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
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