The story of the global
economy, as 21st-century
liberalism tells it, can
have the force and simplicity
of myth. But
accepting myth at face value can be
dangerous.
Not long ago, as the story runs,
America was a largely self-sufficient
national economy and a happy one.
By the 1950s, the New Deal had created
a nation of secure and well-paid
workers. In the 1960s and 1970s,
activists and congressional leaders
built on this achievement,
using new environmental laws
and labor regulations to
improve health and the quality
of life. Then the national economy
vanished and the achievement
began to slip away.
The story continues: We
now live in a global economy,
created by trade agreements
like the North American Free
Trade Agreement and enforced
by the World Trade Organization.
This global economy
leaves workers jobless at home
and exploited abroad, as businesses
escape to poor countries
where they pay lower wages
and ignore environmental laws.
The opening of our borders,
meanwhile, has exposed families
to pollution and unsafe food.
America's government has failed to
respond, blocked abroad by the WTO
and perverted at home by business
wealth. But the people know what is
going on. Some day their government
will have to listen.
Most of America's liberal assembly
believes this story fervently. The trade
union movement settled on it in the
early 1970s, when Japanese auto and
steel firms emerged as industrial rivals.
Consumer groups and some environmental
associations joined more
recently, during the 1993 debate on
the NAFTA. Magazines like The Nation fill the gaps with reporting on
shuttered Ohio refrigerator plants and
polluted Mexican border towns. Their
allies on the left side of American politics
respond with opposition to trade
agreements, calls for labor and environmental
tests to block imports of
clothes, appliances, and food from
countries whose protective laws are not
as strong as ours, and occasional spectacular
demonstrations.
The argument has force and emotional
appeal. Since the Clinton
administration departed, it has visibly
gained ground. Shrinking Democratic
support in Congress for trade agreements
is one sign. So is the adoption
of mild versions of this story by the
Gore and Kerry campaigns in 2000
and 2004, presumably in the hope
that trade skepticism would appeal in
Ohio and the Carolinas.
But the story is wrong. Factually
speaking, it is badly mistaken. Data,
though duller than narrative,
speak loudly against stories of
decline and decay. Even with
the weak economic policies of
the last five years and the spectacular
emergence of China
and India as industrial challengers,
America's economy is
larger than it was 20 years ago,
and more Americans are on the
job. Since the NAFTA went
into effect in 1994, American
gross domestic product has
grown by $6 trillion, businesses
have added 19.2 million new
private-sector jobs, manufacturing
production has risen by
almost $500 billion, and average
unemployment rates have
dropped by one point. Nor, to
state the obvious, was America
self-sufficient before NAFTA.
More important, the story has a
fundamentally conservative and illiberal
core. At heart, it mixes fear of
poor overseas workers with a modern
version of the lost paradise myth. To
borrow from Vermont's independent-socialist
Rep. Bernie Sanders, 30 years
ago factory jobs were easy to find, families
were secure, the mob was not at
the gates, and Americans did not compete
with "desperate people in China
who make 30 cents an hour." To find a
better future, he implies, America must
return to its past.
On its face, this is naove and unhistorical.
Rewinding 30 years of history
places us in the Nixon administration,
in the midst of the Arab oil embargo,
during intense arguments over import
competition from Japan, with one
worker in 11 out of a job. America
probably cannot return to its past, and
surely wouldn't like the experience if it
could.
Yet there is a good reason to look at
the past, if not actually to move there:
We must remember that liberalizing
trade was once the liberal position, and
understand why. To base Democratic
global economic policy on fear of the
poor, and to reject common interests
with foreign countries, is in fact to reject
values and accomplishments at the heart
of American liberalism.
The 21st-century trade debate concerns
a world radically changed by
population growth, the Internet, the
end of the Cold War, trade agreements,
financial flows, and more. The paradox
is that all these things have combined
to raise questions that are actually not
new at all. The politicians of the 19th
and early 20th centuries would feel
very much at home in the Congress of
today. The only difference is that in the
past, the people who were alarmed
about low-wage competition were the
conservatives.
The global economy has always
been changing in one way or another,
and rich countries have always worried
about low-wage competitors. The
British debate on the topic is at least
three centuries old. In 1685, as
England opened direct trade with
India, the member of Parliament for
Barnstaple gave precisely the warning
Sanders raised about China. Textiles
from Bengal, John Basset said, were
made by workers willing to "slave for a
copper a day." British workers earned a
shilling. The contrast would destroy
British manufacturing.
The United States is younger, but our
debate on low-wage competition dates
back at least to the Whig politician
Daniel Webster. A famously eloquent
man, Webster spent three decades arguing
for tariffs high enough to block competition
from the "unpaid, half-fed
pauper labor" of Britain and
continental Europe. His "cheap
pauper labor" sound-bite lasted
nearly a century -- William
McKinley was still using it in the
1890s, though he was more
worried about the products of
low-wage Germany, Japan, and
China than about Britain.
