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What Is Free Trade? Definition, Theories, Pros, and Cons
In the simplest of terms, free trade is the total absence of government policies restricting the import and export of goods and services. While economists have long argued that trade among nations is the key to maintaining a healthy global economy, few efforts to actually implement pure free-trade policies have ever succeeded. What exactly is free trade, and why do economists and the general public view it so differently?
Key Takeaways: Free Trade
- Free trade is the unrestricted importing and exporting of goods and services between countries.
- The opposite of free trade is protectionism—a highly-restrictive trade policy intended to eliminate competition from other countries.
- Today, most industrialized nations take part in hybrid free trade agreements (FTAs), negotiated multinational pacts which allow for, but regulate tariffs, quotas, and other trade restrictions.
Claims that 21st Century Free Trade Doesn't Benefit All
Critics from both sides of the political aisle contend that free trade agreements often don't work effectively to benefit either the U.S. or its free trade partners.
One angry complaint is that more than three million U.S. jobs with middle-class wages have been outsourced to foreign countries since 1994. The New York Times observed in 2006:
"Globalization is tough to sell to average people. Economists can promote the very real benefits of a robustly growing world: when they sell more overseas, American businesses can employ more people.
"But what sticks in our minds is the television image of the father of three laid off when his factory moves offshore."
History debunks the free trade myth
You are visiting a developing country as a policy analyst. It has the highest average tariff rate in the world. Most of the population cannot vote, and vote buying and electoral fraud are widespread.
The country has never recruited a single civil servant through an open process. Its public finances are precarious, with loan defaults that worry investors. It has no competition law, has abolished its shambolic bankruptcy law, and does not acknowledge foreigners' copyrights. In short, it is doing everything against the advice of the IMF, the World Bank, the WTO and the international investment community.
Sounds like a recipe for development disaster? But no. The country is the US - only that the time is around 1880, when its income level was similar to that of Morocco and Indonesia today. Despite wrong policies and sub-standard institutions, it was then one of the fastest-growing - and rapidly becoming one of the richest - countries in the world.
Especially in relation to trade policy. Many top economists, including Adam Smith, had been telling Americans for over a century that they should not protect their industries - exactly what today's development orthodoxy tells developing countries.
But the Americans knew exactly what the game was. Many knew all too clearly that Britain, which was preaching free trade to their country, became rich on the basis of protectionism and subsidies. Ulysses Grant, the Civil war hero and US president between 1868 and 1876, remarked that "within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free trade". How prescient - except that his country did rather better than his prediction.
The fact is that rich countries did not develop on the basis of the policies and institutions they now recommend to developing countries. Virtually all of them used tariff protection and subsidies to develop their industries. In the earlier stages of their development, they did not even have basic institutions such as democracy, a central bank and a professional civil service.
There were exceptions, such as Switzerland and the Netherlands, which always maintained free trade. But even these do not conform to today's development orthodoxy. Above all, they did not protect patents and so freely took technologies from abroad.
Once they became rich, these countries started demanding that the poorer countries practise free trade and introduce "advanced" institutions - if necessary through colonialism and unequal treaties. Friedrich List, the leading German economist of the mid-19th century, argued that in this way the more developed countries wanted to "kick away the ladder" with which they climbed to the top and so deny poorer countries the chance to develop.
After the second world war, thanks to post-colonial guilt and cold war politics, developing countries were allowed substantial policy autonomy. For a few decades "ladder-kicking" was at low ebb.
But it has been resumed with renewed vigour in the last two decades, when developed countries have exerted enormous pressures on developing countries to adopt free trade, deregulate their economies, open their capital markets, and adopt "best-practice" institutions such as strong patent laws.
During this period, a marked slowdown has occurred in the growth of the developing countries. The average annual per capita income growth rate in the developing countries has basically been halved, from 3% to 1.5%, between the 1960-80 period and 1980-2000. During the latter period, growth has evaporated in Latin America while the African and most ex-communist economies have been shrinking. Growth has also slowed down in the developed countries but less markedly - from 3.2% to 2.2% - thereby resulting in a growing income gap between the rich and the poor nations.
How do we address this failure? First, the conditions attached to bilateral and multilateral financial assistance to developing countries should be radically changed. It should be accepted that the orthodox recipe is not working, and also that there can be no "best-practice" policies that everyone should use.
Second, the WTO rules should be rewritten so that the developing countries can more actively use tariffs and subsidies for industrial development.
Third, improvements in institutions should be encouraged, but this should not be equated with imposing a fixed set of - in practice, today's, not even yesterday's - Anglo-American institutions on all countries, nor should it be attempted in haste, as institutional development is a lengthy and costly process.
By being allowed to adopt policies and institutions that are more suitable to their conditions, the developing countries will be able to develop faster. This will also benefit the developed countries in the long run, as it will increase their trade and investment opportunities. That the developed countries cannot see this is the tragedy of our time.
· Ha-Joon Chang teaches at the Faculty of Economics, University of Cambridge. This article is based on his book, Kicking Away the Ladder - Development Strategy in Historical Perspective, published by Anthem Press, London
The Myth of Free-Trade Britain
Yet this story has one big flaw: it’s inconsistent with the facts.
As the story is usually told, British free trade came in the 1840s after a bitter political struggle to repeal the Corn Laws—a name given to a series of agricultural tariffs and quotas designed to keep farm prices high. This was quickly followed by rapid and dramatic reductions in duties on hundreds of imports. By the 1850s, all but a handful of commodities were admitted to Britain free of all duties. Sounds good, until you look closely at what products remained subject to high duties: those handful of items were the most contentious and some of the most highly taxed items that historically had been at the core of the mercantile debate in British history. In previous centuries they formed a large and significant fraction of British trade.
Free trade should mean just that: free trade, with all goods admitted without duties, quotas, or restrictions. That was not British policy. They removed most tariffs but mostly on items in which they had a comparative advantage. In other words, they mostly removed tariffs on items for which Britain had little to fear in terms of competition or which were of trivial importance in overall trade.
Britain in the early 1800s had just passed through the Industrial Revolution and was the world’s leading producer of cotton textiles and other industrial products. It took little courage to lower tariffs on British manufactures. It would be like Japan promoting free trade in the 1980s by arguing for lower tariffs on compact cars imported from America. Since Japan already made some of the world’s best and most economical small cars, such a policy would have had very limited economic impact. Japan’s lowering trade barriers in agriculture would have been substantially more important and would have run up against enormous political resistance.
Nineteenth-century Britain had no comparative advantage in agricultural and foodstuffs. That is why the Corn Laws were initially so controversial. Consumers had a lot to gain from the state’s permitting the import of grain, because the British were not the cheapest producers of grain, while British farmers had much to lose. Unfortunately, the British did little to modify the tariffs on other contentious items, goods which had made for the commercial equivalent of war. Of these goods, the most important and the most troublesome was wine.
