Throughout his campaign for the presidency, Donald Trump held up Carrier, an air conditioning and heating company, as a symbol of the plight of American manufacturing, buffeted by free trade deals that hurt American workers. The company had planned to close an Indiana plant that makes furnaces, shifting production to Mexico and leaving 1,400 American workers jobless. Trump vowed to prevent that from happening.
For Trump, bringing Carrier to heel was part of a broader pledge to stop the offshoring of American manufacturing jobs. To revive American industry, Trump has promised high tariffs on goods from Mexico and China, and he has inveighed against trade agreements, particularly the North American Free Trade Agreement. “NAFTA,” declared Trump, “is the worst trade deal maybe ever signed anywhere but certainly ever signed in this country.”
As a sign of his commitment against “unfair” trade deals, Trump vows that, on his first day in office, he will withdraw from the Trans-Pacific Partnership (TPP). Not since Herbert Hoover has an American presidential figure so roundly rejected free trade.
Yet what is even more striking is that Trump’s opposition to trade agreements appeared widely shared among Democrats. In his campaign for the Democratic nomination, Vermont Senator Bernie Sanders denounced NAFTA and TPP. “I think they have been a disaster for the American worker,” said Sanders. When asked if there was a single trade agreement that he liked, in all of American history, Sanders’ answer was simple: no.
The anti-trade mood pushed Hillary Clinton to withdraw her previous support for TPP, which she had once lauded as the “gold standard” in trade deals.
Trade has clearly become a central preoccupation of millions of Americans. While there have been critics of U.S. trade policy for some time, the scope of the current debate is new.
A June 2016 protest in Seattle, Washington against the Trans-Pacific Partnership ahead of President Barack Obama’s visit to the state for a fundraiser. The figures depicted are members of Washington State’s Democratic delegation who had not come out against the TPP.
For more than half a century, there has been a bipartisan consensus around free trade. Leaders of both major political parties and the majority of Americans have appreciated the jobs, goods, and prosperity brought by international trade.
But today that consensus appears to have shattered. How did a bipartisan consensus emerge supporting free trade? Why is it now collapsing? And what will this mean for the American economy?
A Vision of Global Free Trade
The roots of our contemporary debate go back to the aftermath of World War I. The devastating war reflected the breakdown of the economic order of the late 19th century, when massive numbers of goods and people flowed across national borders. The war marked the end of a half-century during which the world was, in some important ways, more economically integrated than it is today.
As the war came to an end, President Woodrow Wilson hoped to resurrect global trade through new international institutions. In his Fourteen Points speech, Wilson called for “the removal, so far as possible, of all economic barriers” to trade. He proposed a League of Nations, a community of sovereign nation-states that would resolve disputes peacefully and facilitate free trade and open markets.
A 1919 cartoon depicting the U.S.’s reluctance to join the League of Nations despite President Woodrow Wilson’s role in its creation. The cartoon highlights the detrimental effects the U.S.’s refusal to join would have on the League.
But Wilson, a Democrat, faced opposition from a Republican-controlled Congress. The Senate refused to ratify the Treaty of Versailles—itself a far cry from Wilson’s vision of peaceful and equitable cooperation—and the United States failed to join the League of Nations. Wilson suffered a stroke after traveling 9,981 miles in a vain attempt to win public support for the treaty, and soon thereafter Republicans captured the presidency and held it for the next 12 years.
With a solid hold on the national government, the GOP rejected Wilson’s internationalism and pursued, in the words of the party’s 1920 platform, “national greatness and economic independence.” Congress raised tariffs and praised American business, striding blithely into the worst economic crisis of the twentieth century: the Great Depression.
Trade in the Great Depression
Partisan differences on trade peaked during the Depression. The Republican-controlled Congress responded to the economic crisis with the Smoot-Hawley Tariff Act of 1930, which raised tariffs to the highest level in 100 years, in an effort to protect American jobs and farms from foreign competition.
Yet America's trading partners followed suit, instituting their own tariffs. The cumulative effect was a disaster: American imports and exports dropped by almost two-thirds.
A billboard sponsored by a local Chamber of Commerce during the Great Depression reflecting the high rate of unemployment across the U.S. (left). A graph depicting U.S. unemployment rates from 1910 to 1960 (right). The Great Depression era (1929-1939) is highlighted.
