by M. Sigmund Shapiro
July 2, 1999
I remember my father telling me that he was in the Senate gallery
back in 1929 and heard Senator Smoot, co author of the infamous
Smoot-Hawley Tariff Act of 1930, speak on the need to pass the
legislation. He was quoted as saying that the bill, which bore some
of the highest duty rates in the country’s history, would bring
about "the greatest prosperity we’ve ever known. Talk about a
clouded crystal ball.
We know now that raising tariff barriers was the wrong medicine
at the wrong time, as the country plunged into the deepest
depression in modern history. Indeed, it’s been proven, time and
again that raising tariff barriers is a self-defeating process that
does nothing but bring retaliation.
It took five years for Congress to try to repair the damage and
pass the Trade Agreements Act of 1935. This legislation for the
first time gave the President the power to negotiate duty reductions
on a bi-lateral basis. These came to be known as "most favored
nations". The first beneficiaries were Cuba, who got a reduction of
20% from the tariff rate, and the Philippines who received free duty
treatment, with gradual increases in rate over a period of time as
they regained their own sovereignty.
As we all know, trade liberalization has progressed exponentially
from that time to this until, it is predicted, duties will be
reduced to zero. (The average rate today is about 5%, as compared to
75% under Smoot-Hawley).
But the world is still talking protectionism, and it seems that
the United States is chairing the effort. The posturing of the
Congress has inverted traditional party roles. Republicans, once
high-tariff, appear on the side of free trade, while the erstwhile
free trade Democrats huff and puff about fair trade and support more
stringent measures to inhibit imports.
The principal weapons are non-tariff barriers, utilized by every
country ostensibly to protect its populace.
In the U.S. even with our economy at its highest point, affected
industries inundate their elected representatives for assistance in
barring steel and other commodities that are selling at lower
prices, presumably under cost or with the help of government
subsidies. (Sort of like the way we sell grain abroad). The use of
our dumping and anti-subsidy countervailing duty laws is being
vigorously enforced, some might say overzealously, and other
countries are retaliating. Country of origin marking rules are so
complicated that official rulings are dense and defy interpretation.
Non-tariff barriers in the areas of health, safety, and public
morality are springing up like weeds, making duties irrelevant.
The U.S. has thrived on trade since its founding and it’s
comforting that the current administration recognizes this. But
political pressures work their will to cater to special interests so
deals are made.
I think it was Benjamin Franklin who said " no nation was ever
ruined by trade". And he also said "we must all hang together, or
assuredly we shall all hang separately". He, of course was speaking
for the 18th century United States. The same could be said for the
21st century world.