But how important is wine? To answer that we need to go back to the 1600s. Britain in the mid-seventeenth century was a prodigious importer of wine, mostly French. So much so, in fact, that her trade balance was in the red, mostly because of trade with France and mostly because of French wine, spirits and a number of luxury goods. Attempts to limit these imports by restricting trade had mostly failed. Tariffs were levied but never so high as to reduce the imports drastically. But then came the wars.
Two major conflicts spanning a quarter century kept French wine—indeed, all French imports—out of the British market from 1689 to 1713. The Nine Years’ War and the War of Spanish Succession led to hostilities between Britain and France and a complete breakdown in trade for this quarter century. During this grape-challenged period, three interest groups derived enormous benefit from the embargo on France—the British brewing industry, British distillers (gin, etc.) and British interests in foreign producers of alcohol—most notably the shippers of Portuguese wine. Prior to the late 1600s, the British drank plenty of wine, mostly French, a little Spanish, but virtually nothing from Portugal. The wars of 1689-1713 gave the Portuguese allies the opportunity of ten lifetimes. Beginning in 1703 a treaty was signed granting Portugal access to British markets for their wines—generally of a much lower quality than those of France, and often needing to be fortified with brandy or spirits in order to keep from going bad. The Methuen Treaty (as it was known) promised that Portuguese tariffs would always be at least a third lower than those of other nations, most especially France.
Of course, most of the Portuguese wine trade was dominated by British ships, merchants, and even vintners working in Iberia. The end of hostilities between Britain and France was seen as a grave threat to all these British interests, and vigorous lobbying by brewers, distillers, and the Anglo-Portuguese merchants stopped attempts to return to the period of open trade with the French. A bill to revive trade on prewar conditions between Britain and France was defeated in Parliament.
Even worse, tariffs were raised even higher throughout the eighteenth century. The result was that French exports of wine to Britain in the 1700s fell to less than 5% of the levels (measured by volume) that had prevailed in the 1600s. A twenty-fold decrease! The high taxes kept out all but the finest French products. Indeed, the French were kept out of the British market for most of the period of the Industrial Revolution, when the middle classes emerged and middle class tastes developed. Only the rich had access to the very finest clarets of Bordeaux. Cheap wine was simply not worth importing. And the British brewers, distillers, and merchant shippers never had it better. One historian has remarked that absent war and protection, the Gin Age 1 might never have come into existence.
These assorted tariffs on wine and other consumables—which Adam Smith had condemned for their inefficiency in the eighteenth century—remained at the core of British protection in the nineteenth, when trade was supposedly made free. Though claiming to have moved to open markets, the British hung on to tariffs that were of long standing, and that moreover, prevented much progress from being made in bilateral treaty negotiations. France was not about to sign a bilateral commercial treaty if Britain was unwilling to compromise on wine and spirits.
Figure 1. Average Tariffs in the U.K. and France, 1820–1913
Britain preached the gospel of free trade and France was cast in the role of the sinner, but there was little truth in this stereotype. France did have more protected products than England did but the average level of French tariffs (measured as total value of duties divided by total value of imports, cf. Figure 1) was actually lower than in Britain for three-quarters of the nineteenth century. 2 In other words, tariffs had a smaller impact on French trade than British duties had on Britain’s trade. The French, while eschewing free trade, and openly rejecting the Anglo doctrine of open markets, actually succeeded in making their trade more liberal and more open than that of the more vocal British. The master of this was Napoleon III—Bonaparte’s nephew—who throughout the 1850s promoted the most radical liberalizing reforms of the French economy, all the while insisting that France was only interested in moderate reform.
Indeed, it was not British unilateral tariff reduction that moved the world to freer trade. Despite the belief that is still common today that British exhortation opened the doors to European free trade in the late 19th century, it was the 1860 Treaty of Commerce, promoted by the Napoleon III and concluded between Britain and France, that really ushered in the age of nineteenth century “globalization”. British demands for unilateral tariff reduction usually fell on deaf ears.
Doctrinaire free traders and economic theorists opposed the use of commercial treaties since they felt that unilateral reductions were the most efficient policies for all countries. While correct in the abstract, such claims did little to overcome political resistance to trade liberalization in most countries. On the other hand, unwillingness on the part of the British to lower wine tariffs killed early trade negotiations with both France and Spain. When the British finally decided to moderate their wine tariffs, Britain and France successfully concluded a treaty in 1860 which dramatically changed the landscape of European commerce. Politicians throughout Europe—who had till then resisted all pressure to liberalize trade—suddenly became fearful of being left out of a trade pact that united the two great European powers. The result was that the other major European powers quickly signed bilateral treaties with Britain and France as well.
Since these treaties were all Most Favored Nation treaties—whereby concessions to one party meant extending such concessions to all the others—not just France and Britain, but by 1870 nearly all of Europe including the German states, Spain, Russia, the Netherlands, Denmark, Sweden, and so on were integrated into a highly open trading market. In many ways, Europe was freer than today, partly because the gold standard made capital extremely mobile, and because limitations in border control made immigration and the free movement of labor easy in practice despite differing rules across the continent.
What politicians do and say are often quite different. That hasn’t changed. Indeed, though there is much talk about globalization and unfettered trade, there is no country in existence today whose policies come anywhere near the ideal of free trade. Goods and services do flow vigorously throughout the globe, but most countries suffer from a mix of import duties and non-tariff barriers such as quotas, unnecessary inspection rules and a bewildering variety of regulations that make it impossible for any of us to benefit fully from the specialization possible in a truly open world economy.
But more importantly, the example of Britain and France in the 1800s challenges us to rethink and reanalyze the relationship between trade policy and growth. The story of Britain and France shows how easy it is to be misled by the fables of conventional wisdom. The fact that Britain was not as free trade as it claimed doesn’t make the case for protectionism. The British did lower their tariffs, and in the last third of the nineteenth century, Britain did fully liberalize trade and benefited from the change. But the interesting and unexamined story is France. Nineteenth-century France doesn’t fit our preconceptions. France was in fact, closer to the free trade ideal than the British for much of the century, and did in fact do well, raising the standard of living of the average worker from the 1850s onward.
What are Free Trade Agreements?
A Free trade Agreement (FTA) is an agreement between two or more countries where the countries agree on certain obligations that affect trade in goods and services, and protections for investors and intellectual property rights, among other topics. For the United States, the main goal of trade agreements is to reduce barriers to U.S. exports, protect U.S. interests competing abroad, and enhance the rule of law in the FTA partner country or countries.