Smoot-Hawley had passed on near party-line support, and the next election ushered in one of the greatest partisan shifts in American history. When Franklin Roosevelt and the Democratic Party swept into power in 1932, they offered a different approach: the Reciprocal Trade Agreement Act of 1934. In the flurry of New Deal legislation, the RTA is often overlooked, yet it constituted a watershed in trade policy.
Traditionally, Congress had determined tariffs unilaterally, generally in response to lobbying from business constituencies. But with the RTA, Congress ceded to the president the authority to negotiate tariffs. By shifting this power to the presidency, tariffs became one part of the nation’s foreign policy. The result was a dramatic reduction in tariffs.
While the act primarily affected trade between the United States and Latin American nations, it laid the institutional foundation for America to pursue a global free trade regime and initiated 80 years of trade liberalization.
But while the United States and Latin American nations increased trade in the 1930s, much of the world headed the opposite direction. Great Britain sought to protect homegrown industries; France doubled its tariffs. Nazi Germany established a policy of autarky, striving for self-sufficiency by replacing imports with domestic production—a policy that reached its horrifying conclusion in the synthetic rubber factories of Auschwitz.
The collapse in trade among nations in the 1930s accompanied a rise in aggressive militarism, leading inexorably into World War II.
A poor Oklahoma family in 1936 (top left). A protest against unemployment in Toronto, Canada around 1930 (top right). The German Army feeding the poor in 1931 Berlin (bottom left). Unemployed people in front of a London workhouse in 1930 (bottom right).
The Postwar Order
In 1938, as he watched economic nationalism slide into war, Secretary of State Cordell Hull reasoned, “Our nation, and every nation, can enjoy sustained prosperity only in a world which is at peace; a peaceful world is possible only when there exists for it a solid economic foundation, an indispensable part of which is active and mutually beneficial trade among the nations.”
For Hull, trade was essential for peace. When he won a Nobel Peace Prize in 1945, the awarding committee summed up Hull’s thinking this way: “High tariffs are barriers obstructing the development of trade and friendship between nations, thereby becoming barriers also to lasting international peace.”
Hull’s vision inspired a range of international institutions, most famously the United Nations, designed to preserve peace in the postwar world. But alongside the UN came new economic institutions as well: the World Bank, which would finance large-scale reconstruction and economic development projects, and the International Monetary Fund, which would stabilize and manage currency exchange rates.
While plans for an International Trade Organization stumbled—in large part due to Republican opposition in the U.S. Congress—in 1947, after seven months of negotiations, 23 nations signed the General Agreement on Tariffs and Trade. The GATT substantially lowered trade barriers; signatories committed to 45,000 tariff concessions.
What accounts for such sweeping changes in the international economic order?
American policymakers, particularly in the Democratic Party, believed that nationalist economic policies had led to global depression and world war. By pursuing only their own interests, each nation had enacted policies that harmed other nations. These beggar-thy-neighbor policies, however, ultimately made things worse for everyone. Economic nationalism produced an international crisis.
As Secretary of the Treasury Henry Morgenthau explained in 1944, at the close of the conference in Bretton Woods, New Hampshire, that established the postwar economic system, the “only genuine safeguard for our national interests lies in international cooperation.”
American prosperity depended upon the prosperity of other nations. Prosperity, in turn, prevented war. Mutually beneficial trade thus became a national security issue.
Explaining the need for international trade, President Harry Truman put it simply: “We must not go through the thirties again.”
The Birth of the Free Trade Consensus
But could the international free trade regime hammered out after World War II survive American partisan politics? Would trade liberalization fall prey to the economic nationalism that scuttled Wilson’s vision after World War I?
After all, the Republican Party had been the party of Smoot-Hawley. Ohio Senator Robert Taft, leader of the isolationist wing of the Republican Party, compared American support for the IMF to “pouring money down a rat hole.” In 1936 and in 1940, the Republican Party platform vowed to repeal the tariff reductions and raise tariffs once again.
|As part of a national security strategy, the Office of War Information created this 1947 poster celebrating the importance of world trade.|
But when the GOP won back Congress in 1946, they quietly shelved plans for a repeal. When Republican Dwight Eisenhower won the presidency—the first Republican to do so since Herbert Hoover—he not only endorsed the trade policies established by Roosevelt and the Democratic Party, but demanded their expansion.
In his 1958 State of the Union address, Eisenhower declared that free trade was “both in our national interest, and in the interest of world peace.” The line could have come from Cordell Hull.
