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- Arguments for and Against Protectionist Policy
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- Arguments for and Against Protectionist Policy | Boundless Economics
Promising protection and prosperity to every economic sector, he won a smashing victory. The Republicans rushed through the Dingley tariff in , boosting rates back to the 50 percent level. Democrats responded that the high rates created government sponsored "trusts" monopolies and led to higher consumer prices. McKinley won reelection by an even bigger landslide and started talking about a post-tariff era of reciprocal trade agreements. Reciprocity went nowhere; McKinley's vision was a half century too early.
Republican President Theodore Roosevelt — saw the tariff issue was ripping his party apart, so he postponed any consideration of it. The delicate balance flew apart on under Republican William Howard Taft. He campaigned for president in for tariff "reform", which everyone assumed meant lower rates. Aldrich was a New England businessman and a master of the complexities of the tariff, the Midwestern Republican insurgents were rhetoricians and lawyers who distrusted the special interests and assumed the tariff was "sheer robbery" at the expense of the ordinary consumer.
Rural America believed that its superior morality deserved special protection, while the dastardly immorality of the trusts—and cities generally—merited financial punishment. Aldrich baited them. Did the insurgents want lower tariffs? His wickedly clever Payne-Aldrich Tariff Act of lowered the protection on Midwestern farm products, while raising rates favorable to his Northeast. By with the new income tax generating revenue, the Democrats in Congress were able to reduce rates with the Underwood Tariff.
U.S.-EU Trade Issues
The outbreak of war in made the impact of tariffs of much less importance compared to war contracts. When the Republicans returned to power the returned the rates to a high level in the Fordney—McCumber Tariff of The Canadian-American Reciprocity Treaty increased trade between and its ending in When it ended Canada turned to tariffs. Macdonald 's Conservative Party in after it returned to power. It had been an official policy, however, since It was based on high tariffs to protect Canada's manufacturing industry.
Macdonald campaigned on the policy in the election , and handily beat the Liberal Party , which supported free trade. Efforts to restore free trade with Canada collapsed when Canada rejected a proposed reciprocity treaty in fear of American imperialism in the federal election. Taft negotiated a reciprocity agreement with Canada, that had the effect of sharply lowering tariffs. Democrats supported the plan but Midwestern Republicans bitterly opposed it. Barnstorming the country for his agreement, Taft undiplomatically pointed to the inevitable integration of the North American economy, and suggested that Canada should come to a "parting of the ways" with Britain.
Canada's Conservative Party, under the leadership of Robert Borden , now had an issue to regain power from the low-tariff Liberals; after a surge of pro-imperial anti-Americanism, the Conservatives won. Ottawa rejected reciprocity, reasserted the National Policy and went to London first for new financial and trade deals. The Payne Aldrich Tariff of actually changed little and had slight economic impact one way or the other, but the political impact was enormous.
The insurgents felt tricked and defeated and swore vengeance against Wall Street and its minions Taft and Aldrich. The insurgency led to a fatal split down the middle in as the GOP lost its balance wheel. Woodrow Wilson made a drastic lowering of tariff rates a major priority for his presidency. The Underwood Tariff cut rates, but the coming of World War I in radically revised trade patterns. Reduced trade and, especially, the new revenues generated by the federal income tax bolstered by the ratification of the Sixteenth Amendment in made tariffs much less important in terms of economic impact and political rhetoric.
The Wilson administration desired a 'revamping' of the current banking system, " Working with the bullish Senator Aldrich and former presidential candidate William Jennings Bryan, he perfected a way to centralize the banking system to allow Congress to closely allocate paper money production. When the Republicans regained power after the war they restored the usual high rates, with the Fordney-McCumber Tariff of When the Great Depression hit, international trade shrank drastically.
This time it backfired, as Canada, Britain, Germany, France and other industrial countries retaliated with their own tariffs and special, bilateral trade deals. American imports and exports both went into a tailspin. Franklin D. Roosevelt and the New Dealers made promises about lowering tariffs on a reciprocal country-by-country basis which they did , hoping this would expand foreign trade which it did not.
