President Trump made the debate over free trade one of the central topics of his campaign, and since his election has continued to argue that the US is in a “very unfair” position when it comes to trade.
But the debate over free trade versus protectionism long predates the current administration.
In a recent report to clients, a Goldman Sachs equity research team led by Robert D. Boroujerdi took a look at the history of US trade policy from 1890 to today.
“US trade policy has evolved significantly since the Great Depression when tariffs on dutiable imports peaked at nearly 60% and there was no centralised organisation overseeing global trade matters,” the report’s authors said.
To show this change visually, the team included a chart showing US trade-weighted tariffs as a percentage of dutiable (or taxable) and total imports over that time, annotated with larger trends and events. As you can see below, the percentage was much higher leading up to and continuing through the Great Depression, but afterwards the US moved towards more trade openness.
As a quick refresher of 20th century trade history, the Goldman team also outlined the main trade milestones from the Great Depression on:
- The Smoot-Hawley Tariff Act of 1930. The tariff act raised duties on over 20,000 imported goods with the goal of helping the domestic economy. “The result, however, was a series of retaliatory measures by major trading partners and a 40% reduction in total US trade volumes between 1930 and 1932,” the Goldman team wrote. Of course, we caution against drawing a direct causal link between the act and the Great Depression, given that there were a slew of other economic factors that likely contributed to the crash. However, some economists argue that Smoot-Hawley might have deepened the depression.
- The Reciprocal Tariff Act (RTAA). President Franklin Delano Roosevelt signed this into law in 1934. It authorised the president to negotiate reciprocal trade agreements between the US and other nations. Tariffs were reduced with 21 countries representing 60% of total US trade, according to data from the US International Trade Commission, cited by the Goldman team.
- General Agreement on Tariffs and Trade (GATT). The US and 22 other countries signed GATT, a multilateral agreement, in the aftermath of World War II in 1947. It served as the main framework for global trade negotiations for several decades.
- Trade Act of 1974. This measure aimed at the reduction of nontariff barriers, as well as addressing domestic concerns of US industries that were hurt by international competition. It aimed to provide “adequate procedures to safeguard American industry and labour against unfair or injurious import competition.” Additionally, the “fast track” was established, which allowed Congress to either approve or deny negotiated agreements as they stand, but not to change or filibuster them.
- World Trade Organisation (WTO). The WTO was established in 1995, replacing GATT. Additionally, there was an uptick in free trade agreements in the post-Cold War era, including the US-Canada Free Trade Agreement, the North American Free Trade Agreement (NAFTA), the South Korea and US Free Trade Agreement, and the Trans-Pacific Partnership (TPP), the last of which the US exited in January 2017. The percentage of imports that are subject to tariffs dropped from 65% in 1990 to about 30% today.
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