Free Trade Doesn't Work

by Ian Fletcher

  406 Eric Reinert, How Rich Countries Got Rich and Why Poor Countries Stay Poor (New York: Carroll & Graf, 2007), p. 79.

  407 John M. Culbertson, The Trade Threat and U.S. Trade Policy (Madison, WI: 21st Century Press,1989) p. 52.

  408 Modern economics, that is, as distinct from the oikonomia (literally, household management) of the ancient world and the economic theology of the Middle Ages with its just-price theory, etc.

  409 See, for example, the pro-free trade but otherwise fairly wise William Bernstein, A Splendid Exchange: How Trade Shaped the World (New York: Atlantic Monthly Press, 2008), p. 257.

  410 A good analytical summary of its policies appears in Eric Reinert, How Rich Countries Got Rich and Why Poor Countries Stay Poor (New York: Carroll & Graf, 2007), p. 82.

  411 Eric Reinert, How Rich Countries Got Rich and Why Poor Countries Stay Poor (New York: Carroll & Graf, 2007), p. 87.

  412 John Maynard Keynes, The General Theory of Employment, Interest and Money (Cambridge, UK: Cambridge University Press, 1936), Chapter 23.

  413 Mehdi Shafaeddin, “How Did Developed Countries Industrialize? The History of Trade and Industrial Policy: The Cases of Great Britain and the U.S.A,” United Nations Conference on Trade and Development, December 1998, Table 2.

  414 This is not to say that this is the only way of dealing with the problem. Export of capital goods can be a good thing if a nation is successfully following a strategy of exporting capital goods.

  415 Peter Schweitzer, “On the Other Invisible Hand...Was Adam Smith, Fabled Free Trader, A Crypto-Protectionist?” The Washington Post, July 22, 1990. See also Eric Reinert, How Rich Countries Got Rich and Why Poor Countries Stay Poor (New York: Carroll & Graf, 2007), p. 133.

  416 Donald Grove Barnes, A History of the English Corn Laws: From 1660-1846 (Abingdon, UK: Routledge, 2006), p. 291.

  417 Imposing free trade in Britain was a progressive process, with true free trade arguably being attained not before 1860.

  418 Ronald Findlay and Kevin O'Rourke, Power and Plenty: Trade, War, and the World Economy in the Second Millennium (Princeton, NJ: Princeton University Press, 2007), p. 330.

  419 See David Cannadine’s The Decline and Fall of the British Aristocracy (New Haven, CT: Yale University Press, 1990).

  420 William Anthony Lovett, Alfred E. Eckes & Richard L. Brinkman, U.S. Trade Policy: History, Theory and the WTO (Armonk, NY: M.E. Sharpe & Co., 1999), p. 3.

  421 Paul Bairoch, Economics and World History: Myths and Paradoxes (Chicago: University of Chicago Press, 1993), p. 46.

  422 Lord Goderich during a debate on abrogation of the Treaty of Methuen, as quoted in Giles Badger Stebbins, The American Protectionist’s Manual (Detroit: Thorndike Nourse, 1883), p. 26.

  423 Peter Matthias et al, Cambridge Economic History of Europe (Cambridge, UK: Cambridge University Press, 1989), p. 62.

  424 Kevin O’Rourke, “Tariffs and Growth in the Late 19th Century,” The Economic Journal, April 2000. O’Rourke calculates that a 10% increase in average tariffs was associated with increased growth of nearly 0.2% a year.

  425 B.R. Mitchell and Phyllis Deane, Abstract of British Historical Statistics (Cambridge, UK: Cambridge University Press, 1971), pp. 520-21.

  426 John P. Creegan, America Asleep: The Free Trade Syndrome and the Global Economic Challenge (Washington: U.S. Industrial Council Educational Foundation, 1992), p. 59.

  427 John Campbell, F.E. Smith, First Earl of Birkenhead (London: J. Cape, 1983), p. 192.

  428 Technically, Chamberlain was a Liberal Unionist, a breakaway faction of the Liberal party that functioned as Conservatives, ultimately merging with them in 1912.

  429 C.W. Boyd, ed., Mr. Chamberlain’s Speeches, vol. 2 (London: Houghton Mifflin, 1914), p. 428.

  430 Thomas Friedman, The Lexus and the Olive Tree: Understanding Globalization (New York: Anchor Books, 1999), p. xvii.

  431 Sonali Deraniyagala and Ben Fine, “New Trade Theory Versus Old Trade Policy: A Continuing Enigma,” Cambridge Journal of Economics, November 2001, p. 3.

