Back­grounder: Trump’s trade war

We’re re­peat­edly told that the world is on the cusp of an un­prece­dented trade war but is there any­thing par­tic­u­larly new about Don­ald Trump’s pro­tec­tion­ist poli­cies? Two his­to­ri­ans con­sider the ev­i­dence

BBC History Magazine - - Contents - Com­piled by Chris Bowlby, a BBC jour­nal­ist spe­cial­is­ing in his­tory

Trump is not as un­ortho­dox as is com­monly sup­posed. It is the re­cent po­lit­i­cal con­sen­sus in sup­port of free trade that is the his­tor­i­cal aber­ra­tion PRO­FES­SOR CLIVE WEBB

Crit­ics of Pres­i­dent Don­ald Trump of­ten claim he is a his­tor­i­cal anom­aly – that his dis­dain for mul­ti­lat­er­al­ism and his dis­parag­ing of al­lies are ev­i­dence of a rad­i­cal depar­ture from po­lit­i­cal tra­di­tion in the US. Yet, in many cases, he is not as un­ortho­dox as com­monly sup­posed. Take his sup­port of tar­iffs to safe­guard US man­u­fac­tur­ers against what he sees as other coun­tries’ un­fair trade poli­cies. Trump’s as­ser­tion that “pro­tec­tion will lead to greater pros­per­ity” ad­heres to a doc­trine dat­ing back to the ear­li­est days of the repub­lic.

The fledg­ling US gov­ern­ment used tar­iffs to gen­er­ate rev­enue as early as 1789. Ge­orge Wash­ing­ton claimed, with greater le­git­i­macy than Trump, that na­tional se­cu­rity con­cerns were be­hind the pol­icy, as it would en­sure re­liance on home­grown man­u­fac­tur­ers for mil­i­tary sup­plies. Then came the Tar­iff of 1816, in­tro­duced to stem the flood of cheap Bri­tish prod­ucts and pro­mote eco­nomic ex­pan­sion by pro­tect­ing do­mes­tic firms from overseas com­peti­tors.

The chief ad­vo­cates of this pro­tec­tion­ist phi­los­o­phy were the Whigs and their Repub­li­can suc­ces­sors. Democrats, with an elec­toral base in states whose agri­cul­tural economies re­lied on ex­port­ing, usu­ally ar­gued for lower tar­iffs. Ten­sions over trade pol­icy would ac­tu­ally con­trib­ute to the break­down in re­la­tions within the US that led to the Amer­i­can Civil War (1861– 65). Fol­low­ing the con­flict, Repub­li­can dom­i­nance en­sured pro­tec­tion­ism as a cen­tral com­po­nent of gov­ern­ment pol­icy, only oc­ca­sion­ally in­ter­rupted by the Demo­cratic ad­min­is­tra­tions of Grover Cleve­land and Woodrow Wil­son.

Pro­tec­tion­ism held sway well into the 20th cen­tury, and reached its apoth­e­o­sis with the Smoot-Haw­ley Tar­iff Act of 1930. In­tended to pro­tect US busi­nesses and farm­ers suf­fer­ing in the Great De­pres­sion, the im­po­si­tion of high tar­iffs on for­eign im­ports proved dis­as­trously coun­ter­pro­duc­tive. Other coun­tries re­tal­i­ated with their own tar­iffs, and in­ter­na­tional trade col­lapsed, wors­en­ing the al­ready se­ri­ous eco­nomic woes in the US.

While the Smoot-Haw­ley Act did much to show the de­fi­cien­cies of pro­tec­tion­ism, it was the rise of a new in­ter­na­tional or­der after the Sec­ond World War that most in­flu­enced a re­di­rect­ion in US trade pol­icy. Free trade was pro­moted to re­build the ru­ined economies of western Europe, and thereby strengthen the Cold War al­liance against the Soviet-led eastern bloc. The US be­came one of 23 na­tions in the Gen­eral Agree­ment on Tar­iffs and Trade in Oc­to­ber 1947, which lasted un­til the cre­ation of the World Trade Or­ga­ni­za­tion in Jan­uary 1995.

In sub­se­quent decades, the US has been an ar­dent ad­vo­cate for free trade. How­ever, it has not al­ways prac­tised what it preached. Ron­ald Rea­gan cham­pi­oned free trade in the 1980s, but im­posed high tar­iffs on Ja­panese auto ex­ports, while trade union in­flu­ence sus­tained a strongly pro­tec­tion­ist wing within the Demo­cratic party.

It is there­fore the rel­a­tively re­cent po­lit­i­cal con­sen­sus in sup­port of free trade that is the his­tor­i­cal aber­ra­tion. The fo­cus of Trump’s aim might be dif­fer­ent – China rather than Ja­pan now be­ing seen as Amer­ica’s neme­sis – but the weapon he wields bears the fin­ger­prints of many for­mer pres­i­dents. As the trade war un­leashed by the Smoot-Haw­ley Act demon­strated, he should be care­ful it does not go off in his own hands.

