Protectionism is for losers

In 1846, the U.K.’s then Conservative prime minister Sir Robert Peel, for whom the Montreal street is named, repealed Britain’s Corn Laws, which were actually more about wheat. The laws imposed tariffs on imported grains. Peel ended them — splitting his party and losing his job in the process — because he was a growth optimist. The Malthusian orthodoxy of the day said standards of living could only rise temporarily: When they did, population growth would drive them back to subsistence. But Peel believed lower food prices would help British workingmen become permanently better off. Turned out he was right.

Over the next two decades Britain declared unilateral free trade and its period of world economic dominance — in the universities we say “hegemony”— began in earnest. Which came first, free trade or dominance? That’s hotly debated in economic history. But for several decades they coincided. Which is not surprising: Big successful countries don’t believe they need protection. They regard themselves as winners, not losers. Please take note, president-elect Trump!

For last century’s first three decades, even Britain’s Labour Party was anti-tariff, believing, reasonably, that cheap food and other items are good for workers. “Save money. Live better,” as WalMart puts it. By the time Britain finally abandoned free trade and answered the U.S.’s 1930 Smoot-Hawley tariffs in kind, its economic dominance was over. America was ascendant.

In 1934, the year-old American administration of Franklin Roosevelt began the slow climbdown from Smoot-Hawley by seeking Robert Peel (1788-1850) trade deals with Britain and Canada. After the war, the era’s undisputed hegemon — the U.S. economy was half the world’s — pushed hard for trade liberalization. The result was steady reduction of tariffs and, later, other barriers under the auspices, from 1947, of the GATT (General Agreement on Tariffs and Trade) and then, from 1995, the WTO (World Trade Organization). diminished, less confident America — a Loser America, in its own mind — wants protection. We Canadians have long experience with American over-confidence so some trimming of U.S. sails might not be bad. But if the U.S. stops pushing free trade, that could threaten two centuries of world economic progress.

Of course, what Trump ran on and what he does could be very different. He since the 1980s, when he bought full-page newspaper ads condemning Ronald Reagan (yes, that Reagan) for not being tough enough on the Japanese, last generation’s coming hegemon. That the U.S. survived the Japanese threat, as it might China’s, seems not to have penetrated Trump’s world view.

Maybe the TPP could be finessed. In the late 1940s, the U.S. was the prime mover behind what ended up being the GATT. Then president Harry Truman was actually trying to create an International Trade Organization (ITO) — basically an early version of the WTO. Unfortunately, Congress didn’t go along, so the ITO was stillborn. For 50 years the world lived by the rules set down in the negotiations over GATT, which was never actually ratified. Who knows? Maybe the U.S. can live by the rules and tariff cuts of TPP, which was largely its idea, without signing anything.

Our prime minister, responding to U.S. trade angst, says he’s willing to look at NAFTA. Which parts, exactly? We got big benefits from the Americans’ dropping their tariffs. We’re now OK with tariffs going back up? Many of the deal’s non-tariff sections — guarantees about equal treatment for foreign investors, for instance — are in there at the Americans’ request. Do they now want them out?

By all means talk trade with Trump. Chrétien and Clinton papered over the supposed defects of Mulroney and Bush’s NAFTA with side deals on labour and the environment. But if the U.S. really does retreat from leadership in what The Economist calls “the long, hard job of winning the argument for liberal internationalism,” that will be a staggering blow both for it and for the world.