Trade Is Not a Four-Letter Word

How Six Everyday Products Make the Case for Trade

Fred P. Hochberg

• Publisher: Avid Reader Press / Simon & Schuster
• Year: 2020
• ISBN:
  9781982127381
• Topic: Politica e relazioni internazionali
• Subtopic: Commercio e tariffe

"A sprightly and clear-eyed testimonial to the value of globalization" ( The Wall Street Journ al ) as seen through six surprising everyday goods—the taco salad, the Honda Odyssey, the banana, the iPhone, the college degree, and the blockbuster HBO series Game of Thrones. Trade allows us to sell what we produce at home and purchase what we don't. It lowers prices and gives us greater variety and innovation. Yet understanding our place in the global trade network is rarely simple. Trade has become an easy excuse for struggling economies, a scapegoat for our failures to adapt to a changing world, and—for many Americans on both the right and the left—nothing short of a four-letter word.But as Fred P. Hochberg reminds us, trade is easier to understand than we commonly think. In Trade Is Not a Four-Letter Word, you'll learn how NAFTA became a populist punching bag on both sides of the aisle. You'll learn how Americans can avoid the grim specter of the $10 banana. And you'll finally discover the truth about whether or not, as President Trump has famously tweeted, "trade wars are good and easy to win." (Spoiler alert—they aren't.)Hochberg debunks common trade myths by pulling back the curtain on six everyday products, each with a surprising story to tell: the taco salad, the Honda Odyssey, the banana, the iPhone, the college degree, and the smash hit HBO series Game of Thrones. Behind these six examples are stories that help explain not only how trade has shaped our lives so far but also how we can use trade to build a better future for our own families, for America, and for the world. Trade Is Not a Four-Letter Word is the antidote to today's acronym-laden trade jargon pitched to voters with simple promises that rarely play out so one-dimensionally. Packed with colorful examples and highly digestible explanations, Trade Is Not a Four-Letter Word is "an accessible, necessary book that will increase our understanding of trade and economic policies and the ways in which they impact our daily lives" ( Library Journal, starred review).

PART ONE CLEARING THE AIR

CHAPTER 1 The Rockies, the Rockys, and 300 Years of American Trade

Trade does not exist in a vacuum, despite the fact that American companies export more than $7 billion worth of vacuum parts each year¹—so in order to understand it, we have to first understand the historical and political atmosphere swirling all around it. That might be easier if it operated along the simpler lines that we associate with other types of trading, such as the deals that happen between sports teams. If the Rockies need a pitcher and the White Sox have a surplus, they might work out a deal that creates a benefit for both squads—drawing from each other’s stronger resources to shore up weaker sectors. But global trade is complicated by both domestic politics and geopolitics; the North American Free Trade Agreement, for example, was as much about immigration, regional security, and stopping the flow of illegal drugs as it was about swapping imports and exports. If the Yankees were hell-bent on stopping the influence of the Reds from spreading—or if the Royals were required by law to send their shortstops to as many markets as possible—trading in baseball would be a much trickier affair. As it turns out, however, the simple trades of baseball have little in common with global economic trade, apart from the occasional historic relevance of Pirates.

Before we can tackle the most important trade issue of this century (China) we need to wrap our minds around what exactly trade is. To do that, we should begin by recognizing that trade is a tool—and, like any tool, we can’t fully appreciate it unless we know what it’s being used to accomplish. Naturally, it can be employed to meet domestic demand for particular goods like oil, milk, and steel; in fact, this most basic rationale for trade remains among its most vital uses. Adam Smith, known as the “Father of Economics,” articulated the underpinnings of this idea back in 1776: “If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.” This was pretty novel thinking back in Smith’s day! Thanks to David Ricardo, a British economist who later fleshed out the concept, Smith’s idea would come to be known as “the principle of comparative advantage.” The concept of comparative advantage is the basis for why modern economists—as one of them, MIT’s David Autor, expressed it to me—have “almost a religious belief that trade is good.” We’ve learned as a society that trade is good in the aggregate—but that isn’t always the case in every individual community.

Nearly as often today, though, trade is wielded as a tool not only of economics, but of security, politics, and diplomacy. It can be used to exert leadership in a strategically important part of the world, manage relationships between regions, keep the peace with precarious regimes, and spread (or halt the spread of) ideologies. While politicians like to insist to folks back home that free trade agreements are all about creating good-paying jobs and saving industries, the reality is that these effects are often secondary concerns for the governments involved—some of the time, all that truly matters to them is which nations signed the agreement, and who got left out.

To wrap our minds around why and how we use trade in the United States today, we need to understand the larger forces that have shaped American trade policy over the course of the last three centuries. If that sounds daunting, fear not! It’s actually remarkably simple, and you’ll be done in just a couple dozen pages. In fact, it only requires us to appreciate two factors—the two factors that explain virtually everything about U.S. trade policy.

