WASHINGTON, DC –In a tweet that reads like “Newspeak” from Orwell’s 1984, President Trump declares: “Trade wars are good, and easy to win.”
In truth, of course, both assertions are dangerously wrong, though emblematic of the president’s contempt for the system of trade rules built under American leadership out of the wreckage of war to bring economic stability and prevent trade wars. Trump’s take on trade is an old refrain. On election night 2016, he promised: “The forgotten man will never be forgotten again.” His populist rhetoric isn’t original. He has borrowed an old fraud used on the working class for political purposes and simply repackaged it for a modern sale.
Throughout the Gilded Age, from the end of the Civil War to the beginning of the Great Depression, monopolist robber barons colluded with corrupt politicians to maintain prohibitive tariffs under the plea that import protection was needed for the prosperity of the workingman. As the argument went, even marginally lower tariff rates—often exaggerated as “free trade”—would lead to the “pauper wages” of Europe. Generations of industry lobbyists and plutocrats have obtained protection from government under the pretense of helping the working class.
President Trump often reminds audiences that he attended the prestigious Wharton Business School. Its founder was a prominent robber baron of the Gilded Age, Joseph Wharton, who skillfully manipulated Congress and Republican presidents to support and safeguard his own monopolies. In the plan for the Wharton School, he demanded the faculty teach its students that “the right and duty of national self-protection” must be asserted with apologies to no one. If this concept of America First protectionism was still the rule when the president attended Wharton, he learned his lessons well.
The benefits of protectionism, however, were never learned by the workers. After a half century of protectionist trade policies promoted in the name of American labor, wage earners in protected industries saw little or no benefit from high tariffs. In fact, workers in all industries saw only higher prices from these policies. Income inequality and labor strife reached historic levels in the final decades of the 19th century.
Andrew Carnegie’s Homestead Steel Works reduced wages for its employees in 1892, a pay cut that sparked the worst labor battle in history—with 13 deaths and 100 wounded. Carnegie defended the inequitable sharing of protectionist profits: “The millionaire will be but a trustee for the poor . . . administering [the wealth] for the community far better than it could or would have done for itself.”
From the Gilded Age through the summit of protection, the infamous Smoot-Hawley Tariff Act of 1930, most workers and political progressives opposed protective tariffs as unfair taxes that only benefited capital and added to the cost of living of the middle and working classes. Very early, organized labor adopted a position of neutrality on trade protectionism, and increasingly favored trade liberalism during the Great Depression.
During the interwar years, labor consistently supported the persistent efforts of Secretary of State Cordell Hull, under FDR, to end the trade wars and create a new liberal trade order. With the creation of the General Agreement on Tariffs and Trade (GATT) in 1947, organized labor proposed including international labor standards and full employment goals in trade agreements. Business lobbyists, however, strongly resisted including labor and employment language in new trade agreements, and in 1950, they blocked Congressional approval of the proposed International Trade Organization, arguing that its provisions on labor and employment would lead to socialism.
In 1962, AFL-CIO President George Meany endorsed JFK’s Trade Expansion Act, which proved to be the high-water mark for labor’s support of trade expansion legislation. Labor abandoned trade expansion in the late 1960s largely due to the burgeoning trend of U.S. multinational corporations in shutting down American production and exporting jobs abroad. U.S. corporate tax law provided incentives for these foreign investments by providing credits for foreign income taxes and deferrals on U.S. taxes on foreign income from what were then referred to as “runaway plants.” Efforts to repeal these incentives were always defeated by corporate lobbyists.
As with the protectionist arguments of the past, President Trump’s claim to be standing up for the workingman is a thinly-veiled deception. On the issue of “runaway plants” or, in current parlance, outsourcing jobs—the complaint that tipped the scales for labor against trade—the president’s singular legislative achievement hurts the forgotten man. The $1.5 trillion tax cut includes eliminating most tax on the income of foreign affiliates of U.S. corporations, thus sweetening the incentive to export American jobs to cheaper labor markets—contrary to the president’s campaign promises.
The latest move by President Trump to appear at the rescue of the forgotten man was to raise tariffs on steel and aluminum—ostensibly to save jobs—but will actually cause job losses to the far more numerous employees of American factories using steel and aluminum products and products affected by trade retaliation.
So which among the forgotten men are the ones who will never be forgotten again?
C. Donald Johnson is Director Emeritus of the Dean Rusk International Law Center at the University of Georgia School of Law. He was former U.S. Ambassador in the Office of USTR and was a former Member of U.S. Congress. He is the author of The Wealth of a Nation: A History of Trade Politics in America, Oxford University Press (May 2018).
***
© Washington International Trade Association