Currently, the United States has 14 FTAs with 20 countries. FTAs can help your company to enter and compete more easily in the global marketplace through zero or reduced tariffs and other provisions. While the specifics of each FTA vary, they generally provide for the reduction of trade barriers and the creation of a more predictable and transparent trading and investment environment. This makes it easier and cheaper for U.S. companies to export their products and services to trading partner markets.
It is not a coincidence that Adam Smith’s The Wealth of Nations and what would one day be the world’s wealthiest nation should both have burst upon the global scene in 1776.
Before Smith, the prevailing economic doctrine was mercantilism. This theory had at its core the notion that only one party benefited from an economic transaction. Economics, it held, was therefore a zero-sum game. If that was true, then it stood to reason that detailed regulations were needed to see to it that a country was on the winning side as often as possible when its merchants traded with foreigners.
The measure by which the success of these regulations was judged was the amount of gold and other precious metals that flowed into a country. Thus, in general, exports were encouraged and imports discouraged and often forbidden outright. This, of course, perfectly suited vested interests at home that didn’t want foreign competition anyway, and Smith put his finger precisely on the engine that actually powered so much of mercantilist regulation: personal self-interest. “People of the same trade,” wrote Smith, “seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy asainst the public.”
To put it another way, the greatest enemies of the capitalist system as a whole are individual capitalists. The reason, of course, is that people invariably pursue their own economic interests—which they can usually see clearly—rather than the good of the whole, always a much murkier matter. But capitalists do not just conspire among themselves to rig markets and fix prices. They also seek to influence government to protect them from competition. In Smith’s day theirs were often the only voices heard trying to influence economic policy, for’an independent press had not yet evolved. And even today no one lobbies only for the common good.
Thus mercantilism, in Smith’s view, was really just a splendid refuge for scoundrels. In The Wealth of Nations he quite simply annihilates the intellectual basis of it. In page after page of elegant, Augustan prose, he demonstrates that in a free market both sides benefit from a transaction or it won’t take place. Thus wealth is created on both sides, not just transferred from one to the other, and it is the volume of trade that measures a country’s economic strength, not the amount of gold in the treasury or even the balance of that trade.
Newly minted, the United States did not have many entrenched interests to protect the mercantilist legacy. Indeed, onerous and unfair British mercantilist regulations, along with a total lack of American political power in London to do something about them, had been a prime cause of the Revolution. When the Founding Fathers, most of whom had read Smith’s book or knew its reasoning intimately, created the Constitution a few years later, they were able to incorporate into it a thoroughly Smithian view of the economic universe.
Because they knew that individual state governments would respond to the interests of their own citizens rather than the general good of the Union, the Founders assigned the regulation of interstate commerce exclusively to the federal government, where countervailing state interests would tend to offset one another. Interstate tariffs on American exports were specifically banned by the Constitution.
As a result, the United States began its independent existence with the freest internal market in the world, and it has largely maintained that freedom, at least relative to other countries. Having the greatest freedom to create wealth, American citizens have proceeded to do exactly that in vast abundance.
But the history of America’s external market—its foreign trade, in other words—has been a more complicated story. First, in no other country has the importance of foreign trade varied so much over history as in the United States. In the early days foreign trade was essential to the very survival of the tiny colonies clinging precariously to the edge of a wilderness continent. So outward-oriented was the economy, in fact, that by the end of the colonial period, the American merchant marine was second only to Great Britain’s in size, and foreign trade accounted for 20 percent of the colonial gross national product. After the Revolution, however, building the vast internal market more and more absorbed the economic energies of the country. By the early twentieth century the American merchant marine had nearly ceased to exist, and foreign trade, while very large as a percentage of total world trade, was only about 6 percent of the American economy. We were for nearly all intents and purposes, self-sufficient. Foreign trade, while certainly profitable, was no more than the icing on the cake of the American economy.
Today the situation has reversed again, and foreign trade is a larger component of the American economy, in both scale and importance, than at any time since the early days of the Republic, about 15 percent and growing quickly. At the end of the twentieth century our self-sufficiency is long gone. Instead the United States has become the world’s largest exporter and importer of goods and services and the linchpin of a swiftly integrating global economy.
But there is also another reason why the history of America’s foreign trade has been very complicated: because the pressures to manipulate that trade for the benefit of particular domestic interests, rather than for the country as a whole, have always been hard for politicians to resist. After all, the relatively few individuals who greatly benefit from, say, protective tariffs—usually domestic producers and their workers—will always press the case against foreign competition with vigor, not to mention political contributions. The vast mass of citizens, who are usually only slightly harmed, however, often have no real means, and little individual incentive, to counter the pressure.
Take the case of sugar, for instance. The United States is at best a marginal producer of sugarcane, because efficient production requires a tropical climate and either large amounts of low-paid labor, as in Latin America, or vast economies of scale, as in Australia. In a free market there would be little, if any, United States production. But the American sugar market is anything but free.
Instead, a system of quotas and tariffs comfortably protects the handful of producers in Florida, Louisiana, and Hawaii. It also raises the cost of sugar to consumers by as much as 50 percent. Not even continuing exposés of the brutal exploitation of migrant workers in American canefields have budged Congress to redress this blatant latter-day mercantilism, because sugar is so small a part of any individual’s budget as to go unnoticed.
The first federal tariff, intended by the Founding Fathers to be the government’s primary source of revenue and enacted on July 4, 1789, was remarkably evenhanded. But in the years that followed, as the United States changed from an agrarian exporter of raw materials into an industrial giant, the Smithian inheritance would often be compromised for political purposes, as it had been with sugar.
Sugar, of course, is not a vital part of the American economy. But twice in our history disaster resulted from political meddling with foreign trade. It could happen again.
When the first colonists landed on the shores of what would one day be the United States, they were nearly as dependent on where they came from for the necessities of life as would be, today, the inhabitants of a lunar base. Game could offer a steady meat supply perhaps, but virtually everything else had to be brought from Europe. Weapons, cloth, tools, medicines, livestock, furniture, even enough food staples to see the colonists through the first growing season and beyond—all had to be imported. As early as 1628 a rule of thumb had developed that settlers in a new colony needed to bring with them eighteen months’ worth of provisions to be safe from famine.
There was one big problem: Those who sent the first colonists were not the officers of well-funded government agencies pursuing knowledge they were capitalists pursuing profit. Eleven joint-stock companies were formed in the early seventeenth century to establish English colonies in Ireland and the New World, and their stockholders invested some thirteen million pounds, a huge sum by the standards of the day.
Naturally they wanted as immediate a return on their investment as possible. If the colonists were to provide it, as well as finance future imports, they had to find something to export and find it quickly. They were never quick enough to suit the investors. The backers of the Plymouth colony, for instance, severely criticized the Pilgrims not only for detaining the chartered Mayflower over the winter (they would surely have perished if they hadn’t) but, worse, for sending her back in the spring without a cargo.
