Tariff Policy - Hull's revolution



At this low ebb in the world economy, the administration of Franklin Roosevelt entered office. The president's secretary of state, Cordell Hull, determined to lower tariff and trade barriers. From his first speech in Congress in 1908, this Tennesseean crusaded against the protective tariff. Hull became a near-fanatical champion of liberal trade, arguing that American prosperity depended on trade expansion encouraged by a reciprocal lowering of tariffs. The Democrats forged an export-based coalition of producers, workers, business, and bankers to support Franklin D. Roosevelt's New Deal agenda and numerous reelection bids. Yet materialism and politics were only one part of Hull's agenda. A low-tariff policy, or freer trade, promoted lasting peace. Tariff wars were part of economic rivalries that led to political tensions, he argued. Expanded and mutually prosperous trade brought economic well-being and, therefore, political stability and cooperation. Furthermore, reduced duties freed the economy from governmental intrusion. Regimentation and control of markets, as seen in Stalin's communist Soviet Union and Hitler's fascist Germany, threatened liberty and democracy.

The secretary of state pushed for mutual tariff concessions under reciprocal trade treaties and close adherence to the unconditional most-favored-nation policy. He attacked Smoot-Hawley as detrimental to U.S. interests and security. Liberal trade dovetailed with peace, he declared, and high tariffs with war. Hull labored to remove tariff-making policy from the clutches of self-interested congressmen and place it in the executive branch, namely with the freer-trade State Department and president. Using the lure of the large American market, he pursued reciprocity agreements with the revolutionary trade legislation that accomplished his agenda: the Reciprocal Trade Agreements Act (RTAA) of 1934.

Although Roosevelt was at first a lukewarm liberal trader, preferring instead nationalistic and unilateral solutions to the Great Depression, the president endorsed the RTAA. This began a new relationship of the tariff to diplomacy. The legislation, renewable every three years or so, amended the Smoot-Hawley Act, giving the president authority to negotiate bilateral agreements that raised or lowered tariff rates up to 50 percent on the condition that the other nation grant U.S. products reciprocal access to its markets. Each agreement included the unconditional MFN clause so that the concessions would apply to third parties. Congress would renew the RTAA but would not vote on any agreement, thus eliminating lobbying in the tariff process.

Protectionists were not routed, however. The president would seek advice from the Tariff Commission, as well as the departments of state, commerce, and agriculture, before engaging in commercial negotiations. The public would be given opportunities to be heard. The president could not transfer goods between the free and dutiable lists. And the preferential relationship of exclusive trade arrangements with Cuba would stand. Hull would not depart from previous tariff policies that granted cautious concessions and pushed nationalism to the fore. For instance, he ignored Australian requests to enter negotiations for months, and then protested when Canberra adopted certain restrictive measures. To many Latin American nations, the Hull program seemed bent more on U.S. export expansion than mutual, reciprocal benefits. An RTAA pact signed with Cuba just after dictator Fulgencio Batista came to power in 1934 did not stimulate the island's economy but instead tied the nation closer to the United States in a dependent relationship.

But Hull's philosophy represented a major shift in tariff policy. Protectionists railed that the RTAA meant unilateral economic disarmament on the part of the United States. The RTAA accord with Cuba, for instance, pursued political stability through economic dependence with the United States. In 1935, Hull signed an agreement with Belgium, offering the maximum 50 percent reduction in tariffs on many competitive products, including steel and cotton textiles. The goal was to open up Belgium's market for American automotive products, apples, and wheat flour. In fact, the accord gave one-sided benefits to Belgium, even allowing the nation to rescind some of its concessions. This pattern of sacrificing domestic industry for the imperatives of export expansion and, overall, for foreign policy goals, became a basic pattern that remained in RTAA negotiations well into the 1970s. Even though government experts found substantial discrimination abroad against U.S. goods, Hull decided to negotiate reciprocal trade pacts with as many nations as possible, except for aggressors like Germany and Japan. The State Department took a conciliatory position toward RTAA countries, oftentimes allowing imports into the United States to surge past, and even damage, home interests. The reason for such sacrifices lay in foreign policy objectives.

By the end of the twentieth century, many commentators lamented Hullian liberal trade logic as self-destructive, naive, or unwise. They accused tariff liberals of economic appeasement and of trading away American interests for illusive foreign policy goals. Yet the RTAA did not dismantle trade barriers, nor did they produce anything more than modest export expansion for U.S. farmers and manufacturers. Imperial preferences remained in force. But Hull was satisfied, for he had world politics, not economics, in mind as he negotiated agreements. He agreed that international affairs, and specifically matters of democracy, security, and peace, lay at the heart of the RTAA and American tariff policy. By 1937, in a policy enduring into the next millennium, officials elevated internationalism above domestic economic well-being. By doing so, they transformed tariff policy from its protective guise to one of expansion and liberalism. As the world headed for another war, the Roosevelt administration used tariff policy to group together a coalition of democracies to confront militarist aggressors in Europe and Asia.



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