  432 William Cunningham, The Case Against Free Trade (London: John Murray, 1911), p. 142.

  433 Walt Whitman Rostow, The World Economy: History & Prospect (Austin, TX: University of Texas Press, 1978), Table II-2.

  434 Merrill D. Peterson, The Jefferson Image in the American Mind (Charlottesville, VA: University Press of Virginia, 1998), p. 24.

  435 Claude Halstead Van Tyne, The Causes of the War of Independence (New York: Houghton Mifflin, 1922), p. 65.

  436 The Tariff Act of 1789 (1 Stat. 24), July 4, 1789.

  437 Alexander Hamilton, Report on the Subject of Manufactures: Made in His Capacity of Secretary of the Treasury (Philadelphia: William Brown, 1827), p. 29.

  438 Ibid., pp. 50-61. Explanations adapted from Ha-Joon Chang, Bad Samaritans: the Myth of Free Trade and the Secret History of Capitalism (New York: Bloomsbury Press, 2008), p. 232.

  439 Alexander Hamilton, Report on the Subject of Manufactures: Made in His Capacity of Secretary of the Treasury (Philadelphia: William Brown, 1827).

  440 Cynthia Clark Northrup, The American Economy: A Historical Encyclopedia (Santa Barbara, CA: ABC-CLIO, 2003), p. 233.

  441 Emory R. Johnson et al., History of the Domestic and Foreign Commerce of the United States (Washington: Carnegie Institute, 1915), vol. 2, p. 35.

  442 Ha-Joon Chang, Bad Samaritans: the Myth of Free Trade and the Secret History of Capitalism (New York: Bloomsbury Press, 2008), p. 51.

  443 President James Buchanan supported tariffs for revenue-raising purposes only, not as a spur to industrial development, which put him on the low-tariff or anti-tariff side of the issue as framed in his day.

  444 Alfred E. Eckes, Jr., Opening America’s Market: U.S. Foreign Trade Since 1776 (Chapel Hill, NC: University of North Carolina Press, 1995), p. 57. Carey was described by Karl Marx as the only important American economist; Marx understood perfectly how tariff-based paternalism threatened his communist alternative.

  445 For a discussion of why a slave-based society has difficulty industrializing in the American context, see Fred Bateman and Thomas Weiss, A Deplorable Scarcity: The Failure of Industrialization in the Slave Economy (Chapel Hill, NC: University of North Carolina Press, 2002), p. 29 and following. Not only do slaves adapt poorly to jobs requiring technical skill and self-supervision, but slave-holding elites see new industries (which they cannot themselves enter) as threats to their power and as requiring undesirable social policies such as mass literacy.

  446 Alfred E. Eckes, Jr., Opening America’s Market: U.S. Foreign Trade Since 1776 (Chapel Hill, NC: University of North Carolina Press, 1995), p. 59.

  447 Article I, Section 8, Clause 1.

  448 Eric Reinert, How Rich Countries Got Rich and Why Poor Countries Stay Poor (New York: Carroll & Graf, 2007), p. 85.

  449 William Anthony Lovett, Alfred E. Eckes & Richard L. Brinkman, U.S. Trade Policy: History, Theory and the WTO (Armonk, NY: M.E. Sharpe & Co., 1999), p. 48.

  450 William Graham Sumner, Protectionism, the Ism That Teaches That Waste Makes Wealth (New York: Henry Holt and Co., 1885).

  451 Karl Marx, “Speech to the Democratic Association of Brussels at its Public Meeting of January 9, 1848” in Marx & Engels Collected Works, Volume 6 (London: International Publishers, 1975), p. 450.

  452 Congressional Record, May 6, 1913.

  453 William Graham Sumner, Protectionism, the Ism That Teaches That Waste Makes Wealth (New York: Henry Holt and Co., 1885), p. 28.

  454 Alfred E. Eckes, Jr., Opening America’s Market: U.S. Foreign Trade Since 1776 (Chapel Hill, NC: University of North Carolina Press, 1995), p. 46.

  455 Ibid.

  456 William Anthony Lovett, Alfred E. Eckes & Richard L. Brinkman, U.S. Trade Policy: History, Theory and the WTO (Armonk, NY: M.E. Sharpe & Co., 1999), p. 49.

