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The Truth about Trade

RSS By: Dean Kleckner,

Dean is Chairman Emeritus of 'Truth About Trade & Technology, a nonprofit advocacy group led by a volunteer board of American farmers.

Trade Trumps Aid

May 07, 2009
Ralph Waldo Emerson said that a foolish consistency is the hobgoblin of little minds.
As a White House candidate, Barack Obama declared a willingness to renegotiate NAFTA and possibly even quit the continental trade accord. He also opposed a modest free-trade agreement with Colombia, our closest Latin American ally.
Last week, however, President Obama reversed course. His administration announced that it does not intend to reopen NAFTA talks, and the president himself signaled an interest in passing a trade pact with Colombia.
These are two very welcome developments. He has corrected a wrongheaded position, and his decision will deliver economic benefits to Americans.
A year ago, Obama’s attacks on NAFTA were blatantly protectionist. “I think we should use the hammer of a potential opt-out,” he threatened. One of his chief economic advisors, Austan Goolsbee, privately told Canadian officials not to worry: This was just overheated campaign-trail rhetoric. When Goolsbee’s assurances were leaked to the press, he was all but fired for contradicting his boss.
Now Obama has backed away from his public pronouncements and embraced the views of his subordinate. NAFTA is safe, for now.
Up to this point, Obama has done nothing but toss up roadblocks to the trade agreement with Colombia--a deal that our trade negotiators informally completed during the Bush years. Colombia is a country of 45 million people. A deal now waits congressional approval before it can become official. But Congress has refused even to give it an up-or-down vote.
Obama has recently ordered U.S. Trade Representative Ron Kirk to make the agreement become a reality. Perhaps the controversy surrounding the president’s handshake with Venezuelan strongman Hugo Chavez had something to do with it. The particular motive hardly matters. If all goes well, we can expect a few minor amendments that will allow Obama and a few fence-sitting members of Congress to say their concerns about environmental and labor conditions in Colombia have been met, and finally seal a deal that should have been done long ago.
In the current financial climate, any measure that stalls trade or makes it more difficult for capital to flow across borders is equivalent to tearing up roads and ripping out railroad tracks: They deliver serious blows to the world’s economic infrastructure, and hurt American workers whose jobs depend upon foreign markets.
Russia recently announced a range of new tariffs, including special fees on equipment built by Caterpillar and Deere. This is exactly the type of protectionism we must defeat. One of the hard lessons of the Depression is that protectionism, such as the notorious Smoot-Hawley Tariff Act, can take a bad economic situation and make it even worse.
Encouraging Russia to act responsibly may be a challenge. But the symbolism and reality of the US reaching out to a Colombia on trade has far reaching effects. Resuming growth in jobs is a process that will be built incrementally; with foreign trade being a key. Farmers will profit, too, because suddenly a range of products will receive duty-free access to Colombian buyers: high-quality beef, wheat, cotton, soybeans, and a variety of fruits.
As we open our minds to what trade means, always remember that there are jobs in handling and distribution of goods both incoming and outgoing. Foreign trade is always much more than the production of raw materials and goods. That’s why the president shouldn’t stop with Colombia. Next, he ought to call for the successful passage of existing trade deals with Panama and South Korea. And he should order Kirk to identify new countries that will offer economic opportunities to Americans, if only their markets can be opened to products made in the USA.
When it comes to improving our prosperity, trade always trumps aid.
The hobgoblins are at bay, at least for the time being. While we have a chance, let’s run them into extinction.
Reg Clause raises cattle, corn and soybeans on a fourth generation family farm in central Iowa. He is a Truth About Trade and Technology board member (
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COMMENTS (3 Comments)

Smoot-Hawley did not cause the Great Depression. This is a canard that was foisted on the American people to promote a one-world view. Germany oversaw one of its greatest economic expansions in 1934 after it repudiated free trade and passed its own version of Smoot-Hawley. According to Milton Friedman and confirmed recently by Ben Bernanke, the Federal Reserve created the Great Depression by raising interest rates in 1931. The Federal Reserve raised interest rates in order to defend the dollar and stanch the flow of gold out of the United States.

2:05 PM May 16th
For most of the history of this country we were a trade protected economy. We did very well as a trade protected economy. While you can quote many people who agree with you about Smoot-Hawley the data do not support your conclusion that it made the situation worse. At the time Smoot-Hawley was passed the United States had been a tariff protected nation for more than a hundred years. Smoot-Hawley raised tariffs from about 40 percent to just under 60 percent. Smoot-Hawley tariffs lasted about two years. By 1937 tariffs were back to the pre Smoot-Hawley and the Depression got worse. The Smoot-Hawley tariffs were not our highest tariffs. During the Depression foreign trade declined from 6 percent of GNP to 2 percent of GNP. Too small to have had a big impact. We were a net exporter throughout the Depression.

Smoot-Hawley did exactly what is was designed to do, protect American jobs. If protection is bad how did the United States make the transition from a producer of raw materials and agricultural products in 1828 to an industrial power by the end of the century? It looks to me like tariff protection served us well.

Shocking as it may sound to those who have never bothered to look at the data, there is a case for protection. To see the manifest advantages of protection over free trade compare the performance of the American economy from 1869 to 1900 under tariff protection with the period 100 years latter 1969 to 2000 under free trade. From 1869-1900 tariffs were above 40 per cent while from 1969-2000 they were below 10 per cent. From 1869 to 1900 GNP quadrupled while real wages increased 50 percent, and retail prices dropped significantly. Under free trade a century later real wages declined. Real wages of most Americans peaked in 1973 and are down since.

Free traders have a large list of bad things that is supposed to happen to tariff protected economies but the United States experienced little of them during the more than a hundred years in which we were a tariff protected economy.

4:40 PM May 7th
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