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What Would FDR Think of Today's Trade Debate?

March 13, 2015 in Economics

By Daniel R. Pearson

Daniel R. Pearson

When Franklin Roosevelt became president early in 1933, he not only inherited the economic meltdown left by the previous Republican administration, he also inherited their now-infamous trade policy. The former Republican chairmen of the Senate Finance and House Ways and Means Committees, Sen. Reed Smoot of Utah and Rep. Willis Hawley of Oregon, favored “protecting” the American economy by keeping out goods produced in other countries. The “Smoot-Hawley” Tariff Act of 1930 set import tariffs at their highest levels in over 100 years. Other countries retaliated by raising their tariffs, U.S. imports contracted, exports also sank, and total world trade plummeted. Smoot-Hawley generally is credited with serving to deepen and lengthen the Great Depression. Torpedoing international trade also proved not to be an effective political strategy. Neither Smoot nor Hawley was returned to office in the 1932 election.

Roosevelt set about repairing the damage. His secretary of state, Cordell Hull, actively promoted passage of the Reciprocal Trade Agreements Act of 1934. This law gave the president authority to negotiate tariff reductions with other countries on a balanced basis. Congress agreed to approve or reject tariff-reduction packages by a simple majority vote. Hull’s 11-year tenure made him the longest-serving secretary of state. He also was awarded the 1945 Nobel Peace Prize, largely for his efforts to establish the United Nations. Hull’s reciprocal approach to tariff reductions demonstrated that collaboration among nations could lead to meaningful economic and political benefits. It laid the groundwork for trade liberalization in the post-WWII era.

President Truman moved the process forward by joining with 22 other nations to create the General Agreement on Tariffs and Trade (GATT) in 1947. Congress provided the president with negotiating authority, and the GATT accomplished three rounds of tariff reductions — known as the Geneva, Annency, and Torquay Rounds — between 1947 and 1951.

For the first time since Roosevelt began the shift toward a more-integrated global economy, a president may conclude his term without ever having authority to negotiate.”

During 20 years on the sidelines, Republicans had plenty of time to rethink their positions on trade policy. Even they could see that reducing trade barriers led to greater freedom for people in the United States to do business with willing buyers and sellers elsewhere in the world. This approach seemed to be working a lot better for the U.S. and global economies than had been the case …read more

Source: OP-EDS

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