Trade Happens

info@reason.com (Ramesh Ponnuru) — Wed, 01 Jan 1997 00:00:00 EST

Opening America's Market: U.S. Foreign Trade Policy Since 1776, by Alfred E. Eckes Jr., Chapel Hill: University of North Carolina Press, 424 pages, $34.95

Whenever Pat Buchanan is confronted with an economic argument, he invokes "history" to prove his point. During the presidential primary season, Buchanan responded to criticism from Sen. Phil Gramm (R-Tex.) by telling Human Events, "Phil has a Ph.D. in economics; that's his problem. He doesn't know history." He also argued that George Will's "disparagement of tariffs...is rooted in an ignorance of his nation's past." The four faces on Mount Rushmore, he says, were all protectionists; and the United States developed into a mighty industrial nation during the golden age of protectionism.

Buchanan cites a number of writers for intellectual support. Of these, Alfred E. Eckes Jr.--a Reagan appointee to the International Trade Commission and a history professor at Ohio University--is the most academically respectable. With Opening America's Market: U.S. Foreign Trade Policy Since 1776, Eckes provides protectionists with a "usable past." They have not been slow to take advantage of it. In addition to Buchanan, the peripatetic provocateur Michael Lind is an admirer of Eckes. In TheNew York Times Book Review, Lind wrote that the book "unites scholarly rigor with a policy maker's sensitivity to the political factors influencing trade....One hopes that future historians will provide their readers with a perspective on the past as helpful as the one Mr. Eckes has given us."

The book's tone and style are certainly scholarly; Eckes disavows any desire "to pursue an ideological agenda." His conclusions are almost always carefully hedged, or offered as mere conjectures.

Yet the tendentiousness of Eckes's presentation of the evidence nevertheless becomes clear as soon as he starts discussing the trade views of the Founding Fathers. Eckes quickly glosses over the fact that the United States was born in revolt against, among other things, Britain's corrupt, unfair, and restrictive mercantilist system. Thomas Jefferson's 1774 remonstrance to King George III, which Eckes gives short shrift, outlines the colonists' complaints. Jefferson himself emerges from Opening America's Market as a late-in-life convert to "economic nationalism." As president, he did indeed impose an embargo, but only to stop the seizure of American vessels by warring European powers. (It didn't work, but it did cause a depression in the northeast and a minor secession crisis--a failure Eckes totally ignores.) In retirement, Jefferson's hostility to England led him to embrace a voluntary buy-American policy, not a protective tariff.

The arguments of free traders are ignored in the discussion of early America, as they generally are throughout the book. Eckes pays no attention to important documents like the Free Trade Memorial drafted by Albert Gallatin in 1831. Gallatin, secretary of the treasury under Jefferson and Madison and perhaps the foremost early American theorist of free trade, appears once in the book, delivering what sounds like a protectionist quote; Eckes omits its wartime context. Andrew Jackson, a critic of protectionism, gets the same treatment.

Even early American protectionists' views are distorted. Eckes doesn't distinguish between the views of Alexander Hamilton and those of Henry Clay. Hamilton didn't reject Adam Smith but thought there were exceptions to his theory. He hoped that high American wages and low taxes would encourage mass immigration, thus developing America's home market. We may safely assume that this is not quite what Eckes (or Buchanan, or Lind) has in mind. Hamilton's protectionism was narrowly focused. He preferred direct subsidies to tariffs and wanted exemptions from tariffs for businesses that imported raw materials. And he advocated (low) tariffs against the backdrop of a degree of economic freedom within the United States that no longer exists.

Clay, on the other hand, was more like today's Buchananites in his trade views, complete with a cultural pessimism and xenophobia Hamilton lacked. Clay asserted, as Buchanan and Eckes do today, that the burden of tariffs falls exclusively on foreigners, not American consumers. Protectionism, in other words, is free. It doesn't cause prices to rise, and Eckes even asserts that it doesn't necessarily cause imports to drop (in which case, it's hard to see what's being protected). To square his views with the historical record, Eckes must insist that protectionism has no correlation with any other factors. Throughout the book, he essentially adopts the "shit happens" theory of economics to explain historical developments.

The evolution of the tariff during the Civil War is an interesting story, but not one well told in Opening America's Market. Eckes trumpets an Abraham Lincoln statement that free trade "must result in the increase of both useless labour, and idleness; and so, in proportion, must produce want and ruin among our people." He tactfully declines to sketch the argument that precedes Lincoln's conclusion--that the tariff promoted useful labor by eliminating the "useless labour" of transportation.

Eckes dates America's economic golden age from the enactment of the Morrill Tariff of 1861. But the extreme protection he celebrates really started in 1862 and 1864, when tariffs were increased substantially to compensate businesses for wartime taxes. High tariffs were enacted, in other words, to enable big business to become tax collectors for the government. After the war ended, the high tariffs didn't.

Eckes argues that protection was popular, bringing Republicans a near-lock on the presidency for 70 years. Perhaps. But it is worth noting that low-tariff Democrats won the people's House in eight of 10 elections following 1874, and the presidential election of 1892, which turned on tariff issues. Justin Morrill, though a protectionist himself, thought it necessary to reduce the wartime rates in order to prevent the public from turning against protection entirely.

More important, Eckes argues that protectionism worked: "Over the forty [high-tariff] years from 1889 to 1929 GNP and per capita GNP, both adjusted for inflation, rose at a higher average rate than during a recent similar period [1952-1992] of trade liberalization." Of course, extraneous changes like the growth of the welfare state make the comparison pointless. But note the arbitrary cut-off dates: 1889 followed two decades of lousy wage growth under protection, and protection hardly ended in 1929 (although suspicious minds could devise reasons for adopting that year as an endpoint). The golden age to which both Eckes and Buchanan hark was characterized by stagnant wages and substantial labor unrest; the postwar period has been much better on both scores. Population growth, including immigration, accounted for much of the increase in GNP during the earlier period.

