Past Presidential Impacts on Trade
Posted on August 18, 2016
The presidential elections are coming up in November and Americans nationwide are deciding which candidate’s viewpoints best match their own. With the debates beginning next month, there will surely be some heated discussion on hot button topics such as the environment, crime and health care. Here at the NDTO we are interested in presidential viewpoints on trade. While we wait for these issues to be addressed next month, we decided to take a look at trade from a historical viewpoint. Here are some highlights (and low points) of significant trade impacts made by past presidents.
Thomas Jefferson provides an early example of a very interesting trade policy. Due to difficulties with Britain and France and at President Jefferson’s request, Congress imposed a complete ban on all international commerce from December 1807 to March 1809. As a result, the prices of typically exported products such as raw cotton, flour and tobacco fell by about a third. The price of commonly imported goods increased by the same amount as their supply began to run short. It is estimated that the embargo shrunk U.S. GDP by 5%. On the other hand, the ban, along with a decrease in trade due to the War of 1812, may have sparked early U.S. industrialization by promoting domestic manufacturing.
For most of U.S. history, the United States has created barriers to trade with high tariffs in order to protect domestic manufacturers from competition abroad. But that changed when Woodrow Wilson stepped into office. Wilson was an advocate of free trade, lowering tariffs for the first time since the Civil War with the Underwood Tariff Act of 1913. The Underwood Tariff Act established a duty schedule using a percentage of the product’s value as a tariff. It also reinstituted a federal income tax in order to compensate for lost tariff revenue. Wilson included equality of trade as one of his “Fourteen Points”, which described a plan to create world peace. The Fourteen Points were delivered for the first time in a speech to Congress in January 1918, and then distributed worldwide. They were dropped behind enemy lines in Germany during WWI and became the basis on which the Germans were willing to surrender. However, during the Treaty of Versailles, the Fourteen points were not as closely followed as Wilson had hoped, due to European leaders demanding harsher punishments for Germany.
During Herbert Hoover’s campaign for presidency, he promised to increase tariffs on agricultural products in order to protect domestic production and stop falling prices. After he was elected and took office, he was influenced by lobbyists that encouraged him to increase tariffs on additional items, as well. First, a 1929 attempt to raise tariffs failed, but after the stock market crash that same year, protectionist sentiments rose. A new piece of tariff legislation, the Smooth-Hawley Tariff Act, passed narrowly in the Senate and easily in the House. More than 1,000 economists signed a petition urging Hoover not to sign it. Henry Ford spent an evening at the White House to convince Hoover of the Act’s “economic stupidity.” However, he signed the Smoot-Hawley Tariff Act anyway in June 1930. Tariffs on 20,000 items jumped 20-25 points, reaching a 50% rate on average. U.S. imports and exports numbers dropped by about two-thirds as foreign governments retaliated with their own tariffs. Some argue that Smoot-Hawley increased the length and severity of the Great Depression.
President Franklin D. Roosevelt criticized the Smoot-Hawley Tariff Act during his presidential campaign in 1932. He was of the Wilsonian believe that free trade encouraged prosperity and peace. He and Congress passed the Reciprocal Trade Agreements Act (RTAA) in 1934, which gave the President power to adjust tariff rates by as much as 50% and negotiate bilateral 3-year trade agreements without receiving prior congressional approval. The goal was to quickly finish trade agreements with the hope of recovering from the Depression. The RTAA allowed for 19 new trade agreements to be signed between 1934 and 1939. The Roosevelt Administration also created the Export-Import Bank in 1934 in order to finance trade with the rest of the world.
President Truman signed the General Agreement on Tariffs and Trade (GATT) along with 22 other nations in Geneva on October 30, 1947. The GATT was modeled after the RTAA and considered an interim measure that would grant tariff concessions between its members until the draft charter of the International Trade Organization (ITO) was completed. The creation of the ITO was never approved by the US. Congress and that charter was considered to be permanently stalled in 1951. The GATT took effect on January 1, 1948 and became the only international document governing world trade
President John F. Kennedy was of like mind in viewing trade as synonymous with freedom. He signed the Trade Expansion Act in 1962, partly as a strategy against the spread of communism during the Cold War. The Trade Expansion Act of 1962 gave the President unprecedented power to reduce or eliminate tariffs. He hoped it would lead to increased access to the new European Common Market and to closer economic ties with developing nations. By trading with developing countries, he hoped to keep them engaged with the West and away from the Soviet Union’s influence.
President Reagan called trade the “tides of human progress” and spearheaded the Uruguay Round, which eventually developed into the updated GATT 1994. GATT 1994 became an integral part of the World Trade Organization, which was established the following year. Reagan enacted the U.S.’s first free trade agreement with Israel in 1985. He also signed a free trade agreement with Canada in 1985. He was the first person to set the goal of free trade in the Western Hemisphere. His proposal of a “North American accord” during his presidential campaign was the concept behind NAFTA. Reagan did however go against his free trade doctrine when he imposed import quotas on Japanese cars to save the U.S. auto industry in 1985.