President Trump’s announcement he is imposing tariffs on steel and aluminum imports from other countries, including close allies with economies interlinked with ours — notably, Canada — has aroused little enthusiasm and much criticism. It evidently prompted the resignation of Gary Cohn as head of his National Economic Council.
It has also prompted free trade-minded Republicans in Congress to propose repeal of Section 232 of the 1962 trade act, which delegates to the president the power to adjust trade restrictions and impose tariffs.
It’s not clear exactly what trade restrictions Trump is poised to impose and whether negotiations with Mexico and Canada will end the North American Free Trade Agreement. One possibility is that the self-styled master of the art of the deal is using steel and aluminum as leverage to get Canada to agree to his terms on NAFTA.
Trump’s move is widely depicted as a departure from the free trade policies pursued by every administration since World War II. But a perusal of Dartmouth College economist Douglas Irwin’s history of American trade policy, Clashing Over Commerce, reveals that Trump’s move is not all that different from what other postwar presidents have done — and that free traders might be sorry if Congress actually does repeal Section 232.
Tariffs, it is often said, were one of the bases of American economic policy from the days of today’s Broadway musical hero Alexander Hamilton. That’s an exaggeration, argues Irwin; but they were the major revenue source for the early republic’s pint-sized federal government.
Irwin’s second major point is that tariffs weren’t changed very often. A rise in tariffs rankled Southern cotton producers in the 1820s and South Carolina’s John C. Calhoun, then vice president, penned an argument that states could nullify federal laws. President Andrew Jackson sent troops to the state’s borders and the state backed down, at which point Jackson and Congress lowered tariffs.
Trade became a partisan issue and so, Irwin points out, significant tariff changes happened only when one party held the presidency and Senate and House — a rarity then as now. Democrats lowered rates in 1846; Republicans raised them in 1862 during the Civil War; Democrats lowered them in 1913; Republicans raised them in 1922. In 1930 a Republican Congress took 18 months — with 527 hours of Senate debate on some 1,253 amendments — to pass the notorious Smoot-Hawley tariff, which President Herbert Hoover signed over a protest by 1,028 economists.
The Depression that followed (but, says Irwin, wasn’t caused by) Smoot-Hawley opened the way for a changed policy. President Franklin Roosevelt’s Secretary of State Cordell Hull, a fervent free trader, was often bypassed on foreign policy but given full leeway in fashioning the Reciprocal Trade Agreements Act of 1934. This gave the president — in practice, Hull’s State Department — authority to negotiate reciprocal tariff reductions with foreign countries. Tariffs fell from 30 percent of imports in 1900 to 5 percent in 1945 and 1.5 percent recently. On trade, Hull was one of the most successful policymakers in American history.
Trade acts in 1962 and 1974 made Hull’s reforms permanent. Section 232 also left presidents with the power to raise tariffs, which free trader Republicans are complaining about today. Trump is not the first president to use this power.
President Ronald Reagan, a free trader from his days as a Democrat, facing mass closure of steel and auto plants, negotiated “voluntary restraint agreements” with the European Economic Community, “surge controls” limiting steel imports from particular countries, and “voluntary export restraints” limiting Japanese auto exports. President George W. Bush imposed higher duties on steel imports in 2002.
These measures were intended to be, and were, temporary. Producers adjusted. Foreign-based auto companies built American plants, evading domestic content requirements and import limits. American steel producers eventually adopted high-productivity processes developed by Europeans decades earlier.
American trade policy over the past several decades, as Irwin describes it, is one in which Smoot-Hawley-type tariffs are irrelevant, and in which complex, low-visibility negotiations between executive branch agencies and foreign nations respond to grievances of American interests. High-visibility, complex, free trade agreements — notably NAFTA (1993) and most-favored nation status for China (2000) — have passed Congress, with most Republicans in favor and Democrats increasingly opposed.
Trump developed his views on trade in the 1980s, when Reagan was fending off protectionist pressures with temporary expedients. It’s unclear whether Trump really hopes to re-create the 1970s steel industry (he won’t) or whether he’s seeking leverage in negotiations with trading partners, as other presidents have.
A dicey process, perhaps, but surely better than the Smoot-Hawley days of Congress voting on thousands of amendments.
