Aug 3, 2008

Democrats Once Did Free Trade

Today's Wall Street Journal reminds us of a couple of acts of extreme political courage in defence of free trade, acts carried out by Democrats. This is in sharp contrast to the current stance of Barack Obama and many Democrat leaders in the House and Senate. At The Hive we had believed the Democrats to be sound on free trade until the late 1990s. Clinton did the right thing vis a vis the Uruguay Round and negotiated some good FTAs. For a while it looked as toght his Administration would launch the next WTO Round. But then Seattle happened. We have no doubt that this was an intentional sabotage of the WTO process, sabotage designed to shore up support for Al Gore. It is for this reason that Gore and Clinton are not on our list of political favorites. (The early Clinton record on free trade was much superior to the Reagan/and Bush records. One friend who used to work at USTR over the Reagan and Bush sr. Presidencies tells stories of policy changing almost weekly depending on who Bush sr. had been out fishing/hunting/golfing with. Things were much cleaner under Clinton - until the end.)

Now for the Op Ed from the WSJ - we repeat it in full

The failure of the Doha Round of trade negotiations seven years after its launch does not call for despair. The removal of trade barriers and the reduction of subsidies remain worthwhile objectives, and past experience has shown that difficult multilateral negotiations can be completed. But turning talks into agreements will require leadership that can endure a long, lurching process, without instant success.
Cordell Hull, America's longest serving secretary of state (1933 to 1944), was one such leader. Even today, the Tennessee Democrat should be a model for politicians of all backgrounds.
Hull believed that trade was one of the best ways to prevent a repeat of the carnage of World War I. He wrote: "Though realizing that many other factors were involved, I reasoned that, if we could get a freer flow of trade -- freer in the sense of fewer discriminations and obstructions -- so that one country would not be deadly jealous of another, and the living standards of all countries might rise, thereby eliminating the economic dissatisfaction that breeds war, we might have a reasonable chance for lasting peace."
Removing obstacles to trade was not easy. Congress kept tight control over its ability to write the tariff laws that governed imports of thousands of itemized products. The Republicans ruled the 1920s and were committed to protectionism. Britain turned against free trade and adopted discriminatory imperial preferences. Other countries kept wartime controls on trade in place.
Franklin Roosevelt named Hull secretary of state in 1933, but at first lent scant support to Hull's cause. New Dealers, believing that the government should manage trade and not free it, were suspicious of him. But Hull fought a hard battle to get the administration to propose and Congress to enact the Reciprocal Trade Agreements Act of 1934.
This legislation, a forerunner to what we today call Trade Promotion Authority, authorized the executive branch to undertake trade agreements. It also got Congress out of the business of determining tariffs on an item-by-item basis that bred the infamous Hawley-Smoot tariff of 1930. After the act, Hull traveled to Latin America and negotiated tariff reductions that strengthened the credibility of America's "Good Neighbor Policy."
Hull's efforts to reduce trade barriers were not a big success in his day. Then, as now, Democrats were divided in their support for freer trade. With Europe heading toward war, the secretary of state's initiatives were too little too late.
Hull understood that trade was a long-term project whose benefits might emerge after he and Roosevelt left the stage. During World War II, he continued to work to foster multilateral cooperation by creating the United Nations as well as promoting trade. He worked himself sick, but Roosevelt so appreciated his drive that he nominated Hull to receive the Nobel Peace Prize, which he won in 1945.
Even after Hull retired, his spirit continued to animate U.S. policy. In 1947, the U.S. and 22 other nations met in Geneva, Switzerland, to finalize the text of the General Agreement of Tariffs and Trade, or GATT. It did not go smoothly. The defiant Republican Congress passed legislation restricting imports of wool. Australia, a major wool exporter, threatened to walk out of the negotiations and bring the British Commonwealth with it, dooming the GATT.
In what Assistant Secretary of State William Clayton called "the greatest act of political courage that I have ever witnessed," President Harry Truman not only vetoed the bill, but snubbed Congress by authorizing a 25% reduction in the wool tariff. Many other stumbling blocks were overcome to conclude the agreement.
According to one recent study, the initial GATT agreements increased the trade of participating countries by nearly 100% relative to nonparticipants in the late 1940s. Nevertheless, the American plans to fold the GATT into a broader agreement under a new body, the International Trade Organization, failed completely by 1950.
Still, there was mounting evidence of the validity of Hull's ideas. Trade fostered postwar economic recovery, which ensured that Western Europe remained our ally. West Germany and Japan began to move from basket cases to economic miracles. We tend to take all this for granted today, but it did not happen by accident.
Those who are frustrated by the pace of the Doha trade negotiations today might take comfort in knowing that the U.S. and its trading partners did not reach a major tariff-reduction agreement until the conclusion of the Kennedy Round in 1967, 20 years after the original Geneva conference. One of those who fought for those advances was Sen. Al Gore (D., Tenn.) a friend of Hull and the father of Vice President Al Gore.
In light of this history, the collapse of the Doha Round should be viewed as a temporary setback. With persistence, the goal of liberalizing world trade can still be reached.

Mr. Irwin, an economics professor at Dartmouth, is co-author of "The Genesis of the GATT," just published by Cambridge University Press. This article is excerpted from "Cordell Hull and the Case for Optimism," a working paper published this week by the Council on Foreign Relations, where Ms. Shlaes is a senior fellow.