Democrats no strangers to tariffs

Democrats no strangers to tariffs

US President Donald Trump's aggressive approach to trade, which was on stark display at last week's G7 summit in Quebec, has elicited widespread derision. Critics point out that his tariffs hurt the domestic economy -- by raising costs for consumers and producers, and reducing foreign sales of farmers and other exporters -- while undermining America's relationships with its own allies. But there is one point that many observers get wrong: contrary to popular belief, Mr Trump's tariffs are not an unprecedented departure from historical Republican orthodoxy.

True, in recent decades Republican politicians have tended to embrace free trade more willingly than Democrats. But during most of the first century after its founding in 1854, the Republican Party was protectionist in both word and deed. Like their predecessors, the Whigs, Republicans favoured high import tariffs in order to advance the economic interests of manufacturers in the Northeast who feared competition from Europe.

The Democrats, by contrast, represented agriculture-exporting states, and thus favoured trade. As Douglas Irwin makes clear in his history of US trade policy, Clashing Over Commerce, farmers recognised -- even without training in trade theory or targeted retaliation by foreign trading partners -- that import barriers were bad for them economically. From the Civil War until the eve of World War I, Republicans largely dominated the US government, so average tariffs were set as high as 50%. Some elections during this period were fought largely over the tariff issue. The "Great Tariff Debate" of 1888 ended in victory for the Republicans, who then enacted the McKinley Tariff of 1890.

Republicans were also responsible for the Morrill Tariff of 1861 and the Fordney-McCumber Tariff of 1922. Moreover, both Sen Reed Smoot and Rep Willis C Hawley-- responsible for the infamous Smoot-Hawley tariff of 1930 -- were GOP members. So was President Herbert Hoover, who signed the legislation over the objections of virtually the entire economics profession. (Some 1,028 economists signed a petition urging him to veto the tariff.)

The consequences of Smoot-Hawley, which raised the average tariff rate to 48%, are well known. Other countries quickly retaliated with tariffs of their own. That contributed to a collapse in world trade, which fell 60% by 1932, helping to put the "Great" in "Great Depression" and facilitating the rise of rabid nationalism in Germany and Japan. In 1934, the Reciprocal Trade Agreements Act -- pushed through by Cordell Hull, the secretary of state in President Franklin Roosevelt's Democratic administration -- paved the way for a transition to a more enlightened period of mutually-agreed tariff reductions. And, after World War II, the isolationists went into retreat. Though Republican Sen Robert Taft helped kill the International Trade Organisation in 1950, the ensuing decades were characterised by a broad trend toward trade liberalisation.

Democratic presidents remained committed to trade liberalisation, reflected in the 1962 Trade Expansion Act and the 1967 Kennedy Round of multilateral tariff reductions, though, to be sure, since the 1970s, there have been more protectionists on the Democratic side than on the Republican side. When presidents of either party have negotiated international agreements to reduce trade barriers, they have usually had to rely heavily on Republican votes in Congress. Nonetheless, the three US presidents who arguably took the most aggressive protectionist actions in the last half-century, excluding Mr Trump, were all Republicans. Indeed, while Mr Trump has taken his tariffs further than any of them, his actions are not without modern precedent.

In September 1971, Richard Nixon blindsided US trading partners by imposing a 10% surcharge on imports and placing an embargo on exports of essential foodstuffs to Japan. This "Nixon shock" was part of the same economic policy that included wage and price controls and the closing of the US gold window. Likewise, though Ronald Reagan portrayed himself as a staunch supporter of free trade, his administration succumbed to protectionist political pressure. To quote Bill Niskanen, a member of Reagan's Council of Economic Advisers, "the administration imposed more new restraints on trade than any administration since Herbert Hoover". The most egregious example came in 1981, his first year in office, when the White House forced Japan to adopt so-called voluntary export restraints on auto exports to the US.

Then there was George W Bush who in 2002 imposed tariffs of up to 30% on an array of steel products as a "safeguard measure". Mr Bush was well aware that the industry failed to meet the legal requirements, that the World Trade Organisation would rule the measure inconsistent with America's treaty obligations, and thus that the tariffs would have to be rescinded.

But, while in effect, the tariffs strained the auto industry and other steel users, while inviting retaliation -- precisely the same adverse impacts Mr Trump's tariffs will have today. These and other interventions led another former Reagan-administration official, Bruce Bartlett, to suggest in 2006 that it was Mr Bush who had the worst trade record since Hoover. This history of US trade policy does not offer a welcome perspective for either pro-trade Republicans or protectionist Democrats. It is awkward when "good guys" and "bad guys" don't line up in the neat way that many Americans desire. But this is a stubbornly common pattern in history. After all, as many people know, Abraham Lincoln was a Republican. - PROJECT SYNDICATE

Jeffrey Frankel is Professor of Capital Formation and Growth at Harvard University.

Jeffrey Frankel


Jeffrey Frankel is Professor of Capital Formation and Growth at Harvard University.

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