  457 Source: author’s chart from “Merchandise imports and duties, 1790-2000,” Table Ee424 -430 in Historical Statistics of the United States, Earliest Times to
the Present, edited by Susan B. Carter et al. New York: Cambridge University Press, 2006.

  458 Ramesh Ponnuru, “The Full McCain: an Interview,” National Review, March 5, 2007.

  459 See Chapter 7 of his book with Anna Jacobson Schwartz, A Monetary History of the United States, 1867-1960, which was cited in the Nobel presentation speech as part of the reason for his award.

  460 William J. Bernstein, A Splendid Exchange: How Trade Shaped the World (New York: Atlantic Monthly Press, 2008), p. 354.

  461 Comparison between trade under the Fordney-McCumber tariff in 1930 and to trade under the Smoot-Hawley tariff in 1931. From Alfred E. Eckes, Jr., Opening America’s Market: U.S. Foreign Trade Since 1776 (Chapel Hill, NC: University of North Carolina Press, 1995), p. 107. The effects of Smoot-Hawley were also blunted by currency depreciation in America’s major trading partners.

  462 Alfred Eckes, Jr., Opening America’s Market: U.S. Foreign Trade Policy Since 1776 (Chapel Hill, NC: University of North Carolina Press, 1995), p. 106.

  463 In fact, America cut its tariff just before the recessions of 1857 and 1872. Alfred E. Eckes, Jr., Opening America’s Market: U.S. Foreign Trade Since 1776 (Chapel Hill, NC: University of North Carolina Press, 1995), p. 112.

  464 Peter Temin, Lessons From the Great Depression (Cambridge, MA: MIT Press, 1989), p. 46.

  465 Alfred Eckes Jr., quoted in Sherrod Brown, Myths of Free Trade: Why America’s Trade Policies Have Failed (New York: New Press, 2004), p. 180.

  466 This myth has its origin in the need of supply-side crank economists for an alternative explanation of the Great Depression. Paul Krugman, Peddling Prosperity: Economic Sense and Nonsense in an Age of Diminished Expectations (New York: W.W. Norton & Co., 1994), p. 93.

  467 Gertrud Fremling, “Did the United States Transmit the Great Depression to the Rest of the World?” American Economic Review, December 1985.

  468 Cordell Hull, The Memoirs of Cordell Hull (New York: Macmillan Company, 1948), p. 81.

  469 Cynthia Clark Northrup and Elaine C. Prange Turney, Encyclopedia of Tariffs and Trade in U.S. History (Westport, CT: Greenwood Press, 2003) p. 172.

  470 Michael A. Butler, Cautious Visionary: Cordell Hull and Trade Reform, 1933-1937 (Kent, OH: Kent State University Press, 1998), Chapters 2, 3, 4.

  471 Alfred E. Eckes, Jr., Opening America’s Market: U.S. Foreign Trade Since 1776 (Chapel Hill, NC: University of North Carolina Press, 1995), p. 143.

  472 Nitsan Chorev, Remaking U.S. Trade Policy: From Protection to Globalization (Ithaca, NY: Cornell University Press, 2007), p. 57.

  473 Douglas A. Irwin, “The GATT’s Contribution to Economic Recovery in Post-War Western Europe,” Board of Governors of the Federal Reserve System, March 1993, p. 10.

  474 Trade surplus: E.A. Brett, The World Economy Since the War, (Santa Barbara, CA: Praeger Publishers, 1985), p. 106. GDP: “Gross Domestic Product,” Bureau of Economic Analysis, http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=5.

  475 Alfred E. Eckes, Jr., Opening America’s Market: U.S. Foreign Trade Since 1776 (Chapel Hill, NC: University of North Carolina Press, 1995), p. xix.

  476 Stephen D. Cohen, Robert A. Blecker, and Peter D. Whitney, Fundamentals of U.S. Foreign Trade Policy: Economics, Politics, Laws, and Issues (Boulder, CO: Westview Press, 2003), p. 36.

  477 Eric Reinert, How Rich Countries Got Rich and Why Poor Countries Stay Poor (New York: Carroll & Graf, 2007), p. 180.

  478 Alfred Eckes, Jr., Opening America’s Market: U.S. Foreign Trade Policy Since 1776 (Chapel Hill, NC: University of North Carolina Press, 1995), p. 158

  479 Unpublished pages from “memoirs,” Truman Library, Independence, Missouri, quoted in Alfred E. Eckes, Jr., U.S. Trade Policy: History, Theory, and the WTO (Armonk, NY: M.E. Sharpe, 2004), p. 62.

