June 9, 2016

Trump and Clinton’s Trade Wall

Charlie Black, John Tanner, Owen Taylor

Of all the 2016 campaign rhetoric, Donald Trump’s pledge to build a wall along the U.S./Mexico border has perhaps generated the most attention. However, what is more concerning are the barriers to free trade that both Trump and Hillary Clinton have proposed. Trade deals such as NAFTA and TPP have been most heavily criticized.

Both candidates are running on the platform of returning jobs lost to overseas markets. These proposals embody economic protectionism; a damaging trade philosophy no U.S. president has adopted since Herbert Hoover. Prime Policy Group’s Charlie Black and John Tanner break down this rhetoric and warn American voters of its implications that shouldn’t be disregarded. It’s important to take a step back in history in order to understand protectionism’s last major footprint on the American economy.

trade-iconHistory

Throughout the early 1920’s, American agriculture suffered immensely. In attempts to jumpstart the economy, Congress began subsidizing exports. All efforts were constantly thwarted by vetos from President Coolidge. In attempts to further reverse the downturn of the 1920’s, Herbert Hoover campaigned on the promise of protecting American agricultural interests from imported farm goods. Following his inauguration in March 1929, President Hoover implemented the agricultural tariffs on which he campaigned.

Notable Republican allies in Congress, Sen. Reed Smoot of Utah and Rep. Willis Hawley of Oregon, spearheaded this legislation. As chairmen of the Senate Finance and House Ways & Means committees respectively, the two lawmakers introduced the Smoot-Hawley Tariff Act. The bill legislated a 20 percent tariff increase to an already-exorbitant rate. This quickly evoked serious concern and outrage from economists across the country. It also drew opposition from prominent voices such as Henry Ford who branded the bill as “economic stupidity.”

After President Hoover signed the record-high tariff act into law in 1930, the economy took a turn for the worse. U.S. imports and exports dwindled by over 60 percent between 1929-1933. The GNP plummeted by $30 billion the following year, and retaliatory tariffs from foreign governments swiftly ensued. Banks began to crash. While not solely responsible for the Great Depression, the Smoot-Hawley bill undoubtedly facilitated the American economic downturn.

50 years later, protectionist efforts caused economic turmoil once again. When the Soviet Union invaded Afghanistan, President Carter retaliated by instituting an agriculture embargo. All U.S. grain exports to Russia ceased immediately. His soft-power response had little effect on the Soviets as they simply found alternative sources for grain. Carter’s grain embargo against Russia “really hurt our farmers,” Tanner said.

Jimmy Carter’s embargo was denounced by many in both parties, including the leading Republican presidential candidate, Ronald Reagan. After defeating Carter in the general election, President Reagan ended the embargo in April 1981.

With the understanding that free trade facilitates economic growth, Reagan campaigned on a common North American marketplace in 1980. It wasn’t until the end of his second term that any initial economic reform was implemented, with completion of the U.S.-Canada Free Trade Agreement. George H.W. Bush continued in Reagan’s footsteps and began talks with both Mexican and Canadian leaders about a continent-wide free trade agreement. Soon, a trilateral agreement called the North American Free Trade Agreement (NAFTA) was signed by President Bush, Mexican President Carlos Salinas and Canadian Prime Minister Brian Mulroney. After its ratification and passage in Congress, President Bill Clinton signed it into law in 1993.

practice-areas-government-icon@2xTrump & Clinton

Understanding the historical implications of past protectionist efforts during this election cycle is vital. As a pro-trade Democrat who voted in favor of the NAFTA Implementation Act in 1993, a stance often marginalized amongst fellow House Democrats, John Tanner acknowledges that trade deals aren’t perfect. Yet, reverting to historical isolationist and protectionist trade practices aren’t constructive solutions. He describes Trump and Clinton’s simplification of a complex issue as a “disservice to the American people.”