In the 1840s Bri­tain turned away from pro­tec­tion­ism and to­wards free trade in the hope that this would pro­vide cheap food for the poor, open up new mar­kets for do­mes­tic man­u­fac­tur­ers, and fos­ter more peace­ful in­ter­na­tional trade re­la­tions. It was as­sumed the rest of the devel­op­ing world would fol­low suit. But after a brief flir­ta­tion with trade lib­er­al­i­sa­tion, the US, Ger­many, France and Rus­sia opted for pro­tec­tion­ism, hop­ing that shel­ter­ing their man­u­fac­tur­ers from the full force of global mar­ket com­pe­ti­tion might nur­ture them into adult­hood.

This in­ter­na­tional turn to pro­tec­tion­ism among Bri­tain’s com­peti­tors fu­elled an anti-free trade back­lash in the Bri­tish em­pire. Groups like the Fair Trade League, the Im­pe­rial Fed­er­a­tion League and the Tar­iff Re­form League sought, al­beit un­suc­cess­fully, to over­turn Bri­tain’s ad­her­ence to free trade. Rad­i­cal MP Joseph Cham­ber­lain was the charis­matic fig­ure­head of the tar­iff re­form move­ment in the early 20th cen­tury. He wanted to en­act re­tal­ia­tory tar­iffs on for­eign im­ports but pro­mote pref­er­en­tial rates within the em­pire; im­pose im­mi­gra­tion re­stric­tions; and strengthen po­lit­i­cal and eco­nomic ties – all in the name of na­tion­al­ism, work­ers and in­dus­tries.

But what of the longer term con­se­quences of trade con­flicts? Cana­dian-Amer­i­can trade his­tory pro­vides a use­ful ex­am­ple. In 1866, with the US reel­ing from civil war and pro­tec­tion­ism dom­i­nat­ing the White House, the gov­ern­ment ab­ro­gated the Rec­i­proc­ity Treaty, which had pro­moted free trade with Canada since 1854. This set off tit-for-tat tar­iff in­creases un­til some US com­pa­nies con­cluded it was cost-ef­fec­tive to move their pro­duc­tion to Canada rather than pay. More than 60 man­u­fac­tur­ing plants had re­lo­cated by the late 1880s. Far from halt­ing out­sourc­ing, pro­tec­tion­ism caused it. Trade ten­sions then reached a break­ing point the fol­low­ing decade when Canada re­sponded to US high tar­iff walls with a dou­ble dose of tar­iff re­tal­i­a­tion and closer trade ties with Bri­tain in­stead of the US.

There are ex­am­ples demon­strat­ing that pro­tec­tion­ism in the short term can ben­e­fit cer­tain seg­ments of an econ­omy, such as in the late 19th cen­tury, when it helped the strug­gling tin plate in­dus­try and so-called Sugar Trust in the US. But econ­o­mists broadly agree that the losses to­day far out­weigh any gains.

That’s why the post-1945 in­ter­na­tional trade sys­tem pro­moted free trade, to cre­ate a more peace­ful, pros­per­ous and sta­ble eco­nomic or­der. And it proved quite durable, in part be­cause the US pro­vided lead­er­ship when needed. What makes the sys­tem so frag­ile now is that the US has a pro­tec­tion­ist pres­i­dent, who has long ex­pressed dis­dain for in­ter­na­tional al­liances and eco­nomic reg­u­la­tory bod­ies. So while Trump’s anti-glob­al­ist po­si­tions are cer­tainly rem­i­nis­cent of 19th-cen­tury Repub­li­cans or Cham­ber­lain’s tar­iff re­form­ers, his an­i­mos­ity to­ward to­day’s lib­eral eco­nomic or­der is un­prece­dented. And from this comes the un­cer­tainty we are now wit­ness­ing.

The post-1945 in­ter­na­tional trade sys­tem pro­moted free trade to cre­ate a more peace­ful, pros­per­ous and sta­ble eco­nomic or­der – it is frag­ile now DR MARC-WIL­LIAM PALEN

Don­ald Trump an­nounces his ‘Buy Amer­i­can, Hire Amer­i­can’ ex­ec­u­tive or­der on 18 April 2017. The pres­i­dent’s “an­i­mos­ity to­ward to­day’s lib­eral eco­nomic or­der is un­prece­dented”, ar­gues Dr Mar­cWil­liam Palen

Clive Webb is pro­fes­sor of mod­ern Amer­i­can his­tory at the Univer­sity of Sus­sex

A poster printed by the Lib­eral party in c1905–10 shows a “free trade shop” bustling with busi­ness, while an empty “pro­tec­tion shop” is hit by rates

Dr Marc-Wil­liam Palen is a se­nior lec­turer in his­tory at the Univer­sity of Ex­eter

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