Edward Lotterman
Today, the health of the U.S. economy hangs on trade 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 public discourse on key issues. Many argue that a globalist ideology brought us to the current state of imports and trade 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 some argue, “disappeared.” The U.S. remains the second-largest manufacturer in the world, turning out 16 percent of total output. Yes, that is half of China’s 32%, but more than twice Japan’s 6.5% and three times Germany’s 4.8%.
Manufacturing has declined in relative importance. A century ago, it made up a third of national output. By 1994, that had dropped to 18%, and it is only 10% 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 8% over the last 30 years. That is less than total GDP growth of 75%, 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 19.5 million in 1979, late in the Carter administration, and are at 12.8 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. Some 17.3 million people still worked in factories in mid-2000, but that fell to 11.4 million by the end of the decade. This was the recession following the Wall Street meltdown of 2007-2009. Numbers did recover to 12.9 million by early 2023 and are near that now.
The second historical distortion involves changes in U.S. trade policies. Some argue that ideologies vaunting globalization mesmerized U.S. leaders in closing decades of the 20th century, driving changes in long-established trade regimes for ideological reasons.
That is nonsense. All the major actions were driven by pragmatic foreign policy 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 1979. 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 1972 trip to China had upset the relative balance of power between free nations and the communist bloc that had prevailed for 20 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 1 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 1984 broke 18 years of liberal government. Mulroney was far more friendly to the U.S. and wanted a trade agreement to help him in the next elections. It also would tie the hands of future liberal governments. Many future domestic policy changes would require renegotiation of an international treaty.
With the Canadian and U.S. auto industries already in free trade since the 1950s, Mulroney and Reagan got along well. Neither saw any political downside. In 1988, our House of Representatives ratified the agreement 366-40 and the Senate followed 83-9.
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 most pro-U.S. official in years asked 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. 17, 1992.
Contrary to what many believe, President Bill Clinton’s only role was to submit Bush 41’s treaty to Congress. More controversial than the treaty with Canada, it still passed the House with 132 Republicans and 102 Democrats voting aye. The Senate vote passed with votes from 34 Republicans and 27 Democrats. Thus, there was more opposition among Democrats, but still substantial support.
All this took place against the backdrop of a tortuous revamping of the 1947 General Agreement on Tariffs and Trade into a stronger World Trade Organization.
The GATT had its roots in the 1944 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 Trade Organization.
All GATT could do was organize periodic conferences where reducing trade barriers 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 1986 when the GOP Reagan administration wanted to reverse 40 years of U.S. policy with a new organization with the power to resolve trade disputes. It sought to force the European Union and Japan to lower their barriers 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 finally happened in 1994.
Through all this, China had been a negligible factor. Japan was the threat. Congress had surrendered some 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 1996 presidential campaign showed Clinton reclining in an airplane seat with journalist James Fallows’ book “Looking Into the Sun” across his lap. It described economic growth in East Asia, but meant Japan, Korea and Taiwan.
In 1999, after 13 years of negotiations under three presidents, the Clinton administration acceded to admission of China to the WTO. Congress approved it 237-97 in the House and 93-15 in the Senate. The debate generally recognized it affirmed a policy begun by a Republican president 27 years earlier. And China’s economy was only 6% the size of ours.
Yes, “globalism” was alive in the 1990s, but U.S. policy moves were largely pragmatic and defensive. Yes, individual pundits and politicians did champion a global economy without barriers. But practical considerations drove decisions. As we now tear down much of what we ourselves created from 1944 to 2000, we need to keep that reality in mind.
St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.
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