The earliest schemes, not surprisingly, often foundered on the rocks of inadequate knowledge of New World realities. In Virginia the colonists at Jamestown were at first so bewitched by the prospect of El Dorado that many of them searched for gold rather than plant crops. Starvation was the result when the gold turned out to be non-existent.
The following year the Virginia Company, which had founded the colony, sent over glassmakers from Poland and Bavaria in hopes that tidewater Virginia’s abundant sand and wood (for fuel) could support a glassmaking industry that could profit from England’s rapidly growing demand for glass. Within a year the project was in ruins when the glassmakers returned to Europe, where they could make a far better living in far more comfortable surroundings. The new colony struggled desperately to survive, exporting a few furs, some timber, sassafras, and silk grass, from which mats were woven. At one point Jamestown was nearly abandoned.
Finally, in 1614, it began to export tobacco in small quantities, a commodity that found a swiftly growing market in Europe. But tobacco was a crop that required a lot of labor, much of it very unpleasant. At first indentured servants from England were used. But the long-term solution, at least from the point of view of the white settlers, was the importation of black slaves from Africa and the West Indies to do this work. Over the next nearly two centuries, about three hundred thousand slaves would be brought to North America in a tragic commerce.
The slaves, of course, were, in an economic sense, another import. But the value they added to the tobacco crop far more than paid for their purchase price and maintenance, and the slave population began to rise rapidly. By the middle of the seventeenth century, the system of plantation agriculture and slave labor was firmly in place in Virginia and Maryland and was spreading immediately to the other Southern colonies as they were founded.
By 1700 Virginia and Maryland were exporting annually more than three hundred thousand pounds’ worth of goods to England, mostly tobacco. Today’s equivalent, at least according to one authority, would be something on the order of a hundred million dollars. With a steady, indeed handsome income from tobacco sales in Europe, Virginia and Maryland did not need to establish strong trading ties with other areas, such as the West Indies, or develop their own manufacturing economy, as New England had begun to do.
When the Plymouth colony was founded in 1620, and, ten years later, the Massachusetts Bay at Boston, no cash crop was available, but the Northern settlers soon learned to eke out a living exporting fish, furs, barrel staves, and lumber (especially clapboards). The trouble was that there was not enough of a market for these products in England—or too much competition there. The New Englanders, therefore, soon began trading with the new colonies in the West Indies and with Africa and southern Europe. There they ran up the trade surpluses that financed their purchases in England.
This “triangle trade,” far more complex than simple bartering between two parties, soon gave the New Englanders considerable expertise in international commerce. In Boston, Newport, and other New England seaports, merchants began building their own ships in large numbers and trading for profit far and wide. Further, the triangle trade led directly to the first American industry, the distilling of West Indian molasses into rum.
Only in New Netherland did the original raison d’être of the colony—fur trading—turn out to be a viable proposition. This was largely because of the entirely fortuitous facts that the Hudson and Mohawk rivers provided an easy route deep into the interior and the Indians of that interior were sophisticated and well organized.
But the fur trade, another cash crop, did not require a large resident population. In order to secure a firmer hold on the colony of New Netherlands, flanked on both north and south by growing English settlements, the Dutch West India Company decided to encourage immigration. It offered vast tracks of land along the Hudson to those who would transport fifty families at their own expense to work the land.
These tenant farmers began to grow grain, and soon wheat was a major export, especially in the form of flour. Its importance to the early colony is reflected in the fact that both the flour barrel and the beaver are still found on New York City’s coat of arms. As they were founded in the late seventeenth century, the other middle colonies also became major producers of wheat and flour.
As settlers with particular skills and tools arrived and practiced their crafts, the utter dependence of the colonies on England for simple manufactured goods began to abate. Before the Industrial Revolution most manufacturing was done on a purely local, handicraft basis even in Europe. Wheelwrights, coopers, blacksmiths, and cabinetmakers began to produce their wares in America.
But American industry, often hemmed in by British mercantilist restrictions, remained what today would be called low tech. Pig-iron production, for instance, began as early as the 1620s. By the end of the colonial era, the colonies were producing thirty thousand tons a year, one-seventh of the world supply and a major export to Britain, where the Industrial Revolution was by then gathering steam. But steelmaking, an expensive, difficult process in the eighteenth century, was unknown on this side of the Atlantic.
Shipbuilding, however, was one major exception to this low-tech, cottage-industry rule. The first ship built in Massachusetts was launched only a year after the Puritans landed. By 1665 citizens of the colony owned no fewer than 192 seagoing vessels and had built many more than that and sold them elsewhere. Indeed, it was common for an American ship to carry a cargo to England and then to be sold cargo and all. By the end of the colonial period, fully 30 percent of the British merchant marine (2,342 out of 7,694 ships) was American-built.
By then American imports consisted largely of manufactured and precision goods from Europe and products from the West Indies, such as sugar and molasses, many of which were re-exported. Besides ships, the exports, meanwhile, were fish, agricultural and forest products, and primary manufactured goods derived directly from them, such as pig iron, barrel staves, lumber, rope, and naval stores.
By the 1760s the American colonies had become a major economic force in the British Empire. They supplied close to 12 percent of British imports and bought 9 percent of the mother country’s re-exports. Far more significant, fully a quarter of Britain’s domestic exports went to North America.
After the expensive British victory in the Seven Years’ War (called the French and Indian War on this continent), the British government woke up to the fact that there was an economic giant aborning across the Atlantic. It tried to make it a source of serious revenue, mainly by taxing its trade. The result was the American Revolution.
With independence the new nation found itself free to trade with the whole world. The whole world, that is, except the British Empire, wherein it had always done most of its trading. Much of the West Indies was now cut off, and exports to England were much restricted. Indigo, whose production had utilized about 10 percent of the slave labor in the South before the Revolution, was shut out of the British market, where indigo from India replaced it. The industry collapsed.
But new markets opened. Once forbidden to ship directly to northern European countries other than Britain, American merchants were by the early 1790s selling 16 percent of their exports to those countries. In 1784 the first American vessel bound for the Far East, the Empress of China , set sail from New York. It was not long before Americans were major players in the Far Eastern trade.
Soon American vessels could be found around the world, their captains sailing to wherever profit beckoned. “His vessel went to the West Indies,” one contemporary reported of the merchant Stephen Girard of Philadelphia, “where cargo was exchanged for coffee and sugar then proceeding to Hamburg or Amsterdam, the coffee would be sold for Spanish dollars or exchanged for cargo which would secure him at the Spice Islands, Calcutta, or Canton the products of those climes.”
Most of the early great fortunes in the United States were based in whole or in part on foreign trade. John Jacob Astor, shipping furs to China, often cleared fifty thousand dollars a voyage. Girard left an estate of nine million dollars when he died in 1831, making him the richest man in the United States except, perhaps, for Astor.
