Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
BREWING FINANCIAL CRISIS 2.0 Suggests RECESSION 2022 - 28th Jan 22
Financial Stocks Sector ETF XLF $37.50 Continues To Present Opportunities - 28th Jan 22
Stock Market Rushing Headlong - 28th Jan 22
The right way to play Climate Change Investing (not green energy stocks) - 28th Jan 22
Why Most Investors LOST Money by Investing in ARK FUNDS - 27th Jan 22
The “play-to-earn” trend taking the crypto world by storm - 27th Jan 22
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Kennedy’s Blunder, or How Free Trade Turned Sour for America

Politics / US Politics Mar 16, 2011 - 05:11 AM GMT

By: Ian_Fletcher

Politics

How did America end up in its present trade pickle? NAFTA? No way. The WTO? I wish. To understand our present predicament, you need to go back much further than that.

In retrospect, America’s decisive wrong turn on trade was probably John F. Kennedy’s Trade Expansion Act of 1962.


Quantitatively, the so-called Kennedy Round of tariff cuts was large enough to be noticed, but not earth-shaking: as this legislation was phased in, our average duty on dutiable imports fell from 14.3 percent in 1967 to 9.9 percent in 1972.

But this was one of history’s small yet decisive turning points, occurring as it did at the same moment that America’s trading partners were getting into high gear economically and the 1944-71 Bretton Woods system of fixed exchange rates was beginning to falter.

And tariff cuts were exceptionally steep on high technology goods, increasing their impact. It mattered that we were letting Japan, for example, even further into our market for serious manufactured goods like cars and electronics.

Furthermore, the Trade Expansion Act should be evaluated not simply in terms of its before and after tariff levels, but contrasted with the alternative of turning back from free trade, which is what we should have done.

There were certainly warnings at the time. The famous liberal economist John Kenneth Galbraith bluntly told President Johnson in 1964,

“If we are screwed on tariffs, this will have an enduringly adverse effect on the balance of payments. It will be a serious problem for years to come.”

Prescient.

And, lo and behold, the first serious trade-related cracks in the American economy began to appear in the late 1960s. Black-and-white television production left for Japan. So did cameras, transistor radios, and toys.

Our trade went into deficit in 1971. We have not run a surplus since 1975.

There has, of course, been a simmering revolt against free trade ever since. Organized labor, which had actually supported the Kennedy tariff cuts when proposed in 1962, turned against free trade by the end of the decade.

In 1968, Senators Ernest Hollings (D-SC) and Norris Cotton (R-NH) managed to pass a protectionist trade bill in the Senate with 68 votes. President Johnson had it killed by House Ways and Means Committee chairman Wilbur Mills. 1969 saw the first consideration, by Commerce Secretary Maurice Stans, of creating an American agency to coordinate industrial policy. Nixon abandoned the effort for lack of Congressional support.

In 1971, a trade deficit of one-half of one percent of GDP (about a tenth of today’s level) was enough to frighten Nixon into imposing a temporary 10 percent surcharge tariff on all dutiable goods. In 1972, the AFL-CIO endorsed the Burke-Hartke bill, which would have imposed quotas on imports in threatened industries and restricted the export of capital by multinational corporations.

But free trade survived all these challenges. Fundamentally, protectionist forces in Congress fumbled the ball. In the words of one scholar describing the failure of the big protectionist push in the last days of the Nixon administration:

Even in Congress, protectionist industries failed to utilize their potential resources. During negotiations over general trade bills in Congress, protectionists exerted weak influence because they lacked an umbrella association to represent them. Instead, protectionists were divided along industrial lines, each promoting its own distinct objectives….The logic of selective protectionism did not encourage industries to cooperate with each other, since the chances for congressional support increased if protectionist bills were narrowly constructed. In addition, protectionist industries did not cooperate with organized labor. [Nitsan Chorev, Remaking U.S. Trade Policy]

The failure of this protectionist effort carries important lessons for tactical thinking about free trade today. Sen. Hollings tried again under President Carter, but Carter preferred the Cold War priority of free trade. Ronald Reagan vetoed two protectionist trade bills, in 1985 and 1988. George H.W. Bush vetoed one, in 1990.

It is not yet too late to turn back from our disastrous free trade experiment, but the longer we wait, the higher the cost will be.

Ian Fletcher is the author of the new book Free Trade Doesn’t Work: What Should Replace It and Why (USBIC, $24.95)  He is an Adjunct Fellow at the San Francisco office of the U.S. Business and Industry Council, a Washington think tank founded in 1933.  He was previously an economist in private practice, mostly serving hedge funds and private equity firms. He may be contacted at ian.fletcher@usbic.net.

© 2011 Copyright  Ian Fletcher - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in