In the 1920s, Herbert
Hoover made the same point in
clunkier language, telling
crowds at campaign stops that
America, with its high standard
of living, "cannot successfully
compete against foreign producers
because of lower foreign
wages and a lower cost of production."
The idea fell out of
national favor after the debacle
of Hoover's Smoot-Hawley tariff
and his loss in the 1932 election.
No presidential candidate
of either party has won with an
anti-trade platform since. But
the threat of low-wage imports
remained mainstream Republican
doctrine up to the
1950s.
Until recently, liberals were
on the other side of the debate.
American liberalism emerged during
the Progressive movement of the
1890s. Ever since, liberals have spoken
for a distinctive set of ideals: a special
concern for the poor and a commitment
to civil rights and civil liberties; a
strong national government to protect
the weak and promote the common
good; and a foreign policy built on
alliances, international
law, and humanitarian
initiatives, as well as on a
strong military.
Throughout the 20th
century, liberals in power
applied these ideals to
trade, with remarkable effect.
President Clinton, last in the line,
spoke of the global economy often in
nuanced terms but generally as a
source of hope. A passage from a 1997
speech is typical:
We do not need to be afraid to trade
with the rest of the world. ... There
will always be new jobs being created
and some going away. But [more open
trade] will promote peace; it will promote
freedom; it will promote stability;
it will raise the level of living standards
in other parts of the world even
as it maintains America as the world's
most prosperous nation.
In the 1990s, the Democratic left
considered such ideas apostasy. But
Clinton's association of trade with
growth, poverty reduction, and peace
was the standard language of 20th-century
liberalism. In passing the NAFTA
or creating the WTO, or in the trade
benefit program for Africa and permanent
Normal Trade Relations for
China, he was simply building on the
ideas of the previous Democratic
presidents of the 20th century. In particular,
Wilson, Roosevelt, and Truman
created the ideological vision of today's
global economy, as well as its policies
and institutions.
Long before America began negotiating
with foreigners on trade,
Woodrow Wilson and his policy adviser,
Louis Brandeis, saw trade through the
lens of taxation and domestic equity.
They wanted a progressive tax system
that taxed wealthy people more heavily
than poor people. Their great obstacle
was the tariff system that McKinley
had built 20 years earlier. Tariffs then
supplied half the government's revenue,
and did so in the most regressive
fashion imaginable -- through heavy
taxes on clothes, food, sugar, and other
life necessities especially important to
poor people.
Wilson's creation of an income tax
in 1913, coupled with a sharp
reduction in tariffs, permanently
shifted taxation away
from the poor and toward the
wealthy. Warren Harding
restored high tariff rates in the
next decade, and Herbert
Hoover sent them into the
stratosphere, but the income
tax stayed. Tariffs never
regained their importance in
the tax system. Modern trade
policy, which is organized
around mutual agreements
among countries to reduce
tariffs and other trade barriers,
still rests on the submerged
rock of Wilsonian tax
policy and the break it made
between tariffs and government
revenue.
A generation later, Franklin
Roosevelt fused Wilson's ideas
on tax fairness with a broad
vision of the role of trade in foreign
policy. He and his Cabinet
believed the Smoot-Hawley
Act, in sparking a round of tariff
retaliations in other capitals,
had deepened, and prolonged
the Depression, and helped
spread it worldwide. This general
closure of the global economy had,
in turn, empowered radical nationalists,
removed supports for peace, and helped
poison international politics. Roosevelt's
secretary of state, Cordell Hull, frequently
argued that "when goods don't
cross borders, armies do." Roosevelt
expressed the same conviction with
mournful eloquence during a 1936 visit
to Argentina:
[O]ur present civilization rests on the
basis of an international exchange of
commodities. Every nation of the
world has felt the evil effects of recent
efforts to erect trade barriers of every
known kind. Every individual citizen
has suffered from them. It is no accident
that the nations which have carried
this process farthest are those
which proclaim most loudly that they
require war as an instrument of their
policy. ... It is no accident that,
because of these suicidal policies and
the suffering attending them, many of
their people have come to believe with
despair that the price of war seems less
than the price of peace.
.
As World War II approached its
end, Roosevelt returned to the theme
with cautious optimism. His next-to-last
message to Congress requested
authority to begin tariff-reduction
talks with the other Allied states.
Roosevelt observed that with the end
of the war, "the world will either move
toward unity and widely shared prosperity,
or it will move apart. ... We have
a chance, we citizens of the United
States, to use our influence in favor of
a more united and cooperating world.
Whether we do so will determine, as
far as it is in our power, the kind of
lives our grandchildren will live."
