Taking Trade to the Streets: The Lost History of Public Efforts to Shape Globalization

Chapter 2: Same Agruments, Different Context: A Brief History of Protectionism from 1789 to the 1960s

chapter 2 Same Arguments, Different Context A Brief History of Protectionism from 1789 to the 1960s When Benjamin Franklin wrote that “in this world nothing is certain but death and taxes,” he was referring to tariffs.1 Tariffs— duties applied at the border—were America’s main tool for regulating trade. However, when Americans talked about tariffs, they weren’t only talking about a tool to restrict trade. They were talking about a device that could nurture the new nation’s economic growth as well as finance the U.S. government. Moreover, when Americans talked tariffs, they also were discussing the implications of government intervention in the economy. At times, social issues forced a debate about tariffs; at other times, U.S. trade policy inspired Americans to weigh the social ramifications of the nation’s trade policy tools and objectives. Tariffs were one of the few tools available to nineteenth-century policymakers to encourage economic growth.2 Tariffs not only were effective tools, they also did not require any additional expenditures; that is, they were “off-budget.”3 Tariffs, the main source of federal revenue from 1789 until 1916, were an indirect tax; thus, many citizens did not link the costs of governance with the costs of protectionism. Moreover , tariffs often provided government with a surplus. The tariff walls erected by both Republicans and Democrats came with real costs to the American social compact. Tariffs were inherently inequitable. Although all consumers, rich or poor, had to absorb the costs of tariffs, the burden of tariffs fell heaviest on the poorest consumers , who had little disposable income. These men and women, whether they toiled the land or in factories, spent much of their earnings on purchasing the taxed goods.4 America did not reduce its reliance on tariffs to finance government until 1916, when Congress passed an income tax. This income tax was designed to tax more heav- ily those Americans with higher earnings and tax less heavily those with lower incomes. It was not until the Great Depression that policymakers began to dismantle America’s tariff walls. In 1934, Congress passed the Reciprocal Trade Agreements Act, calling for bilateral negotiations to reduce trade barriers and expand market access for U.S. companies. This legislation was a radical change: It modernized as well as internationalized the process of trade policy-making. After World War II, U.S. policymakers used trade policy to cement a connection between trade liberalization and economic/political stability. From then on, the United States led global efforts to establish rules to govern trade. Yet global leadership of efforts to liberalize trade did not stop policymakers from protecting certain sectors of the economy, such as textiles and agriculture, or from using new tools to protect, such as nontariff barriers (NTBs).5 These NTBs included administrative regulations such as marks of origin, laws banning convict or forced labor products, and sanitary restrictions such as quarantines. Policymakers sometimes relied on these NTBs strictly to protect. Not surprisingly, sometimes national regulations such as worker or consumer protective measures distorted trade. But policymakers’ reliance on such tools to protect was not always transparent. According to trade scholar Percy Bidwell, these NTBs attracted little attention in the press, were “rarely debated in Congress, and never the subject of discussion by women’s clubs or businessmen’s forums.”6 This chapter describes how arguments for protection evolved as the American economy, economic institutions, and policies changed over time. The debate began when the colonists first took to the streets and harbors to protest taxation (the use of tariffs) without representation . Social issues such as how trade policy could promote human rights were often part of the debate. For example, the relationship of trade and slavery bedeviled the debate at the Constitutional Congress. Members of nongovernmental organizations (NGOs) have had a long history of bringing social issues to the fore. They were also involved in the development of the postwar international organizations to regulate the global economy such as the United Nations, the International Trade Organization (ITO), the World Bank, and the GATT. Although such NGOs continued to shape domestic economic and social policies, the GATT did not cooperate with such groups; it worked with governments. America’s commitment to trade liberalization did not mitigate public support for relying on protectionist tools. The public had been Same Arguments, Different Context 31 weaned on protection. In 1789 as well as in 1959, citizens believed...