But all of this is just a warm-up. The core of the book--where Eckes is at his most forthrightly polemical--is the chapter devoted to an attempted rehabilitation of the Smoot-Hawley Tariff of 1930. Eckes correctly notes that "secondary and college students have learned to associate Smoot-Hawley with the 'evil consequences' of protectionism." He seeks to disprove four major claims about the law: 1) that it "increased U.S. tariff rates to the highest levels in history"; 2) that "these sky-high tariffs frightened the stock market"; 3) that "Smoot-Hawley exacerbated the Great Depression"; and 4) that "other nations retaliated with trade restrictions of their own." Lind is particularly impressed with this section of the book.

Textbook writers who make the first claim, Eckes asserts, "have not examined the evidence carefully." For instance, he notes that the ratio of duties collected to total imports was, at 13.7 percent, lower than the ratio established by the Fordney-McCumber Tariff of 1922 and most other previous tariffs. Smoot-Hawley increased the percentage of imports that were duty-free to 69.5 percent, much higher than at other times in the nation's history (the 1992 percentage was 37.1). So, he concludes, "Smoot-Hawley may actually have lowered average duties."

Leave aside for the moment the fact that 11 of the 13 tariffs he compares with Smoot-Hawley in his chart are among the highest in the nation's history, while the low tariffs of 1791, 1816, 1820, 1846, and 1857 are ignored. If Eckes's revisionist case sounds convincing, it's only because he presents misleading measures of the tariff burden. The amount of duties collected, and the proportion of dutiable products, ought to go down the more prohibitive a tariff becomes. Consider a hypothetical example: If a country slapped 1 million percent tariffs on everything but coffee, coffee is all it would import. Presto! One hundred percent of all imports would be duty- free.

Eckes, in a typical move, relegates the truth of the matter to footnotes (page 310, footnote 17: "If higher duties effectively blocked some imports, the average ad valorem equivalent might prove to be an unreliable measure"). In fact, Smoot-Hawley increased duties on 890 items, 50 of them previously duty-free, and at the very moment when the U.S. policy of combining export preference with foreign loans was creating a crisis in financial markets.

Eckes next turns to refuting Jude Wanniski's argument that the stock market crashed in anticipation of Smoot-Hawley's passage. Wanniski's interpretation is, to put it gently, eccentric, and it's easy enough for Eckes to knock down. But he can't resist the temptation to go Wanniski one better: "The stock market crashed after evidence of legislative gridlock"--i.e., because a Democrat-led coalition was delaying passage of the bill.

In tackling the third and fourth claims, Eckes's method is to create a series of elaborate sideshows to divert attention from the fact that he is conceding the main point at issue. So he admits that international trade collapsed after Smoot-Hawley, though why it did so is just the darnedest mystery. He spends page after page showing that complaints by other nations about Smoot-Hawley weren't formal "protests" as understood by the State Department. He downplays the amount of trade retaliation by not counting devaluations, currency controls, debt defaults, or expropriation of foreign industry as retaliation. Even tariffs aren't necessarily retaliation; tariffs on automobiles, for instance, are redefined as luxury taxes.

Once again, however, Eckes tries to retain the shards of academic respectability in footnotes, where he concedes that there was in fact a spiral of international trade restrictions. But these were "actions unrelated to Smoot-Hawley" (foreign governments doubtless were just having fun). Eckes's scholarship on this point is, in short, impressive chiefly as a feat of prestidigitation.

Eckes's coverage of the postwar period is only marginally more reliable. He argues that the United States has foolishly liberalized trade without demanding that other countries do so to the same degree. To prove his empirical claims, he would have to examine liberalization in other countries, particularly Japan, more carefully than he seems inclined to do. To defend his normative claims, he would have to refute the classical case for free trade, which makes no reference to the trade policies of other nations.

In any case, Eckes's account is marred by a number of background assumptions, which he never bothers to defend. First is the view that trade deficits are bad and surpluses good--and its corollary, that imports are bad and exports are good. Except, that is, when exports are bad too: It's wrong for trade negotiators to "sacrifice" protected industries for the sake of exporters. A nation that opens "its" market to foreigners is making "concessions." If you support free trade, you're a member of a cosmopolitan elite: "Outside the Beltway, ordinary Americans saw trade policy differently." Crackpots like Ravi Batra and James Goldsmith are serious thinkers. The interests of particular industries are equivalent to the national interest--unless they're exporters or importers.

I've only skimmed the surface of this book's weak points. But Eckes's cheapest shot shouldn't pass without comment. Eckes and Buchanan, as right-wing protectionists, are fond of Karl Marx's statement that "the free trade system hastens the revolution. It is in this revolutionary sense alone...that I vote in favor of free trade." What neither of them seems to understand is that Marx viewed capitalism itself as revolutionary, a necessary stage of historical development. He favored free trade for the same reason he favored the gold standard and the Union in the Civil War: because it would advance the productive power of capitalism. Are Eckes and Buchanan prepared to smear all goldbugs and abolitionists as incipient Marxists too?

In his epilogue, Eckes attributes the election of the Republican Congress in 1994 to public anger over the North American Free Trade Agreement, which is peculiar since GOP congressmen were more likely to vote for it than Democrats. Eckes's "ordinary citizens" turn out to be more gullible than ordinary. Eckes's book should be right up their alley.

Reason Magazine - Staff

Trade Happens