One of Bernie Sanders’ central attacks on Hillary Clinton has focused on her past support for free trade deals like NAFTA and TPP. With unexpected losses in states like Michigan, places where industry has suffered due to globalization, her newfound anti-trade rhetoric has only increased. In attempts to woo anti-trade populists, Hillary Clinton has altered her tone significantly.

Last Fall, Clinton commented on TPP, “As of today, I am not in favor of what I have learned about it.”

Charlie Black recognizes this apparent policy reversal, “She helped negotiate TPP as Secretary of State. She was a huge supporter of it.”

The former Secretary who once revered the TPP as the “gold standard in trade agreements” has now dialed back previous pro-trade stances, while campaigning on terms such as embargos, tariffs and economic sanctions.

Tanner explains that while protectionist sentiment might make an appealing sound bite to voters, it’s not a legitimate solution. He expounds upon the national security aspects that come hand-in-hand with trade:

“History is replete with examples of economic partners becoming military allies. If we’re not engaged around the world, then we fail to advance our economic and national security interests.”

This disengagement from the world market “creates a vacuum that will be filled,” says Tanner. “If we withdraw, the Chinese will dominate the markets in the Pacific; the Russians in Europe and the Mideast. They’ll swallow up those markets that we currently have a foothold in. It’ll hurt employment in this country.”

Donald Trump has vocalized his desire to repeal NAFTA and impose a 35 percent tariff on Mexican and Chinese imports. What some fail to realize is the implausibility of these claims.

“He can’t do that,” says Charlie Black. “It’s a free trade deal. It requires Congress, negotiations with the countries involved—all basics of governing.”

The Constitution specifically grants Congress the ability to change trade policy, limiting the autonomous discretion of an incumbent president. New legislation would have to be written and enacted to reverse NAFTA. Black then addresses Trump’s most recent remarks on trade,

“Just weeks ago Trump said he was in favor of building the Keystone XL Pipeline, on the condition that TransCanada give us some of their profits. That’s a fundamental violation of NAFTA.”

If terminating NAFTA or imposing a 35 percent tariff were even possible, John Tanner adds: “It would hurt the consumers in this country who would end up paying. The U.S. would then experience reciprocation from other countries. The entire purpose of trade deals is to lower barriers in other countries through the importation of US-made products. We’ll lose jobs if they reciprocate the tariff.”

Another consequence Black warns of regarding such a tariff on China, “A trade war between the world’s two largest economies will ensue. It’ll disrupt the world marketplace. America has the world’s largest economy but 95 percent of our customers are in other countries.”

The very American businesses and jobs that Trump and Clinton have vowed to protect from overseas competition are the one’s that will suffer through such protectionist policies. In light of what we’ve seen in history, few would argue that Hoover’s protectionism helped stimulate the economy. Yet, both leading candidates have adopted that very platform by suggesting a multitude of free trade restrictions. Policy-related interference in the marketplace has historically proven detrimental to economic growth. Just ask Reed Smoot and Willis Hawley.


Charlie Black

Charlie is Chairman of Prime Policy Group.  He is widely recognized as one of the nation’s leading Republican strategists and public affairs professionals. Charlie serves as a principal legislative and public affairs advisor to several Fortune 500 companies and trade associations.

 

John Tanner

Former Congressman John Tanner is Vice Chairman of Prime Policy Group. He joins the firm after serving in the U.S. House of Representatives for 22 years where he represented Tennessee’s 8th congressional district. While in Congress, John served on the House Foreign Affairs Committee and the Ways and Means Committee. John is known and respected for his leadership as a co-founder of the Democratic Blue Dog Coalition; he also chaired the U.S. House delegation to the NATO Parliamentary Assembly for several years.

 

Owen Taylor

Owen Taylor is a member of Prime Policy Group’s Research Team. Six years living in post-Communist Eastern Europe made him a student of world geography, of international current events and of how history, public policy and international influences affect the lives of the citizens of countries in transition.