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.