Frustrated, they gave much more attention to domestic remedies for the depression; by the tariff issue had faded from politics, and the revenue it raised was small. Most economists hold the opinion that the tariff act did not greatly worsen the great depression:.
Milton Friedman also held the opinion that the Smoot-Hawley tariff of did not cause the Great Depression. Douglas A. William Bernstein writes "most economic historians now believe that only a minuscule part of that huge loss of both world GDP and the United States' GDP can be ascribed to the tariff wars "because trade was only nine percent of global output, not enough to account for the seventeen percent drop in GDP following the Crash.
He thinks the damage done could not possibly have exceeded 2 percent of world GDP and tariff "didn't even significantly deepen the Great Depression. Peter Temin , explains a tariff is an expansionary policy, like a devaluation as it diverts demand from foreign to home producers. He notes that exports were 7 percent of GNP in , they fell by 1. He concludes that contrary the popular argument, contractionary effect of the tariff was small.
Temin, P. Nobel laureate Maurice Allais , thinks that tariff was rather helpful in the face of deregulation of competition in the global labor market and excessively loose credit prior to the Crash which, according to him, caused the crisis Financial and banking sectors.
He notes higher trade barriers were partly a means to protect domestic demand from deflation and external disturbances. He obserses domestic production in the major industrialized countries fell faster than international trade contracted; if contraction of foreign trade had been the cause of the Depression, he argues, the opposite should have occurred.
So, the decline in trade between and was a consequence of the Depression, not a cause. Most of the trade contraction took place between January and July , before the introduction of the majority of protectionist measures, excepting limited American measures applied in the summer of It was the collapse of international liquidity that caused of the contraction of trade. Tariffs up to the Smoot—Hawley Tariff Act of , were set by Congress after many months of testimony and negotiations.
Arguments for and Against Protectionist Policy
In , the U. Congress, in a rare delegation of authority, passed the Reciprocal Tariff Act of , which authorized the executive branch to negotiate bilateral tariff reduction agreements with other countries. The prevailing view then was that trade liberalization may help stimulate economic growth. However, no one country was willing to liberalize unilaterally.
Between and , the executive branch negotiated over 32 bilateral trade liberalization agreements with other countries. The belief that low tariffs led to a more prosperous country are now the predominant belief with some exceptions. Multilateralism is embodied in the seven tariff reduction rounds that occurred between and In each of these "rounds", all General Agreement on Tariffs and Trade GATT members came together to negotiate mutually agreeable trade liberalization packages and reciprocal tariff rates.
The "average" tariffs now charged by the United States are at a historic low. After the war the U. American industry and labor prospered after World War II, but hard times set in after For the first time there was stiff competition from low-cost producers around the globe. Many rust belt industries faded or collapsed, especially the manufacture of steel, TV sets, shoes, toys, textiles and clothing.
Toyota and Nissan threatened the giant domestic auto industry. In the late s Detroit and the auto workers union combined to fight for protection. They obtained not high tariffs, but a voluntary restriction of imports from the Japanese government. Quotas were two-country diplomatic agreements that had the same protective effect as high tariffs, but did not invite retaliation from third countries. By limiting the number of Japanese automobiles that could be imported, quotas inadvertently helped Japanese companies push into larger, and more expensive market segments. The Japanese producers, limited by the number of cars they could export to America, opted to increase the value of their exports to maintain revenue growth.
This action threatened the American producers' historical hold on the mid- and large-size car markets.
Excerpt: Trade Strategies for a New Era
The Chicken tax was a response by President Lyndon B. Beginning in , during the President Kennedy administration, the US accused Europe of unfairly restricting imports of American poultry at the request of West German chicken farmers. Diplomacy failed, and in January , two months after taking office, President Johnson retaliated by imposing a 25 percent tax on all imported light trucks. This directly affected the German built Volkswagen vans.
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Officially it was explained that the light trucks tax would offset the dollar amount of imports of Volkswagen vans from West Germany with the lost American sales of chickens to Europe. But audio tapes from the Johnson White House reveal that in January , President Johnson was attempting to convince United Auto Workers 's president Walter Reuther , not to initiate a strike just prior the election and to support the president's civil rights platform.
