Revisiting U.S. Trade Policy: Decisions in Perspective

Published by EH.NET (December 2001)

Alfred E. Eckes, Jr., editor, Revisiting U.S. Trade Policy: Decisions in Perspective. Athens, OH: Ohio University Press, 2000. xix + 184 pp. $35 (hardback), ISBN: 0-8214-1323-6.

Reviewed for EH.NET by James Gerber, Department of Economics, San Diego State University.

Revisiting U.S. Trade Policy: Decisions in Perspective by Alfred E. Eckes, Jr., consists of three transcripts of roundtable discussions of U.S. trade policy after World War II. Eckes is the Ohio Eminent Research Professor in Contemporary History at Ohio University and is a former Commissioner and Chairman of the U.S. International Trade Commission. Eckes and the U.S. International Trade Commission Historical Society (a private organization) brought together U.S. policymakers, academics, and journalists, most of whom participated in multilateral negotiations during the 1940s, 1960s, and 1970s. Participants are heavily weighted towards policymakers drawn from the State Department, the Special Trade Representative’s (STR) office, the Agriculture Department, and various other cabinet level offices.

The transcripts cover three roundtable discussions, each with a different set of participants, and each focused on one of three topics: the creation of the General Agreement on Tariffs and Trade (GATT) after World War II, the Kennedy Round (1963 67), and the Tokyo Round (1973-79) of the GATT negotiations. These were the most important negotiating rounds prior to the too-recent-to-assess Uruguay Round (1986-93). The Kennedy Round shifted from an approach that negotiated tariff cuts on an industry-by-industry basis to an across-the-board basis, and the Tokyo Round was the first to include non-tariff barriers such as subsidies and dumping.

This is not a history of U.S. trade policy, and the roundtable format lurches about, from chicken parts and canned hams, to American Selling Price and Domestic International Sales Corporations. Anyone not familiar with the jargon and the history of post-World War II trade negotiations would do well to seek out some background material before taking up this book and even those familiar with the legal and institutional detail may be hazy on some of the issues discussed. The book would benefit greatly from the inclusion of a glossary of trade terms. Nevertheless, Eckes has opened an interesting window on trade policymaking in the trenches — that is, at a level just below cabinet secretaries, White House staff, and Congressional leaders.

During their trade policy careers, the participants were usually handed a general policy goal of more-or-less gradual market liberalization, and sent out to negotiate. There were policy nuances and constraints, depending on the geopolitical goals of the decade, the industry in question, and the overall objective of the negotiations, but in general, their marching orders were to move liberalization forward.

While some of the participants are professional economists, most are lawyers and career civil servants. Based on the discussions alone, it is not clear if a majority understand the difference between absolute and comparative advantage, or consumer and producer surplus, or any of the other basic concepts that fill textbooks on international trade. The idea that open markets raise living standards and are therefore desirable in their own right does not motivate much of the discussion. Economists might wonder if this matters or not, since the participants were instrumental in creating and navigating a system that allowed world trade to expand over the last fifty years at approximately twice the rate of growth of world output. Not a bad job, indeed.

In the current debate over fast-track and the use of trade sanctions to enforce labor and environmental standards, it is sobering to be reminded that trade policy has always been more about politics and marketing than it is about economics. Michael Blumenthal (deputy special trade representative in Geneva during the Kennedy Round, and Secretary of the Treasury during the Tokyo Round) recounts that few policymakers grasped the fundamentals of economics or the relationship of economics to politics. Henry Kissinger, he relates, expressed the view that economics was a topic for the quartermaster general while he (Kissinger) had more important issues on his agenda. Robert Strauss, United States Trade Representative under President Carter (Tokyo Round), admits that “my colleagues mastered the subject and I think I mastered the politics of how you start and move a set of negotiations” (p.115). In Strauss’ view, mastering the subject was as much the details of sectoral rules as it was the politics of trading off openings in one sector in order to win support from industries that could pull others into the market liberalization camp, or the art of forming alliances with specific regions (e.g., the European Community), in order to overwhelm the opposition.

The marketing view comes through clearly in the comments of Alonzo McDonald. McDonald left a job as managing director of McKinsey and Company to become the deputy trade negotiator in charge of the U.S. Geneva delegation during the Tokyo Round. He describes how he managed to effectively sell American views and negotiating positions, both to domestic and international interests, by employing business lobbying strategies, including all night negotiating sessions (unheard of in government circles) and frequent dinner parties. McDonald is unusual in that he clearly articulates his objective: reduce the level of risk that businesses perceive when they consider entering international markets.

More prominent is the view that market liberalization was not an end in itself, but rather a means to achieving U.S. geopolitical goals, a weapon in the Cold War against Soviet communism. Several participants state this view, and in this regard, it is useful to remember that trade negotiations were handled by the State Department until the Trade Expansion Act of 1962, which authorized the Kennedy Round negotiations and created the Special Trade Representative position. It would be interesting to know the views of some of the participants about U.S. trade policy in a post-Cold War era, but unfortunately, that topic is out of their view.

Oddly, it seems that the specific objectives of the negotiators — whether geopolitical or in support of special interests — appear to have been irrelevant, and that what mattered most over the long run was the very general goal of market liberalization. It may be a second best world, but it is one that expanded trade dramatically. Regardless of the tradeoffs and the concessions to specific industries (e.g., textiles and steel repeatedly come up as effective at demanding special treatment), the lesson seems to be that a pragmatic, politically astute, piecemeal effort appears most effective over the long run in generating movement toward market openings, expanded trade, and the benefits of trade.

This is a useful point given the present U.S. difficulties in negotiating new agreements. During the last decade, new issues crowded onto the U.S. agenda, labor and environmental standards in particular, while the absence of a broad-based understanding of the benefits of expanded trade seems to have complicated the politics. There are lessons here, as well, since in the long run, labor and environmental issues appear to be a new form of the old demand for reciprocity. Participants describe the difficulties faced by the Kennedy Round negotiators when tariff cuts were across-the-board rather than industry-by-industry, and as a consequence, much harder to sell as reciprocal cuts. Demands by politicians and the electorate to see estimates of the number of jobs created begin with the Kennedy Round, and the notion that we might not gain as many jobs as another country is politically problematic. Some of the participants lament the need to play a neo-mercantilist numbers game, and some are realistic in their recognition that estimates of job gains and losses are mostly fantasy numbers, but others see it as a necessary evil, or even one that provides useful information to politicians and the voting public. While some of the participants argue eloquently that the bottom line should be the national interest, the idea that trade raises national living standards and that this is the reason to support market liberalization appears to be of little political value in selling trade negotiations to a skeptical Congress and electorate. Trade, perhaps more than most topics, illustrates Tip O’Neill’s maxim that all politics is local.

The conversation ranges over a large number of topics, some arcane and some profound. There are surprises, for example the seemingly uniform perception of Japan as a free rider in the multilateral system, and the way the GATT was sold to Congress as a U.S. treaty obligation even though there was never a vote to ratify. Other topics are well known but worth remembering, for example the roles of Brazil and India as leaders of the developing country bloc, and the historical importance of Cordell Hull in the formulation of an American trade policy favoring greater market liberalization. For scholars researching twentieth-century U.S. trade policy, this will be a fascinating and valuable resource.

Jim Gerber is author of International Economics (second edition) published by Addison Wesley.