New products were developed as well as new markets. Eli Whitney’s cotton gin made short-staple cotton a profitable export to Great Britain’s fast-rising textile industry. Within a few years it was the country’s greatest export, and by the Civil War the South was producing seven-eighths of the world supply and shipping four million bales a year to Europe.
New England, in the meantime, developed a brand-new product to sell on the world market: ice. Cut from New England ponds in the winter and stored under mounds of sawdust, cargoes of ice were sold in warm climates as far away as Calcutta. By the 1850s ice was the country’s largest export, on a tonnage basis, except only for King Cotton itself.
Trade grew rapidly in the years after the adoption of the Constitution. In 1790 total domestic exports amounted to $19,666,000 while imports that were not re-exported amounted to $22,461,000. By 1807 the figures were, respectively, $48,700,000 and $78,856,000. This apparent trade deficit, which lasted until the mid-1870s, was more than offset by freight charges and commissions earned by American vessels and by the steady inflow of capital from Europe and elsewhere.
(Indeed, the difficulty of figuring the actual trade balance, thanks to these so-called invisible earnings and numerous other complications, has over the years provided a rich and continuing opportunity for self-interested individuals and their political allies to create tendentious statistics. For instance, until the last twenty-five years, the merchandise trade balance—the import and export of physical goods—was not far from the total trade balance, and much easier to calculate. Today, however, services and intellectual property are major and very rapidly growing components of international trade, and notable American strengths. Regardless, those in this country seeking protection habitually use the merchandise trade balance as proof that the country’s competitiveness is failing. Very conveniently for them, if not for the truth, services and intellectual property are not counted in this statistic.)
The main cause of this rapid growth was the European war that broke out in 1793 and raged for most of the next quarter-century. As a neutral power the United States was at first in a good position to benefit, its flag protecting cargoes that actually originated in belligerent powers or their colonies. But as the conflict escalated between Great Britain and France, they sought more and more to fight by interfering with each other’s commerce. Neutrals inevitably suffered, as both sides tried to prevent neutral shipping from trading with the enemy. Ever more restrictive regulations were issued. Between 1803 and 1807 Britain seized 528 American ships, and the French seized another 389. Meanwhile, ships of the Royal Navy high-handedly stopped American vessels, even warships, and seized any sailors they claimed had deserted.
When in 1807 a British frigate fired a broadside into the newly commissioned USS Chesapeake , which was totally unprepared to receive it, national outrage resulted. Probably only because Congress was out of session at the time was a declaration of war averted. But President Jefferson felt obliged to do something. Unfortunately, as often happens in politics, his best course, perhaps most easily seen in retrospect, would have been to do nothing beyond exert what diplomatic pressure he could. Instead, on December 22, 1807, he signed the Embargo Act. This remarkable legislation forbade American ships to deal in foreign commerce, and the American Navy was deployed to enforce it. In effect, in an attempt to get Britain and France to respect neutral rights, the United States went to war with itself and blockaded its own shipping.
Albert Gallatin, the Secretary of the Treasury, warned that such a direct affront to the economic interests of American merchants would be perceived as tyranny and provoke a bitter and divisive reaction. But Jefferson, who viscerally loathed all things commercial anyway, was then at the height of his political power, a position in which so many grievous political misjudgments are made, and the Embargo Act was rammed through Congress with little debate.
If the Embargo Act was intended as a shot across the bows of the belligerent powers, it resulted only in the United States’s shooting itself in the economic foot, for it devastated American foreign commerce. This in turn crippled the American economy, especially in all the great port towns up and down the coast and in New England, which was so heavily dependent on foreign trade and shipping in general.
American domestic exports fell from $109 million in 1807 to $26 million the following year. Domestic imports dropped by 44 percent. And Gallatin had been right. As soon as news of the act reached a port, all the American ships in a position to do so immediately sailed away to avoid being interned. Smuggling flourished (indeed, it became so rife on Lake Champlain that Jefferson actually declared the surrounding country to be in a state of insurrection). A blanket of bureaucratic restrictions smothered internal commerce as well, lest any of it leak into illegal foreign trade.
The embargo’s effect on Britain and France was negligible, and their reaction was contempt, a dangerous emotion to engender in international politics. When Napoleon seized Spain in 1808, he seized as well 250 American vessels and their cargoes in Spanish ports. When the American ambassador demanded an explanation, the emperor calmly replied—one wonders what might be the French word for chutzpah— that he was only helping enforce the Embargo Act.
Jefferson knew just whom to blame for the “absurd hue and cry.” New England merchants, he wrote in a letter to a friend, wanted to sacrifice “agriculture and manufactures to commerce . . . and to convert this great agricultural country into a city of Amsterdam.”
Thanks to enormous political pressure, the Embargo Act lasted only fourteen months, and increasing loopholes and simple evasion—blockade-running, if you will—lessened its effect toward the end of its existence. The Non-Intercourse Act, which succeeded it, forbade trading only with Britain and France, overwhelmingly our major trading partners, and the deep depression in American shipping continued. Finally, in 1812, when Britain still refused to accede to American demands, the United States stumbled into a war it lacked the means to fight effectively.
At least now the blockade of American ports was carried out by an enemy fleet, not our own, and one larger than all the other fleets in the world combined. American foreign commerce all but ceased. In 1814 domestic exports were only one-eighth of what they had been seven years before, while imports were one-sixth.
So bitterly resented was the War of 1812 in New England and other centers of commerce that its continuation threatened the Union itself. Fortunately it did not continue, and the seas were opened once more.
All laws have unintended consequences. The Embargo Act and the Non-Intercourse Act had almost nothing but. Not only did they gravely injure American foreign commerce, these laws acted also as a prohibitive tariff. Imports, especially manufactured imports from Europe, were largely barred from the country, and local industries, already beginning to grow, prospered mightily as a result. Unfortunately, these new enterprises, once confronted with the threat of renewed trade with competing countries, immediately sought a real tariff.
The New England cloth industry demanded, and received, a duty of twenty-five cents a yard on cheap cotton cloth, effectively excluding competing British cloth from the American market. Other industries immediately sought their own protective tariffs, and some succeeded. A tariff to protect growing young industries always has a surface plausibility that enables politicians to more easily accept it and thus accommodate those self-interested constituents who are calling for it. But, in fact, there are always two solid reasons against a protective tariff, both elaborated at length in The Wealth of Nations .
The first is that the tariffs are ultimately paid not by foreign producers but by domestic consumers, to whom the costs are passed along. The second is that protective tariffs insulate producers from foreign competition. This not only allows them to raise their prices but also makes it less imperative for them constantly to seek ways to cut costs and improve quality. And it is the inescapable necessity to innovate and cut costs—in order to survive in a free market—that powers the great force for the general good that has come to be known, in Adam Smith’s famous metaphor, as the “invisible hand.”