The first factor is so achingly simple that you’ll kick yourself for not thinking of it by the end of this sentence (time’s up). It’s geography—and, more specifically, the unique location and environmental circumstances of the North American continent. Throughout modern history, the world powers of Europe have had to conduct diplomacy and trade beset by close neighbors—often powers in their own right—and without the full breadth of natural resources necessary to sustain a thriving society. Isolation isn’t an option if there are mountains where you were planning to plant your wheat fields, and handling your international relationships requires a bit more finesse when a spurned nation could show up at your front door (with less than friendly intentions) at any moment. So while Europe learned to trade in a world of interdependency and close quarters, America did so in a world of self-reliance and humongous oceans.

At times, our pride in that self-reliance has been a fiction—much of our early economic growth in the South, for example, was only possible because of the violent, involuntary importation of human beings we then forced into slave labor. But it’s a story we’ve held on to nonetheless, instilling an isolationist bent into our thinking. From our colonial days to westward expansion and onward through the generations, relying on ourselves and on our own land has been central to the American ethos. And while the attack on Pearl Harbor may have snapped us out of our isolationism for the seventy years that followed, it remains to be seen whether World War II truly altered our national DNA—or whether the impact was merely temporary. Our capacity for self-reliance is indeed immense, at least in theory; if all worldwide trade were to cease this very moment, the United States would arguably be the only country on earth with the diversity of innate resources needed to survive and succeed for the long haul. As we’ll see, these geographic quirks of remoteness and abundance have meant that—for better or worse—America has always had the option of withdrawing from the world when it comes to trade. And while we could do better than anyone else if we were to isolate ourselves, that freedom could also be seen as a curse: as we’ll explore throughout our story, it probably wouldn’t lead to a strong economy or a very fulfilling existence.

The second factor that explains U.S. trade policy takes slightly longer to explain—but once you make it to the end of the chapter, you’ll be a bona fide expert on the whole history of American foreign trade. For this one, we’ll trade out the Rockies for the Rockys. The element that earned Sylvester Stallone’s celebrated boxing franchise nearly $2 billion and made it an enduring part of the culture is the same element that helps explain why America has approached trade in the way that we have ever since the days of fur trappers, armadas, and Plymouth Rock, straight through to the days of Donald Trump. That element? Having an enemy—a long string of compelling arch-nemeses.

While it’s true that, in every period of our history, America has proactively pursued trade policies to advance specific goals of our own, it’s also true that those goals were largely born as reactions to the specter of some rival power. Rocky Balboa’s entire story was that of a great champion for whom every career move—to fight, to retire, to emerge from retirement, to develop others, and so on—was triggered by the behavior of his opponents. Like America’s early relationship with Great Britain, Rocky’s first great nemesis, Apollo Creed, would go on to become a close ally. Like Rocky, America was compelled to reenter the international arena as the Soviet threat gained steam. Every step of the way, the actions of both Rocky and America were motivated by a series of external threats—and, at times, a little inner turmoil, too.

By taking a closer look at the rivalries that scared and spurred America through the years, we can better understand the central role that trade has come to play in our politics. More importantly, we can learn something crucial about the role trade can—and should—play in the century ahead. Before we do that, though, an important disclaimer: this is the short version of the story. Three centuries is a long time, and history has many mothers and fathers whom we won’t be meeting in this chapter. So yes, in the interest of your interest, we’re going to be jumping around a bit from one critical moment to the next—leaving out a little nuance and a lot of detail, but preserving the big picture. Fear not! There are plenty of great books out there that dig deeply into American economic history. For now, though, let’s just cover the episodes we need to know.

Arch-Nemesis #1: Great Britain

Borrowing one last time from Rocky, our story begins in ’75 in downtown Philadelphia. That would be 1775, more precisely, at a time when the Second Continental Congress was grappling with the question of what to do about escalating tensions between the thirteen American colonies and their ruling government in London. In the dozen years that had passed since Britain’s coffers were depleted by the Seven Years’ War, the British Crown had attempted to raise revenue by imposing increasingly severe taxes on its subjects across the Atlantic—a tactic that riled the colonists, who had no representatives in Parliament to stand up for their interests. These taxes lit a fuse that led to protests in the streets of American cities, inspired Samuel Adams and his compatriots to form the Sons of Liberty, and incited the Boston Massacre. As King George III used his trade policy to siphon money away from America, angry groups of colonists retaliated through a series of public actions; the most notable of these was the famous Boston Tea Party, when 342 chests of tea were liberated from ships of the East India Company and unceremoniously dumped into the harbor.

You know the rest. The Battle of Lexington and Concord is waged in 1775, and the Congress in Philadelphia drafts up its Declaration of Independence, laying out the reasons for their desired separation—including, among a litany of grievances, “For cutting off our Trade with all parts of the world” even before the first mention of taxation without representation. And so it was that America was born: the child of a bloody, righteous revolution, conceived in bitter anger, embroiled by the sexiest and hottest-button of all issues known to humankind: import duties!

