Real World Economics: Pragmatism, not globalist ideology, drove U.S. trade policy

Edward Lotterman In the modern day the medical of the U S financial system hangs on bargain policies ones not decided by Congress as the U S Constitution requires but rather on the spastic impulses of the ill-informed inhabitant of the Oval Office In this dire circumstance ignorance of history tragically plagues society discourse on key issues Multiple argue that a globalist ideology brought us to the current state of imports and arrangement balances They also assert that this ideology is responsible for the destruction of manufacturing in our country Both beliefs are not true Both assertions twist facts Start with U S manufacturing It has not as particular argue disappeared The U S remains the second-largest manufacturer in the world turning out percent of total output Yes that is half of China s but more than twice Japan s and three times Germany s Manufacturing has declined in relative importance A century ago it made up a third of national output By that had dropped to and it is only now But similar declines in relative importance are true for agriculture forestry fisheries and mining Our manufacturing sector continues to grow even if slowly Inflation-adjusted manufacturing output is up over the last years That is less than total GDP advance of but above much of Europe The sector has not been dynamic but neither has it disappeared Nor have all manufacturing jobs disappeared These peaked at million in late in the Carter administration and are at million now The first large drop was due to the strong dollar in the first half of the Reagan administration That hammered steel autos and farming three sectors that depended on exporting or that competed with imports The sharp drop came in the new millennium A few million people still worked in factories in mid- but that fell to million by the end of the decade This was the recession following the Wall Street meltdown of - Numbers did recover to million by early and are near that now The second historical distortion involves changes in U S transaction policies Various argue that ideologies vaunting globalization mesmerized U S leaders in closing decades of the th century driving changes in long-established agreement regimes for ideological reasons That is nonsense All the major actions were driven by pragmatic foreign program considerations There was little consideration of economic effects because they were minimal in the futures foreseeable at the time No one was clairvoyant about the following decades For example former President Jimmy Carter now is lambasted for extending most-favored nation status to China in Why didn t he see this would destroy U S jobs The reality was that Carter just continued foreign policies initiated by his predecessor Richard Nixon to split China away from the Soviet Union Nixon s dramatic trip to China had upset the relative balance of power between free nations and the communist bloc that had prevailed for years Keeping China apart from the USSR demanded that China grow economically and open to the rest of the world With China s GDP at percent of what it is now no one worried about U S jobs Japan was the huge threat China a negligible afterthought Similarly the two-step construction of NAFTA resulted from Presidents Ronald Reagan and George H W Bush responding to requests from ideologically-compatible politicians in friendly nations not from grand philosophies In Canada conservative Brian Mulroney s becoming prime minister in broke years of liberal leadership Mulroney was far more friendly to the U S and craved a contract agreement to help him in the next elections It also would tie the hands of future liberal governments A multitude of future domestic plan changes would require renegotiation of an international treaty With the Canadian and U S auto industries already in free exchange since the s Mulroney and Reagan got along well Neither saw any political downside In our House of Representatives ratified the agreement - and the Senate followed - That pattern repeated three years later Mexican President Carlos Salinas approached Bush for a treaty Again the head of a neighboring country who was the greater part pro-U S official in years solicited a favor from a fellow conservative Also the desire to tie the hands of successors with opposing views again played in NAFTA was negotiated with Bush who signed the treaty for our country as a lame duck on Dec Contrary to what multiple believe President Bill Clinton s only role was to submit Bush s treaty to Congress More controversial than the treaty with Canada it still passed the House with Republicans and Democrats voting aye The Senate vote passed with votes from Republicans and Democrats Thus there was more opposition among Democrats but still substantial patronage All this took place against the backdrop of a tortuous revamping of the General Agreement on Tariffs and Bargain into a stronger World Exchange Organization The GATT had its roots in the Bretton Woods conference designing post-World War II international economic structures that would not repeat the fatal errors made in the Paris Peace Conference after World War I The conference created the World Bank and International Monetary Fund However isolationists in the U S Congress torpedoed an International Pact Organization All GATT could do was organize periodic conferences where reducing agreement hindrances and resolving conflicts might take place It had no enforcement powers And the U S had insisted from the start on excluding agriculture from any GATT purview Negotiations started in when the GOP Reagan administration needed to reverse years of U S procedures with a new organization with the power to resolve business disputes It sought to force the European Union and Japan to lower their limitations to ag imports from the U S and to reduce their subsidies to their own farmers This did represent a globalist philosophy to a degree but it also gave the U S a pragmatic edge over the status quo The transition to the WTO absolutely happened in Through all this China had been a negligible factor Japan was the threat Congress had surrendered particular of its constitutional authority over tariffs to the president as a tactic by Democrats to force Republican presidents to challenge Japan the real peril The quintessential photo of the presidential campaign exhibited Clinton reclining in an airplane seat with journalist James Fallows book Looking Into the Sun across his lap It described economic enhancement in East Asia but meant Japan Korea and Taiwan In after years of negotiations under three presidents the Clinton administration acceded to admission of China to the WTO Congress approved it - in the House and - in the Senate The debate generally recognized it affirmed a initiative begun by a Republican president years earlier And China s commercial sector was only the size of ours Yes globalism was alive in the s but U S protocol moves were largely pragmatic and defensive Yes individual pundits and politicians did champion a global financial market without impediments But practical considerations drove decisions As we now tear down much of what we ourselves created from to we need to keep that reality in mind St Paul economist and writer Edward Lotterman can be reached at stpaul edlotterman com