Fortunately, the Smithian inheritance still held. And while specific industries were protected, such protection was always presented as an exception to the general rule, and American tariffs stayed low, compared with those of many other countries. New England shipping interests, of course, fought for a low tariff on all goods. But American manufacturing was growing with astounding speed in these years, and its political power along with it. In 1824 there were two million Americans engaged in manufacturing, ten times the number only five years earlier. American shipping, meanwhile, was stagnant or in decline.
Besides the shipping interests, the other great source of opposition to a high tariff was the South. With few industries, and ever more dependent on the export of cotton to the British market, the Southern planters wanted free trade. In those years it was the tariff, not slavery, that most divided North and South and threatened the Union. Under Northern pressure the tariff rose steadily, and in 1828 Congress passed what the South—as always a major exporter of catchy political phrases—called the Tariff of Abominations. This, in turn, led to the nullification crisis in 1832, when South Carolina declared that states had the power to rule federal laws unconstitutional, including the tariff.
A direct confrontation, and quite possibly civil war, were avoided only when a new tariff calling for gradually lower rates was adopted. After the crisis passed, the tariff continued to decline slowly until the Civil War began for real in 1861.
By that year American exports had topped $400 million, four times what they had been in the best year before the War of 1812. But as a percentage of the whole American economy they were much smaller than they had been then, for the economy had grown far faster than had foreign trade. In 1800 about 10 percent of the American gross national product was being shipped abroad. Sixty years later the United States was exporting only about 6 percent of a much larger gross national product.
There has long been an argument among scholars about whether foreign trade (and foreign capital) drove this dramatic domestic expansion or the other way around. The truth, in all likelihood, is that they acted together, each upon the other. Uniquely, the United States is both a continental and an island power. In the great sweep of its territory and the abundance and diversity of its resources, it possesses the inherent advantages of a Russia or China. Yet in its geographical isolation from possible aggression and its unhindered access to the ocean sea and its trade routes, it has the very attributes that made Japan and Great Britain rich. With the best of both worlds, America’s domestic market and its foreign trade together produced the greatest economic synergy the world had ever seen.
But at the outbreak of the Civil War, American exports were still largely agricultural products and raw materials (cotton would remain the leading agent until the 1930s). More than half of all imports were manufactured goods, especially cloth and iron products, including most of the railroad rails that were quickly knitting the country together. Manufacturing exports, however, were beginning to make inroads. In 1820 only about 5 percent of American exports were finished goods. By 1850 more than 12 percent were.
The Civil War changed American foreign commerce profoundly. It dealt a deathblow to the already declining American shipping industry. With Confederate raiders such as the CSS Alabama on the loose, American ships fled to the protection of foreign flags, usually British, and never came back. In 1860 about two-thirds of American foreign trade was carried in American bottoms. By 1865 barely a quarter was by 1912, less than 10 percent.
Moreover, the cotton trade was temporarily halted by the Northern blockade of the Southern cotton ports. It would be 1875 before cotton shipments again reached their pre-war peak. And the tariff was greatly increased to help pay for the war. This, of course, had the effect of protecting American industry still further from foreign competition, giving it a tremendous short-term boost as it captured market share from foreign companies. The tariff, together with the demands made by the war and the prosperity the war brought to the Northern civilian sector, caused American industry to boom as never before.
By 1865, with the South now politically powerless, Northern industry’s demands for continued high tariffs met little opposition. Fortunately for the common good, the railroad had by this time transformed the once geographically fragmented domestic American market into the largest fully integrated market in the world. This, in turn, provided increasing domestic competition that forced cost savings and innovation, despite increased protection from foreign companies.
Northern industry began to grow so fast that by the turn of the century America was the world’s foremost industrial nation. This was reflected in a fundamental change in the nature of American exports and imports. While the United States remained, then as today, a major exporter of agricultural and mineral products (two new ones, petroleum and copper, were even added), it also became a major exporter of manufactured goods. In 1865 they constituted only 22.78 percent of American exports. By the turn of the century they were 31.65 percent of a vastly larger trade. The portion of world trade, meanwhile, that was American in origin doubled in these years to about 12 percent of the total.
Nowhere was this more noticeable than in iron and steel exports, the cutting edge of late-nineteenth-century technology. Before the Civil War the nation exported only $6,000,000 worth of iron and steel manufactures per year. In 1900 we exported $121,914,000 worth of locomotives, engines, rails, electrical machinery, wire, pipes, metalworking machinery, boilers, and other goods. Even sewing machines and typewriters were being sent abroad in quantity.
Europe had long imported raw materials from the United States and elsewhere and exported finished goods to America and the rest of the world. To alarmist economic commentators—all too often a redundancy then as now—it seemed that an American colossus had suddenly appeared to snatch this profitable trade away, threatening to reduce once mighty Europe to an economic backwater. Books with such ominous titles as The American Invaders , The Americanization of the World , and The “American Commercial Invasion ” of Europe began to fill the bookstores in the 1890s. (Their authors’ spiritual descendants, of course, would be turning out the very same books ninety years later, only with “Japanese” substituted for “American” in the titles.)
Actually, Europe was perfectly able to hold its own market for manufactured goods in the twentieth century, and it was in what we now call the Third World that the American-European rivalry in industrial products reached its height. And with a rapidly growing worldwide market for American manufactures, the high American tariff became more and more a liability to its own political backers, because it tended to generate opposing high tariffs abroad and thus limit American exports. In 1913, with the traditionally antitariff Democrats in control of both the White House and Congress, the tariff was significantly reduced for the first time in more than fifty years. And that year world trade reached heights it would not see again for a generation.
The outbreak of World War I radically transformed the world economy, and the war proved a bonanza for American business. With Russia (a major grain exporter until the advent of communism) cut off from overseas markets, demand for American wheat and meat soared, and American farms boomed. European orders for steel and munitions caused factories to operate around the clock. Lavish government subsidies rebuilt the American merchant marine. Americans were able to capture many markets that had once been firmly controlled by the now-distracted European colonial powers.
New York succeeded London as the world’s financial center, and world trade, which had formerly been financed almost exclusively with sterling acceptances, now used dollar acceptances as well. American loans to Britain and France transformed the United States, a debtor nation since the earliest days of the Republic, into the world’s greatest creditor. By 1916 the United States was running annual trade surpluses, exports minus imports, in excess of $3 billion, twice the total American exports alone at the turn of the century.
With an economy now larger than all of Europe’s, only the United States could lead the world back to the peaceful and fruitful free-trading patterns of the pre-war era. It failed to do so and, once more, injured itself far more than it injured other countries.