Reuther in turn wanted Johnson to respond to Volkswagen's increased shipments to the United States. During the Reagan and George H. Free trade with Canada came about as a result of the Canada-U. It was based on Reagan's plan to enlarge the scope of the market for American firms to include Canada and Mexico. Likewise, in Clinton worked with Republicans to give China entry into WTO and " most favored nation " trading status i. NAFTA and WTO advocates promoted an optimistic vision of the future, with prosperity to be based on intellectuals skills and managerial know-how more than on routine hand labor.
They promised that free trade meant lower prices for consumers. Opposition to liberalized trade came increasingly from labor unions, who argued that this system also meant lower wages and fewer jobs for American workers who could not compete against wages of less than a dollar an hour. The shrinking size and diminished political clout of these unions repeatedly left them on the losing side. Despite overall decreases in international tariffs, some tariffs have been more resistant to change.
For example, due partially to tariff pressure from the European Common Agricultural Policy , US agricultural subsidies have seen little decrease over the past few decades, even in the face of recent pressure from the WTO during the latest Doha talks. International Trade Commission under President Reagan. In , the GOP platform pledged to "renew and emphasize our allegiance to the policy of protection, as the bulwark of American industrial independence, and the foundation of development and prosperity.
It upholds the American standard of wages for the American workingman. One of the first acts of Congress Washington signed was a tariff among whose stated purpose was "the encouragement and protection of manufactures. In his State of the Union Address , Washington justified his tariff policy for national security reasons:.
A free people ought not only to be armed, but disciplined; to which end a uniform and well-digested plan is requisite; and their safety and interest require that they should promote such manufactories as tend to render them independent of others for essential, particularly military, supplies . As President Thomas Jefferson wrote in explaining why his views had evolved to favor more protectionist policies: "In so complicated a science as political economy, no one axiom can be laid down as wise and expedient for all times and circumstances, and for their contraries.
After the War of , Jefferson's position began to resemble that of Washington, that some level of protection was necessary to secure the nation's political independence. He said:. In , then United States Senator from Kentucky , Henry Clay said about his disdain for "free traders" that "it is not free trade that they are recommending to our acceptance.
It is in effect, the British colonial system that we are invited to adopt; and, if their policy prevail, it will lead substantially to the re-colonization of these States, under the commercial dominion of Great Britain. When gentlemen have succeeded in their design of an immediate or gradual destruction of the American System, what is their substitute? Free trade! The call for free trade is as unavailing as the cry of a spoiled child, in its nurse's arms, for the moon, or the stars that glitter in the firmament of heaven.
It never has existed; it never will exist. Trade implies, at least two parties. To be free, it should be fair, equal and reciprocal. Clay explained that "equal and reciprocal" free trade "never has existed; [and] it never will exist. Henry Clay's longtime rival and political opponent, President Andrew Jackson , in explaining his support for a tariff, wrote:. We have been too long subject to the policy of the British merchants. It is time we should become a little more Americanized, and, instead of feeding the paupers and laborers of Europe, feed our own, or else, in a short time, by continuing our present policy, we shall all be paupers ourselves.
In , President James Monroe observed that "whatever may be the abstract doctrine in favor of unrestricted commerce," the conditions necessary for its success—reciprocity and international peace—"has never occurred and can not be expected. President Abraham Lincoln declared, "Give us a protective tariff and we will have the greatest nation on earth. Lincoln similarly said that, "if a duty amount to full protection be levied upon an article" that could be produced domestically, "at no distant day, in consequence of such duty," the domestic article "will be sold to our people cheaper than before.
Additionally, Lincoln argued that based on economies of scale, any temporary increase in costs resulting from a tariff would eventually decrease as the domestic manufacturer produced more. Lincoln did not see a tariff as a tax on low-income Americans because it would only burden the consumer according to the amount the consumer consumed.
By the tariff system, the whole revenue is paid by the consumers of foreign goods Lincoln argued that a tariff system was less intrusive than domestic taxation: The tariff is the cheaper system, because the duties, being collected in large parcels at a few commercial points, will require comparatively few officers in their collection; while by the direct tax system, the land must be literally covered with assessors and collectors, going forth like swarms of Egyptian locusts, devouring every blade of grass and other green thing.
