To Trade or Not to Trade

To trade or not to trade, that is the question. In answering the question, domestic politics and agribusiness are the two dominant issues of the free trade debate. While there are many other issues (such as tariffs, quotas, non-tariff barriers (NTB), technology, IMF/WBO loans, worker rights, and other specific sectors such as the garment industry and services), domestic politics and agricultural trade have consistently been dominant issues in the entire history of free trade.

Historically, whether it be the mercantilism of the colonial period or the tariff wars of the early twentieth century, nation-states managed their trade with other countries in order to protect domestic production and make foreign products comparatively expensive. As a result of the economic and political isolationism of the Interwar Period, the US sought to integrate the world after WWII. The American government used economic policy as a tool of foreign policy by buttressing weaker nation-states; such support for Western Europe and Japan aided the American goal of providing an integrated front against the Soviet Block. The US also believed that “open trade would lead to economic prosperity and [thus] world peace” (Spero & Hart, 67). A key part of this new economic system was free trade. Free Trade is the idea that products can flow from country to country with no discriminatory regulation based on country of origin. Free trades sought to eliminate tariffs, quotas, and customs discrimination. The argument for free trade is best summed in the proverb “A rising tide raises all ships.” In the best case scenario, free trade allows developed nation-states to specialize their economies in what they do best, allows emerging economies to grow through the infusion of foreign capital and business, and aids the world consumer by lowering prices. The argument against free trade is that it hurts the consumer where they work: developed country workers will loose their jobs to the Least Developed Countries (LDCs) and developing country workers will be abused by multinational corporations who will pillage LDC’s resources and use their relative strength to manipulate employment regulations (or the lack there of).

The evolution of free trade and the international economic system has been marked by three distinct phases. The dominant issues in each of these phases continue to be significant issues in the debate today. The General Agreement on Trade and Tariffs (GATT) was created The Havana Conference in 1947. This became the first international economic regime. GATT encouraged open trade, specialization (or comparative advantage), non-discrimination of products by country of origin (the most-favored nation principle) and attacked dumping and predatory pricing policies (Spero & Hart, 69). The most controversial aspect of GATT was the agricultural exception to the ban on quantitative restrictions. Simply put, while the world took several steps forward on open trade, it did not move far on agricultural trade issues.

The second phase of the international economic system, Interdependence, was actually caused by the success of the first phase. The liberal trade policy led to the rise of newly industrialized countries (NICs) such as Taiwan, South Korea, Mexico and Brazil (Spero & Hart, 75). In addition, the generous economic support and polices of the US allowed both Japan and Western Europe to rebound quickly from the destruction of WWII. As a result, the American economy in particular, and the developed economies in general, all began to have significant competition from the rest of the world. Domestic politics raised its head again and many countries sought to impose protectionist barriers to free trade in order to favor their domestic industries and labor.

Finally, the world economy has entered a third phase, known as Globalization, in which nation-states have moved past the knee-jerk reaction to integration and are seeking to make the most of regional and worldwide free trade. As always the dominant issue is domestic politics. Let us put domestic politics in context: in “The Politics of International Economic Relations,” Joan Spero and Jeffery Hart point out that Smoot-Hawley (the most protectionist tariff in American history) was the result of special interests influencing Congress. The Congress is extremely vulnerable to special interest pressures that advocate protectionist policies. The executive branch, on the other hand, is a little freer and uses trade policy as a foreign policy tool. Therefore, there has been a lot of clash between the legislative and executive branches on the issue. The classic example is the NAFTA debates in which a Democratic president pushed through a Republican president’s free trade concept against vast resistance by both Democratic and Republican members of Congress. The debate is not as much between about political affiliations (though there are differences), but between branches of government.

Each phase of the international economic system can also be aligned with a change in domestic American politics. GATT was the result of the emergence of America from isolationism as the US took the lead role in the world. After the chaos of the domestic debates ranging from race, war, oil dependency and economic decline, the US became more protectionist in the eighties. Finally, it would be hard to ignore ‘Roaring Nineties’ as a factor in the renewed and refreshed emergence of the US as a leader and proponent of open trade. When business and labor are content, the US is more interested in free trade; when the domestic economy shrinks and the American self-confidence is shaken, the US retreats from the world.

In addition to domestic politics, though, there are other key issues in the debate on free trade. Agriculture has been a consistent issue for the past sixty years. Even as the American economy has moved from production to services, the US has continually sought to protect American agriculture. Part of this may be the mythology of the American farmer and its iconic role in idyllic American culture, but it is also related to domestic politics. The electoral value and the bell-weather role of the farming states are a key concern of American politicians. Iowa’s importance, due to the first presidential caucuses, has artificially made Iowa’s issues into America’s issues. Politicians who question agricultural subsidies and trade benefits do not win Iowa caucuses. The affect of agriculture and domestic politics on trade is similar in the peanut growing parts of the United States as well as the sugar producing states of Florida and Louisiana.

There are other issues too. In “International Trade,” Arvind Panagariya, points out that macroeconomic/political stability and world poverty are also key issues in free trade today. Of growing importance is also non-tangible trade such as intellectual property rights, insurance, and out-sourcing of customer support. In every piece on international trade, however, one is certain to find references to domestic politics and agriculture.

References

Barker, Debi and Jerry Mander. (2000) “The WTO and Invisible Government.” Pearce Review. 12 (2): p251-255.

Panagariya, Arvind. (2003) “International Trade.” Foreign Policy. Nov/Dec (139): p20-28.

Spero, Joan and Jeffrey Hart. (2003) The Politics of International Economics. Wadsworth: Belmont, CA.

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