For one thing, the United States severely restricted immigration in 1921, depriving itself of the steady inflow of that most priceless of all economic assets, human capital. Far worse, the U.S. government ended the financing of food shipments to Europe eighteen months after the war ended. The market for food exports collapsed, and this helped push American agriculture into a depression from which it would not recover for twenty years. A decade later that depression would spread around the world.
Worse still, the United States refused to cancel war debts owed by its allies, despite their parlous financial state and their importance to us as trading partners. Indeed, about the only means the United States employed to sustain the world economy as a whole was to lend large sums of money to defeated Germany, which in turn used the money to pay reparations to Britain and France. They in turn sent the money back to the United States in payment of war loans. For a while this staved off disaster, but when U.S. lending dried up in the late 1920s, the world economy began to crumble.
It turned into a collapse when the United States tried to wall off its own economy with the Smoot-Hawley Tariff, the darkest day for the American Smithian inheritance. The United States had reversed the downward trend in tariffs of the Wilson years with the Tariff of 1922, which was primarily intended to help the increasingly distressed farmers.
Then, in the presidential campaign of 1928, Hoover sought the still-troubled farm vote with a promise to raise the tariff on agricultural products once again. He called a special session of Congress in 1929 to fulfill his promise to the farmers. But it soon turned into what can only be described as a special-interest feeding frenzy, as capitalists looked after their individual interests and no one at all looked after the common good.
Every major industry, and countless minor ones (tombstone makers, for instance), paraded before Congress, demanding protection against “unfair” foreign competition. (Unfair competition, in the peculiar lexicon of protectionism, means foreign competitors able and willing to sell to American consumers for a lower price than domestic manufacturers can and will.) With economic conditions unsettled after the stock-market crash and potent postwar xenophobia still abroad in the land, unstoppable political momentum developed. Hoover signed the greatest tariff increase in American history into law in 1930, despite a petition of more than one thousand economists who predicted disaster.
The economists were right for once. Other countries immediately retaliated with sharp hikes of their own, and American foreign markets vanished. U.S. exports in 1929 had been valued at $5.341 billion. Three years later they were a mere $1.666 billion, the lowest they had been, allowing for inflation, since 1896. They would not reach 1929 levels again until 1942, when a second catastrophic war finally ended what Smoot-Hawley, perhaps more than any other single factor, had caused: the Great Depression.
The Second World War, like the First, greatly strengthened the position of the United States relative to its international trading partners. All the other great trading nations had been badly damaged, if not utterly devastated, by the war, and at its end the United States had, temporarily, over half the global GNP. Once again only the United States could lead the world out of the disaster. This time, having learned the painful lessons of the twenties and thirties, it did so.
The United States was instrumental in establishing a new international financial order, called Bretton Woods after the New Hampshire town where it was negotiated. This agreement fixed the value of the dollar in gold and in effect restored the gold standard that had so promoted world trade in the years before World War I.
Further, the United States provided massive aid to countries devastated by the war, both allies and its former enemies, by means of the Marshall Plan, the World Bank, and the International Monetary Fund. Meanwhile, there was no talk of “reparations” or attempts to collect loans made during the war to allies.
Still more important, the United States abandoned the protectionism that had cost it so dearly in the 1930s and led the way on tariff reductions by means of the General Agreement on Tariffs and Trade, known as GATT. The result was a massive increase in world trade and, no coincidence, world prosperity. In 1953 world trade totaled about $167 billion. By 1970 the figure was $639 billion. And the unsustainable American lead in global GNP returned to its pre-war level by 1965 as the other great powers recovered.
In the immediate postwar years the United States was the world leader in nearly all high-technology and capital-intensive industries, such as automobiles and electronics. But as Germany and Japan recovered from the war and other countries, such as Korea and Taiwan, began to develop modern economies, competition intensified.
Further, having to start from scratch and to capture markets that had been dominated by American companies, foreign companies were often much more innovative, both in design and in manufacturing techniques. Foreign companies, in other words, were lean and hungry. American companies, used to the easy profits in the post-war American market that they had largely to themselves, were all too often fat, dumb, and happy. Our automotive industry, for instance, was as late as the 1970s selling cars whose engineering had not basically changed since the 1940s.
America’s once-huge trade surplus in manufactured goods began to slip away. Our self-sufficiency in raw materials also rapidly eroded. The trade balance in such vital commodities as petroleum, iron ore, and copper turned sharply against the United States. For a while the reversal of trade flows was masked by an increase in agricultural exports. In 1959, however, for the first time in this century, the United States ran a trade deficit.
Within a decade such bedrock American industries as steel and automobiles were losing their shares of world markets as well. Gold began to flow abroad, and in 1971 the United States unilaterally severed the link between gold and the dollar. Inflation took off. Then came the sudden increase in the price of petroleum after the 1973 Arab-Israeli War. Foreign automobile companies, which had long met their local markets’ demands for small, efficient cars, invaded the American market and took increasing chunks of market share from the stunned American giants. American exports rose in volume and value thanks to agriculture, aircraft, and very high-tech equipment, such as supercomputers. But imports rose much faster.
By the early 1980s the United States was running the largest merchandise trade deficits since colonial times, and calls for protection were more loudly voiced than at any time since the Second World War. In fact, these deficits were offset by two other trends. One was that in intellectual trade and services, notoriously hard to quantify and measure but growing explosively in the late twentieth century, the United States was ever increasingly the world leader. In movies, television, books, and music—multibillion-dollar industries all—the United States was first by a very wide margin and holding its lead.
In computer software the United States had, for all intents and purposes, no competition at all. In 1975 William S. Gates, then nineteen, founded Microsoft on a shoestring. By 1992 he was the richest man in the United States, and Microsoft dominated the software industry around the world. Hundreds of other American software firms were prospering alongside it and exporting increasingly.
Second, foreigners were investing more and more in the United States. These capital inflows offset the trade deficits and helped to fund the profound restructuring of the American economy in the 1980s. Faced with intense competition from abroad and at home, thanks to free trade, American companies and unions had little choice but to cut costs and to innovate. The invisible hand moved. Wages were held down layoffs in inefficient industries multiplied while total employment increased sharply productivity in manufacturing soared. By 1988 the United States had become the low-cost producer in many industries, and American exports, as a result, were booming. In 1980 American merchandise exports were $220.6 billion (1991 dollars). In 1991 they were $421.9 billion.
Even the American automobile industry, once the glory of the American economy, and in much of the eighties the despair, has largely closed the gap in quality and cost with its overseas rivals. The domestic market share of American automobile companies is rising significantly, and the largest-selling car in the American market is, once again, American designed and built, the Ford Taurus.
