Politics & Prose February 2004

Free Trade vs. Good Jobs

What led America's early leaders to break the law of free trade? Should we break it again?
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Gregory Mankiw, the chairman of the White House Council of Economic Advisers, ignited what The Wall Street Journal called "a political firestorm" when, at a recent press conference, he ventured that the export of U.S. service jobs "is probably a plus for the economy in the long run." His argument, according to The New York Times, was that such exports would reflect an "expansion of free trade benefiting all nations, including the United States." For economists, the "long run" is when all economic theories come true—and when, in John Maynard Keynes's mordant quip, "we're all dead." Dennis Hastert, the Republican Speaker of the House, trapped in mere time, did not share Mankiw's Panglossian faith in free trade. Hastert conceded Mankiw's brilliance as an "economic theorist," but, he commented, "his theory fails a basic test of real economics." Then came the clincher, the kind of cheap but inarguable debater's point you'd expect from a politician. "An economy suffers when jobs disappear."

Keeping American jobs in America was the goal of trade policy from 1789 to 1933. Its instrument was the protective tariff, the most successful economic strategy in U.S. history. It is worth reviewing why the U.S. chose this path to development over free trade. Adam Smith, free trade's champion, had great prestige in America. In Wealth of Nations, published in 1776, he wrote, "All commerce that is carried on betwixt any two countries must necessarily be advantageous to both...." Consequently, "all duties, customs, and excise should be abolished, and free commerce and liberty of exchange should be allowed with all nations." Such was the "law of progress." What led America to break that law? And what can we learn from its decision?

The United States was born in protection—the first bill passed by the first Congress was the Tariff Act of 1789. Its purpose: to raise revenue for the new government and to aid in "the encouragement and protection of manufactures." President George Washington, who three months earlier had taken the oath of office wearing a homespun suit and who professed to eat as patriotically as he dressed ("I use no porter or cheese in my family, but such as is made in America") signed the bill on the Fourth of July—felicitously, for the tariff won America's economic independence.

The 1789 tariff was set too low to discourage imports, and for roughly the next fifteen years America freely traded with the world. It was a period of sailing-ship prosperity that rested on America's status as a neutral trading with both sides in the first round of the Napoleonic Wars. As early as 1785 Thomas Jefferson, who considered "free trade with all the world" a "natural right," had misgivings about America's dependence on commerce. Free trade, he warned, might not be free: "Our commerce on the ocean and in other countries must be paid for by frequent war." His fears were borne out during his second term as President, when Britain's renewed war against Napoleon rendered the oceans hazardous for U.S. trade. Napoleon's Berlin Decree establishing a blockade of Britain made fair game of American ships bound there: between 1803 and 1807 the French seized 389 of them. Britain's Orders in Council banned all American trade to Napoleon-dominated Europe. The British seized 528 American merchantmen and impressed thousands of American merchant sailors and, in the humiliating Chesapeake incident, a handful of U.S. Navy sailors as well. Trade had become so dangerous to peace that Jefferson placed an embargo on it lest the country be forced into a war for which, building cheap gunboats by the dozen to "protect us from the ruinous folly of a navy," he had left it unprepared. The embargo failed, Jefferson retired to Monticello, and war—"in defence of Free Trade and Sailor's Rights"—came.

To celebrate the return of peace crowds gathered on the docks of ports from Salem to Savannah. Shouting, "Have a care below! Off comes Madison's nightcap!" sailors threw off the tar-barrels used to cap the mast-tops of ships confined to port during the three years of "Mr. Madison's war." Amidst cheers for "Peace, Commerce, and Prosperity" down they fell in the spring of 1815 into a world in which sailing ships would never lead economies again. For war had brought a new kind of prosperity.

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Jack Beatty is a senior editor at The Atlantic Monthly and the editor of Colossus: How the Corporation Changed America, which was named one of the top ten books of 2001 by Business Week. His previous books are The World According to Peter Drucker (1998) and The Rascal King: The Life and Times of James Michael Curley (1992). More

Jack Beatty"The Atlantic Monthly is an American tradition; since 1857 it has helped to shape the American mind and conscience," senior editor Jack Beatty explains. "We are proud of that tradition. It is the tradition of excellence for which we were awarded the National Magazine Award for General Excellence. It is the tie that binds us to our past. It is a standard we won't betray."

Beatty joined The Atlantic Monthly as a senior editor in September of 1983, having previously worked as a book reviewer at Newsweek and as the literary editor of The New Republic.

Born, raised, and educated in Boston, Beatty wrote a best-selling biography of James Michael Curley, the Massachusetts congressman and governor and Boston mayor, which Addison-Wesley published in 1992 to enthusiastic reviews. The Washington Post said, "The Rascal King is an exemplary political biography. It is thorough, balanced, reflective, and gracefully written." The Chicago Sun-Times called it a ". . . beautifully written, richly detailed, vibrant biography." The book was nominated for a National Book Critics' Circle award.

His 1993 contribution to The Atlantic Monthly's Travel pages, "The Bounteous Berkshires," earned these words of praise from The Washington Post: "The best travel writers make you want to travel with them. I, for instance, would like to travel somewhere with Jack Beatty, having read his superb account of a cultural journey to the Berkshire Hills of western Massachusetts." Beatty is also the author of The World According to Peter Drucker, published in 1998 by The Free Press and called "a fine intellectual portrait" by Michael Lewis in the New York Times Book Review.

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