While the benefits of trade liberalization in the postwar period have been abundant, readers may be surprised to learn how secondary (or even nonexistent) consideration of such possible benefits were to U.S. policymakers. Rather, trade liberalization following World War II was primarily conceived in terms of political and security priorities. As an April 1950 report by the Bureau of the Budget put it: “Foreign economic policies should not be formulated in terms primarily of economic objectives. They must be subordinated to our politico-security objectives and the priorities which the latter involve.”
As will be shown, because trade as a percentage of GDP would not rise above ten percent until the 1970s, trade policy was seldom front and center in Washington and could therefore be quietly used by policymakers as a bargaining chip to get their way with Western Europe, Japan, and other allies on non-economic matters. As Harry Truman’s Assistant Secretary of State for Economic Affairs put it: “The great question is whether the country is willing to decide in the broader national self-interest to reduce tariffs and increase United States imports even though some domestic industry may suffer serious injury.”
An early example was in 1953, following the “loss of China,” when the National Security Council advised opening the American market to Japanese goods on the grounds that failure to do so might slow Japan’s economy and create an opening for the (non-existent) Japanese communists to exploit. From Harry Truman to Richard Nixon, such necessary strategic interests as the employment of shoemakers in Italy and Spain, farmers in France, or synthetic textile producers in Japan were given priority by officials in the Executive Branch and State Department. Despite occasional attempts by Congress to intervene, the wisdom of those like George Ball, John F. Kennedy’s Undersecretary of State for Economic Affairs, and previously a lobbyist for the newly formed European Economic Community (EEC), triumphed. “Americans,” he said, could “afford to pay some economic price for a strong Europe.”
Indeed, the pursuit of strategic objectives over domestic economic interests would continue into the 1960s, with the Trade Expansion Act of 1962 authorizing the president to make huge discretionary cuts in U.S. tariffs. Ardently advocated for by the Kennedy administration, whose representatives testified before Congress regarding the windfall benefits sure to follow, former FDR administration economist Oscar Gass noted that such further trade liberalization was such a “holy cause” that “decent people were prepared to lie for it.” The act was followed by the so-called Kennedy Round of trade talks (1964-67), which resulted in further such cuts to U.S. tariffs, subsidies, and quotas.
These were decidedly one-sided trade concessions. And so it is important to make clear, particularly as an advocate of actually free trade, that what Washington was creating was deliberately not free trade; it was a policy of asymmetric concessions in the name of maintaining the easy cooperation of allied governments. As one of Nixon’s State Department trade specialists Philip Trezise put it later: “We did make some big tariff cuts and didn’t get any reciprocity. It was quite deliberate.”
But what started as using the American market as an incentive and destination of last resort for anything allies wanted to offload, quickly cut into the American current account once these states had been rebuilt (with U.S. aid and corporate transfers) and Washington’s spending on war and welfare reached unsustainable levels. Indeed, by 1970 Nixon had begun to feel uneasy about the domestic political implications of the policy, cautioning his NSC to “take greater cognizance of the problems of U.S. businessmen and their concerns abroad, even when ultimately they may have to be overridden by foreign policy considerations.”
Unsurprisingly, no real change in policy followed.
For example, though its preference system of tariffs, quotas, subsidies, and broader agricultural and industrial policies meant EEC member states were clearly in violation of the General Agreement on Tariffs and Trade (GATT), Nixon could not follow through on his own advice to “stop selling out U.S. interests for the State Department’s foreign policy considerations.” By 1971, faced with a currency crisis and the desire of State for Britain to join the EEC as a counterbalance to annoying French predominance, Nixon acknowledged: “Nevertheless, the political aspects of our relations should be overriding. Trade is part of a bigger package…that means we may have to give more than our trade interests strictly construed would require.”
The Trade Act of 1974 that followed was to introduce so-called “fast tracking,” that is the effective elimination of Congress from the equation, forcing all votes regarding trade policy to be strictly up or down. Though its representatives complained, labor was by that point politically homeless. Cries about the overvalued dollar, and non-enforcement of existing U.S. laws against key strategic allies whose industries engaged in dumping, or were massively subsidized, were mostly ignored. When pressured or forced by the courts to investigate, the Treasury often took years to look into matters and issued no meaningful penalties despite pervasive violations of the Anti-Dumping Act of 1921 and reciprocal duties statute of 1897.
At the opposite end of the era’s political fortunes, Wall Street profited from and played a large role in this process. Without getting too much into the weeds of 1970s economics, or the earlier capture of the Republican Party by the eastern establishment, Rockefeller dominated wing, the big banks began making increasingly large loans to banks in emerging markets in Latin America and East Asia at higher interest rates than could be had in the United States. Those banks in turn lent to domestic businesses, whose products needed access to developed consumer markets so they could pay back their loans to their domestic lenders, who could in turn pay back the Wall Street banks. Wall Street then closed the loop by using its influence in Washington to get those economies further access to the American market.
As should be clear, then, that although deindustrialization is often attributed to Ronald Reagan, or NAFTA, or China, it was a deliberate policy that began much earlier. All this is not to argue the United States should not have pursued trade liberalization; nor is it to ignore that far more manufacturing jobs have been automated than moved elsewhere. It is simply to point out, in the words of Henry Kissinger’s assistant for international economic affairs Fred Bergsten: “Foreign economic policy” has been the abettor of “overall U.S. foreign policy,” and that “foreign policy considerations have dictated the U.S. position on virtually all issues of foreign economic policy.”