President William McKinley supported tariffs and rejected the "cheaper is better" argument: . Under free trade the trader is the master and the producer the slave. Protection is but the law of nature, the law of self-preservation, of self-development, of securing the highest and best destiny of the race of man. Why, if protection builds up and elevates 63,, [the U.
We cannot take a step in the pathway of progress without benefiting mankind everywhere. They [free traders] say, 'Buy where you can buy the cheapest. Of course, that applies to labor as to everything else. Let me give you a maxim that is a thousand times better than that, and it is the protection maxim: 'Buy where you can pay the easiest. Well, whether a thing is cheap or whether it is dear depends on what we can earn by our daily labor.
Free trade cheapens the product by cheapening the producer. Protection cheapens the product by elevating the producer. It gives a premium to human energy, and awakens the noblest aspiration in the breasts of men. Our own experience shows that it is the best for our citizenship and our civilization and that it opens up a higher and better destiny for our people.
It will take away from the people of this country who work for a living—and the majority of them live by the sweat of their faces—it will take from them heart and home and hope. It will be self-destruction. President Theodore Roosevelt believed that America's economic growth was due to the protective tariffs, which helped her industrialize. He acknowledged this in his State of the Union address from The country has acquiesced in the wisdom of the protective-tariff principle. It is exceedingly undesirable that this system should be destroyed or that there should be violent and radical changes therein.
Our past experience shows that great prosperity in this country has always come under a protective tariff. Commentators and news outlets have largely called President Donald Trump 's economic policies protectionist and generally opposed to free trade. Currently, when we ship products out of America, many other countries make us pay very high tariffs and taxes. But when foreign companies ship their products into America, we charge them nothing, or almost nothing I believe strongly in free trade but it also has to be fair trade. In The Revolt of the Elites and the Betrayal of Democracy , Christopher Lasch analyzes  the widening gap between the top and bottom of the social composition in the United States.
For him, our epoch is determined by a social phenomenon: the revolt of the elites. Today, however, the main threat seems to come from those at the top of the social hierarchy and not from the masses. In this, they oppose the old bourgeoisie of the nineteenth and twentieth centuries, which was constrained by its spatial stability to a minimum of rooting and civic obligations. Globalization, according to the sociologist, has turned elites into tourists in their own countries.
The de-nationalisation of society tends to produce a class who see themselves as "world citizens, but without accepting Their ties to an international culture of work, leisure, information - make many of them deeply indifferent to the prospect of national decline. Instead of financing public services and the public treasury, new elites are investing their money in improving their voluntary ghettos: private schools in their residential neighborhoods, private police, garbage collection systems.
They have "withdrawn from common life". Composed of those who control the international flows of capital and information, who preside over philanthropic foundations and institutions of higher education, manage the instruments of cultural production and thus fix the terms of public debate. So, the political debate is limited mainly to the dominant classes and political ideologies lose all contact with the concerns of the ordinary citizen. The result of this is that no one has a likely solution to these problems and that there are furious ideological battles on related issues.
However, they remain protected from the problems affecting the working classes: the decline of industrial activity, the resulting loss of employment, the decline of the middle class, increasing the number of the poor, the rising crime rate, growing drug trafficking, the urban crisis. The result of this split from the top of the scale is that no one has a likely solution to these inextricable problems and that there are furious ideological battles on related issues.
At the same time, "middle Americans, as they appear to the makers of educated opinion, are hopelessly shabby, unfashionable, and provincial, ill-informed about changes in taste or intellectual trends". Opinions on trade and protectionism have fluctuated since the early s. Opinions recently have decided roughly of partisan lines. During the republican primary, Trump voters had a much more positive view of protectionism and "economic nationalism" than Cruz or Kasich voters. Hiscox, have argued that public opinion of international trade and protectionism is particularly malleable to political framing because of the complexity of the issue.
Due to this complexity, the public is more likely to look to the elites in their own political parties to form their opinions. From Wikipedia, the free encyclopedia. History of US protectionism. This article has multiple issues. Please help improve it or discuss these issues on the talk page. Learn how and when to remove these template messages. This article needs to be updated. Please update this article to reflect recent events or newly available information. March This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources.