Unity and cooperation, to the
aging New Dealers, meant a deliberately
integrated world economy. This,
in turn, meant more than simply creating
growth in accord with economic
theory. By giving great powers a
lasting stake in one another's security
and prosperity, an integrated world
would help prevent a third world war.
Trade negotiations would therefore
be one element in the larger design of
post-war internationalism, joining
the United Nations system, alliance
networks in Europe and Asia, the
International Monetary Fund and the
World Bank, and the Marshall Plan.
Roosevelt believed reducing trade
barriers would "lay the economic
basis for the secure and peaceful
world we all desire."
The idea of trade as a linchpin of
peace and stability has been the heart of
trade policy ever since, merging classical
economic theory and progressive taxation
with internationalist foreign policy.
The rest has been execution. Harry
Truman adopted Roosevelt's project,
and his State Department officers spent
the next 18 months bickering over tariff
rates with novice trade negotiators from
Britain, France, and 20 other countries.
When they were finished in 1947, modern
trade policy had begun. It has continued
ever since, through 12 "multilateral"
trade agreements and the more
recent series of free trade agreements
and tariff exemptions for developing
countries.
Within the executive branch, trade
policy has been fairly bipartisan and
continuous across administrations. But
(partially through accidents of the calendar)
Democratic presidents have
done most of the work -- concluding
nine of the 12 multilateral trade agreements.
By 1992, the national economy
Clinton inherited was no longer the
closed, self-sufficient, and very unhappy
economy of the 1930s. His trade officials
were very busy. But they were simply
building on the work of earlier generations
of Democrats in power.
Was it all a mistake? Sixty years later,
most of Roosevelt's hopes have come
true. No war among the great powers
has erupted in half a century. The
world's nations are wealthier and its
people live longer. The crises and panics
of the 1930s have never returned. Poor
families in the United States can afford
luxuries beyond reach a generation ago,
while some of the world's poorest countries -- Cambodia, Ghana, Ethiopia -- are using trade for their first steps
toward development. Trade liberalization
remains, with Social Security, one
of the two principal living legacies of the
New Deal.
The trade project is certainly incomplete.
The work of earlier Democrats, in
some areas, needs to be extended and
finished. New issues have arisen. Some
complaints about the system, or about
related financial and social issues, need
attention as well. A modern, reforming
liberal administration, hoping to fit the
spirit of its ancestors to the 21st century,
could find much to do.
Today's tariff system, for example, is
a tiny vestige of the money-churning
monster Wilson and Brandeis fought. It
raises only one penny of each dollar of
federal revenue. But it is just as tough
on the poor as was its ancestor. Hidden
from the public, forgotten even by
experts, tariffs continue to levy taxes of
20 percent, 30 percent, and even 50
percent on T-shirts, sweaters, butter,
orange juice, sneakers, cheap brassieres,
and hundreds of other life necessities.
Roosevelt's concept of a global trading
system as a support for peace also
remains incomplete. The Muslim lands
of the Middle East and Central Asia,
most of which remain outside the
WTO, have seen their place in the
global economy collapse, rather than
grow, in the past quarter-century. An
ambitious trade program, like that proposed
in the last Congress by Sen. Max
Baucus (D-Mont.), Sen. John McCain
(R-Ariz.), Rep. Adam Smith (D-Wash.),
and former Rep. Cal Dooley (D-Calif.),
would provide the same support to
Middle East policy that the GATT system
and Marshall Plan gave to the
rebuilding of Europe in the 1950s.
Some criticisms of the system can be
accommodated, too. Competition from
China and India is a daunting new fact
of life; America must improve its competitiveness
and develop better adjustment
policies to meet it. Our imbalances
in trade and capital flows, arising
from some foreign-government currency
policies, as well as America's
deficits and failure to save, need urgent
attention. The United States should
assert its rights in trade agreements vigorously.
The WTO should be more
transparent, and trade policy can provide
useful incentives to improve labor
standards and environmental protections -- as successful agreements with
Jordan and Cambodia have shown.
Still the heart of the 21st-century liberal
case against the global economy is
wrong. America has been meeting new
competition from poorer countries for
well over a century, and has used innovation,
education, and the stimulus of
competition to succeed each time. And
the hope that retaining trade barriers will
preserve jobs simply doesn't hold up.
The highest manufacturing tariff on the
books, the 48 percent tax on cheap
sneakers, applies to a product that hasn't
been made in the United States since the
1970s. Like the 32 percent sweater tariffs
and the 17 percent bra
tariff, though, it very efficiently
penalizes poor people
every day.
The classic priorities
of 20th-century liberal
trade policy remain right.
Clinton was right to see trade as a way
to help the poor and make us all
wealthier. Wilson was right to see tariffs
as burdens on the poor. Roosevelt
was surely right to see open borders as
closely linked to peace. To reject their
views is to discard principles central
to Democratic visions of equity and
internationalism. That is an awfully
high price to pay -- even for a good
story.
