing back again.