It isn’t hyperbole to say that trade was on the mind of America from the moment of its birth. In fact, once the Constitution was ratified, the very first major act of the U.S. Congress was to put a tariff in place to help pay off war debts and protect fledgling American manufacturers against cheaper British imports—the brainchild of Alexander Hamilton, years before his Broadway hip-hop career took flight (as a reminder for those who shamefully skipped the introduction, tariffs are taxes a country places on its own citizens for purchasing designated foreign goods; in essence, they hike up the prices of imported products in order to encourage people to buy domestic products instead). The Tariff of 1789 set off a debate that would play an enormous role in shaping American politics for the next 125 years: it pit those like Hamilton, who wanted to use tariffs strategically to protect U.S. industries, against those like Thomas Jefferson, who believed that tariffs should be kept low and only used to raise revenue to fund the government (remember, there was no income tax yet).

As debates go, it would be fair to look at this one and consider it more than a little wonky. But at the heart of the disagreement was a fundamental rift that has echoed throughout our history, right through until today. By pushing policies that insulated U.S. manufacturers from competition, Hamilton was representing the interests of cities in the North. But an estimated 90 percent of the economy came from agriculture—by fighting to limit tariffs, Jefferson was speaking for the rice, tobacco, and cotton farmers of the South, who exported a healthy share of their crop to feed the appetites and addictions of Europe. This dynamic, and the question of whether our trade policy should primarily serve the interests of urban or rural Americans, has persisted even as our agricultural economy has given way first to industrialization and, more recently, to the age of digital services.

But we’re getting ahead of ourselves. After Hamilton wins the argument, the country enters an era of high tariffs designed to keep otherwise low-cost British imports from snuffing out American-made goods (for enforcement, they create a roving tariff collection force in 1790 that would come to be known as the United States Coast Guard). Even Jefferson ultimately comes around to the idea that the U.S. must produce more than just crops to survive, and for a time protectionism (along with the Atlantic Ocean) gives young industries like textiles and iron a chance to get on their feet. With our cities thriving and our federal government well-funded by sky-high import duties, we never anticipated—just as you haven’t here—that our story would be abruptly interrupted by Napoleon.

Yes, Napoleon! When the French emperor decides that he wants to conquer Europe, America’s chief rival, Britain, gets thrust into yet another costly war. Starved for resources, the British begin seizing cargo from American ships—they even seize the sailors, and impress them into service on behalf of their former king. Jefferson, now the president, faces enormous pressure to respond either militarily or economically, and opts for the latter, signing an embargo in 1807 to block the importation of British goods. The hope is that depriving the Brits of their American customers will cause King George to change his ways—but one of the benefits of being an empire is that you’re never beholden to any one market. The Crown upped its exports to South America to make up for the lost cash, and without imports to tax, it was the United States that found itself in dire financial straits. With economic warfare having backfired spectacularly, America decides to go back to original-recipe warfare by taking up arms against Britain in the aptly named War of 1812.

Three years later, our country had little to show for that choice but an empty Treasury and an extra-crispy White House. Britain, too, was gaining nothing from the hostilities, and the two sides stood down in the hopes of restoring their relationship. The period of isolation exacerbated by the war had caused the American economy to move in two different directions: with imports limited, the North had the chance to escalate its manufacturing output and nurture its industries—while the South floundered without overseas markets in which to sell its crops. With the U.S. short on funds and still reliant on tariffs for about 90 percent of its revenue, new import duties were put in place in the wake of the war to restock the national purse. With the British threat having subsided, a new period of relative national unity known as the “Era of Good Feelings” took root. Spoiler alert: it wouldn’t last.

Arch-Nemesis #2: Ourselves

As Hamlet, Dr. Freud, or Dr. Jekyll could tell you, not every great conflict requires a second actor. And so it was that having thawed our relations with Europe after the War of 1812, our next defining rivalry came from within. The high tariffs instituted to raise money after the war continued to perk up northern factories while hamstringing southern plantations, adding fuel to the fire as the nation began to fracture over the issue of slavery. Industrial interests weren’t just gaining capacity and cash—they were gaining ever more political power, too. Each additional tariff further widened the gulf between the economies of the South and the North, the latter of which ingeniously used the money collected from tariffs to build infrastructure in every new western state that joined the Union, cementing their allegiance.

The situation came to a head in the election year of 1828, when President John Quincy Adams signed what would come to be dubbed by its detractors, a bit histrionically, as the “Tariff of Abominations.” This new law placed a flat tax of 38 percent on nearly every imported good, a burden so onerous that America’s new best friend, Britain, retaliated by scaling back on its own importing of American cotton—a further blow against the South. By the time the tariffs went into effect, the voters had already swept a new president into office: a charismatic southern populist riding a wave of anti-northern (and anti-tariff) sentiment to victory in the South and West.

On paper, Andrew Jackson should have been just what the doctor ord...