Today the American overall trade gap has nearly vanished. Vanishing with it is a world economy made up of separate sovereign national economies. Industrial companies have been operating in many countries since the 1920s, but until the sharp drop in shipping and communications costs, such multi-national companies tended to act as collections of independent units. Today intracompany trade over national borders is growing by leaps and bounds, and the question of where a particular product is “manufactured” is becoming increasingly meaningless. AT&T is Taiwan’s largest exporter of electronics.
These multinational companies are rapidly becoming effectively stateless. General Motors, deeply troubled as it is, last year had worldwide sales of $132 billion, a “gross national product” larger than all but a handful of countries. In 1990 Philip Morris exported $3.1 billion from the United States, but its overseas subsidiaries had sales of more than $13 billion.
Moreover, the ability of sovereign governments to determine their own internal economic policies (and thus which domestic interest groups to favor) is swiftly diminishing. To give just one example of why this is, when currencies began to float freely, international transactions became more complicated to negotiate. But floating currency values also made currency traders, now operating around the globe and around the clock thanks to the quickly falling cost of communications, an important force in the world economy. Today currency trading amounts to about $5 trillion a day, and no central bank or even combination of central banks can any longer effectively intervene to determine how that trading moves. When France elected a socialist government in 1981, and that government instituted traditional socialist policies, currency traders immediately began savaging the franc on world markets until the French government had no choice but to reverse course.
Today, whether individuals like it or not, the world is moving toward that singular blessing for society as a whole that Adam Smith was instrumental in giving the United States two hundred years ago, a borderless marketplace. But it will happen even sooner if we remember Smith’s most profound lesson: that the greatest enemy of capitalism is always the short-term self-interest of capitalists and, in our day if not in Smith’s, unions and those in government who protect and promote their special interests.
So far, despite intense political pressure to look after the few who fear competition rather than the many who will thrive on its effects, the United States is still leading the way. In 1988 we established a free-trade area with Canada. In 1992 Mexico joined what will be, when it is fully implemented, a North American common market of 365 million people. The latest round (the fifth) of negotiations on the General Agreement on Tariffs and Trade is nearly complete it will do much to stimulate trade in services and intellectual property and foster the agricultural exports of Third World countries, strengthening their demand for manufactured imports.
A global economy is already a reality. If this country continues to lend its active support to a world wholly without economic borders, it will turn out that America’s Smithian inheritance will be the greatest of all our exports.
NAFTA signed into law
The North American Free Trade Agreement (NAFTA) is signed into law by President Bill Clinton. Clinton said he hoped the agreement would encourage other nations to work toward a broader world-trade pact.
NAFTA, a trade pact between the United States, Canada and Mexico, eliminated virtually all tariffs and trade restrictions between the three nations. The passage of NAFTA was one of Clinton’s first major victories as the first Democratic president in 12 years—though the movement for free trade in North America had begun as a Republican initiative.
During its planning stages, NAFTA was heavily criticized by Reform Party presidential candidate Ross Perot, who argued that if NAFTA was passed, Americans would hear a “giant sucking sound” of American companies fleeing the United States for Mexico, where employees would work for less pay and without benefits. The pact, which took effect on January 1, 1994, created the world’s largest free-trade zone.
The Role of the WTO in Trade Agreements
Once agreements move beyond the regional level, they need help. The World Trade Organization steps in at that point. This international body helps negotiate and enforce global trade agreements.
The world almost received greater free trade from the next round, known as the Doha Round Trade Agreement. If successful, Doha would have reduced tariffs across the board for all WTO members.
Doha round talks were on and off for over a decade, and the reasons for their failure are complex. Many of the issues hinged on the two most powerful economies—the U.S. and the EU. Both resisted lowering farm subsidies, which would have made their food export prices lower than those in many emerging market countries. Low food prices would have put many local farmers out of business. The U.S. and EU refusals to cut subsidies, among other issues, doomed the Doha round.
The failure of Doha allowed China to gain a global trade foothold. It has signed bilateral trade agreements with dozens of countries in Africa, Asia, and Latin America. Chinese companies receive rights to develop the country's oil and other commodities. In return, China provides loans and technical or business support.
History shows that free trade and farming don’t mix - Andrew Arbuckle
The politicians were ecstatic. Manufacturers were exporting record numbers of trains, boats and almost every other bit of machinery and, in return, cheap food was being imported. The population – their voters – were being fed cheaply and everyone, apart from the farmers, was happy.
Those with longer memories would recall, there had been another burst of enthusiasm for tariff free trade three decades earlier at the beginning of the 20th century.
Again, farmers in this country suffered as shiploads of frozen lamb were brought in from the other side of the world. Beef was imported from South America in large volumes and wheat from across the Atlantic poured into silos in docks up and down the west coast of the country.
These depressing times were not one-year wonders with low prices encouraging what was called ‘dog and stick’ farming as farmers cut their costs. There was year after year of sale prices being less than the cost of production.
Although it may seem impossible to believe nowadays, such was the downtrodden state of farming in the 1930s that landlords of good arable land in counties such as Essex, Norfolk and Suffolk were letting land rent free provided the tenant did no more than look after the land.
Back in those days, the recently formed farming unions organised massive rallies up and down the country objecting to the importation of food that undercut the home market.
One strong rallying point at these demonstrations was the highlighting of oats being imported from Germany where only a decade earlier the two nations had waged war across the trenches.
In both these periods of depression, the recovery came slowly and, in both cases the major uplift in farm prices came mainly as a result of war. By sinking thousands of tons of food heading to these shores, German battleships interrupted the free trade policy and helped re-value home production of food.
With that history, it is small wonder that there is great scepticism that free unfettered trade will now bring joy and profitability to agriculture in this country.
And yet that is what we are facing as we have a free trade biased UK government intent on driving new deals regularly involving the importation of food. The food involvement often being no more than a ‘make weight’ in a complex deal.
With a gleam in his eye, Prime Minister Boris Johnson has declared free trade to be a good thing and while his sidekick, Trade Minister, Liz Truss, an unlamented Environment Minister of not so long ago, may not have a gleam in her eye, she is approaching her mission of opening trade across the globe with a messianic zeal.
It is also worrying that when questioned on previous promises they have made to farmers, they and other politicians of the same ilk, tend to pat the primary producers in this country gently on the head and say, “Dinna fash yourselves.”
They know, and it is proven by slogans such as were written on the side of buses, that fibs can be told if they help to achieve the primary goal. All that is needed is a hand ruffling through deliberately dishevelled hair and an answer to a completely different question.
It is therefore quite natural that farmers are worried. No longer do they have the shelter provided by the EU and promises that were made when this country came out of the Common Market that future trade deals would be easy peasy seem of another world.
There seems little the farming community can do to mitigate the gloomy outlook. The industry no longer has the political clout it once had.
The future of farming may lie less in providing food and more in meeting less tangible targets such as cutting carbon emissions.