  480 The phrase is from a famous speech by Soviet Premier Nikita Khrushchev in 1956.

  481 In the words of historian and former chairman of the U.S. International Trade Commission Alfred Eckes, “Viewed from a historical perspective, the Kennedy Round was a watershed. In each of the seventy-four years from 1893 to 1967 the United States ran a merchandise trade surplus (exports of goods exceeded imports). During the 1967-72 implementation period for Kennedy Round concessions, the U.S. trade surplus vanished and a sizable deficit emerged.” From Alfred E. Eckes, Jr., Opening America’s Market: U.S. Foreign Trade Policy Since 1776. (Chapel Hill, NC: University of North Carolina Press, 1995), p.202.

  482 Alfred E. Eckes, Jr., U.S. Trade Policy: History, Theory, and the WTO (Armonk, NY: M.E. Sharpe, 2004), p. 204.

  483 Ibid., p. 197.

  484 Galbraith to Johnson, March 11, 1964, White House Central File, Lyndon B. Johnson Library, Austin, TX, quoted in Alfred E. Eckes, Jr., Opening America’s Market: U.S. Foreign Trade Policy Since 1776. (Chapel Hill, NC: University of North Carolina Press, 1995), p. 202.

  485 “U.S. International Transactions Accounts Data,” Bureau of Economic Analysis, http://www.bea.gov/international/xls/table1.xls.

  486 Interview, “Fritz Hollings on How to Make Government Work for American Manufacturers,” Manufacturing & Technology News, August 29, 2008, p. 8.

  487 Lewis Branscomb, ed., Empowering Technology: Implementing a U.S. Strategy (Cambridge, MA: MIT Press, 1993), p. 64.

  488 The aim was to force other nations to revalue their currencies to save the Bretton Woods system of fixed exchange rates. This happened, resulting in the Smithsonian Agreement of 1971—which collapsed shortly thereafter due to domestic economic problems in the U.S. Cynthia Northrup, The American Economy: A Historical Encyclopedia, (Santa Barbara, CA: ABC-CLIO, 2003), p. 260.

  489 John B. Judis, The Paradox of American Democracy (New York: Routledge, 2001), p. 114.

  490 Nitsan Chorev, Remaking U.S. Trade Policy: From Protection to Globalization. (Ithaca, NY: Cornell University Press, 2007), p. 89.

  491 The VRA was instigated at the end of the Carter administration, but Reagan chose to go through with it.

  492 For a list of Reagan’s protectionist acts, see Sheldon L. Richman, “Ronald Reagan: Protectionist,” The Free Market, May 1988.

  493 William Anthony Lovett, Alfred E. Eckes and Richard L. Brinkman, U.S. Trade Policy: History, Theory and the WTO (Armonk, NY: M.E. Sharpe & Co., 1999), p. 149.

  494 See Eamonn Fingleton, Blindside: Why Japan is Still on Track to Overtake the U.S. by the Year 2000 (New York: Houghton Mifflin, 1995) or Robert Locke, “Japan, Refutation of Neoliberalism,” Post-Autistic Economics Review, January 2004.

  495 Kozo Yamamura, “Caveat Emptor: the Industrial Policy of Japan” in Paul Krugman, ed., Strategic Trade Policy and the New International Economics (Cambridge, MA: MIT Press, 1987), p. 177.

  496 Transcription from Meeting, March 26, 1955, International Trade Files, RG 43, National Archives; quoted in William A. Lovett, Alfred E. Eckes, Jr. and Richard L. Brinkman, U.S. Trade Policy: History, Theory, and the WTO (Armonk, NY: M.E. Sharpe, 2004), p. 64.

  497 UBS and Goldman Sachs’ internal estimates are that the average cost of capital in Japan is about 4%, vs. 8% in the U.S. See Robertson Morrow, “The Bull Market in Politics,” Clarium Capital Management, February 2008, p. 10.

  498 “2008 Production Statistics,” International Organization of Motor Vehicle Manufacturers, http://oica.net/2008-production-statistics.

  499 This is used as a not-unjustified term of convenience, not as a detailed cultural analysis.