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Main article: Smoot—Hawley Tariff Act. See also: Trump tariffs. Huff Post.
Arguments for and Against Protectionist Policy | Boundless Economics
Retrieved February 21, Archived from the original on January 6, Retrieved January 3, January 6, December 30, Retrieved March 3, Smuggling in the American colonies at the outbreak of the Revolution: with special reference to the West Indies trade. Tucker, and Kenneth H. James and David E. Ekelund, Jr. Financial History of the United States.
Beard Books. Manchester UP. Cambridge University Press. Fisher, Steel Serves the Nation , U. Steel, , p. The Tariff History of the United States. Tariff reform, the paramount issue: Speeches and writings on the questions involved in the presidential contest of Summers, William L. Online by Gerhard Peters and John T. Woolley, The American Presidency Project. International Organization. October 24, Princeton University Press. Retrieved February 21, — via Google Books. MIT Press. Barton, Judith L. Goldstein, Timothy E. Josling, and Richard H. The New York Times.
Unions in America. Warren Encyclopedia of U. Campaigns, Elections, and Electoral Behavior. Sage Publications. Retrieved January 4, Therefore, Trump prefers to solve economic problems through unilateral and bilateral approaches. Thus, global economic governance will probably be stagnant. For example, Trump has rejected the Paris Agreement, the cornerstone of global climate change, which arouses much worry. Focusing exclusively on its own interests, the United States seems to have descended from a promoter to an obstacle of globalization, which will hinder global trade growth and frustrate global economic governance.
The international economic system under protectionism will erode the foundation of the global economy, and the economies, including the United States, will find it difficult to get the best resources allocation from globalization. The Trump administration believes that the huge trade deficit in foreign trade is the crux of the various economic problems of the United States, claiming that rather than getting more economic benefits from international trade, the United States has been experiencing the departure of manufacturing, huge trade deficits, and declining economic competitiveness because of international trade.
In fact, despite the large scale of foreign trade, it has little impact on the GDP of the United States. According to the World Bank, imports and exports of the United States in accounted for only 28 percent of its GDP, about 48 percent of the world average, the lowest in all major economies. In short, the fundamental causes of its current economic struggles lie in the deep problem of economic, political, and social structures in the United States.
The problem of its economic structure is mainly reflected in two imbalances: first, the imbalance between the real economy and the virtual economy. The proportion of agriculture and manufacturing in the U. The virtualization of the U. The second imbalance is between savings and consumption. The U. It is a typical overdraft economy. The problem of political structure could be observed in its intensified political polarization. The positive adjustment of economic structure requires effective cooperation between political forces.
However, opposing parties in American domestic politics are increasingly polarized. The Democrats and the Republicans define national interests based on their respective party standpoints, making national policies by partisan preferences.
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Shortly after Donald Trump from the Republican Party took office, his administration adjusted healthcare reform, financial reform, and energy policies of the previous Obama administration in the opposite direction, which had only been implemented for a couple of years. The social problem is the increasingly serious polarization between rich and poor. According to statistical data, the United States has already emerged from the financial crisis. The wealth of the middle class continues to shrink, and the living conditions of people at the bottom are becoming more difficult.
But in the meantime the wealth proportion of the richest is increasing. The argument that the trade deficit causes job losses among U. A majority of studies suggest that the most critical reason for the loss of manufacturing jobs in the United States is the increase in automation and the job replacement of other technological factors, rather than the trade deficit. Not to mention that a series of economic linkages, including imports of goods from abroad and sales in the United States, also create tens of millions of jobs.
The number of jobs created by imports is even bigger than the number of jobs brought about by exports. Trade protectionism has historically proved to be the wrong choice. And it would be of no help to solve its own problems. This move will have a certain influence on the economies of other countries. Especially for those with close trade ties to the United States, the short-term impact could be great. However, trade protectionism cannot truly solve the problems of the United States, and moreover will also cause great losses to the United States.
First, trade protectionism would actually harm the investment interests of U. As criticized by the U.