By the 1950s, most Republicans had joined the free trade consensus. Why? The answer lies in the unique circumstances of the postwar world.
World War II had decimated America’s major trading partners; the European and Japanese economies had collapsed. In this context, American manufacturers saw trade liberalization less as a threat than an opportunity. Free trade enabled businesses to export their goods to willing buyers while facing little competition from imports. With major business constituencies eager for trade, Congressional representatives obliged.
These economic circumstances coincided with a geopolitical crisis: the dawn of the Cold War. Most American policymakers, regardless of party, saw trade as a way to incorporate other nations into the capitalist “free world” led by the United States, thereby limiting the reach of the USSR. In the global competition for allies and resources, trade policy was an essential part of foreign policy.
While business opportunities and national security attest to the role of self-interest in American trade policy, there was an altruistic aspect as well. In the decades after World War II, the United States was by far the world’s largest economy, and many Americans agreed on the nation’s moral responsibility to help others through economic development. For them, international trade went hand in hand with foreign aid, cultural exchange, and programs like the Peace Corps, all forging a world of shared prosperity.
Cracks in the Consensus: The North American Free Trade Agreement
The free trade consensus persisted for decades, benefitting from periods of remarkable economic growth and weathering occasional insurgencies from disaffected workers (notably, autoworkers during the surge of Japanese automobile imports in the 1970s and 1980s). But cracks in the consensus emerged with passage of the North American Free Trade Agreement in 1993.
Developed under the administration of Republican George H.W. Bush and signed by Democrat Bill Clinton, NAFTA represented the bipartisan consensus on free trade. The agreement established a vast free trade zone among the United States, Mexico, and Canada. The main proponents were businesses eager for cheap labor and the economies of scale made possible by the continental common market, enabling them to compete more effectively against the business giants of the European Union and Japan.
Mexican President Carlos Salinas de Gortari, President George H.W. Bush, and Canadian Prime Minister Brian Mulroney stand in the back as their trade and economic representatives sign the draft of the North American Free Trade Agreement (NAFTA) in 1992 (left). President Bill Clinton signing NAFTA in 1993 (right).
Public debate over NAFTA ended the era of popular acquiescence that had accompanied trade deals since 1945. Unions had backed free trade throughout most of the postwar decades, but every major union in the United States opposed NAFTA; unions in industries that faced foreign competition, including steelworkers, autoworkers, clothing workers, and Teamsters, were particularly strident.
A key constituency of the Democratic Party, unions had supported Clinton in his 1992 presidential campaign, but Clinton paid little heed to their objections. He dismissed their criticisms in a speech on NAFTA and further trade agreements, contending, “There is no alternative.”
The architects of NAFTA fully realized that there would be large numbers of job losses in U.S.-based manufacturing, but they expected that better jobs would replace them. As Clinton explained, “Good jobs, rewarding careers, broadened horizons for the middle class Americans can only be secured by expanding exports and global growth.”
And over the next decade, while NAFTA-related job losses in the United States reached up to 2 million (economists offer widely competing estimates of the impact of NAFTA on American employment), the American economy overall added 34 million jobs. While many of these were high-tech jobs in the “new economy” heralded by Clinton, millions were in low-wage services and retail. Workers laid off due to NAFTA typically found work that paid less than their previous jobs.
At any rate, for the Clinton administration, and the Bush administration before it, NAFTA was about more than American jobs. Like the policymakers who established the postwar international economic system, Clinton believed that free trade was essential for American security.
Clinton placed NAFTA in the grand tradition of global economic integration, from Woodrow Wilson’s vision to the IMF, the World Bank, and the GATT. Upon signing NAFTA, Clinton echoed these forebears, claiming, “Our national security … will be determined as much by our ability to pull down foreign trade barriers as by our ability to breach distant ramparts.”
U.S. leaders especially believed that a stronger Mexican economy would benefit Americans, and not just because Mexico was one of the largest importers of American goods. Regardless of NAFTA, the United States was willing to spend billions supporting Mexico to prevent having a failed, and thus unstable, state on its southern border. (Indeed, the Clinton Administration orchestrated a $20 billion bailout of the Mexican economy in 1995 to address the nation’s currency crisis.)
If NAFTA helped Mexico’s economy, even at the expense of U.S.-based manufacturing, it would ultimately be good for the United States.