Mother Country of Protectionism

By Edelbert Richter

[This article originally published in: Ossietzsky, January 12, 2004 is translated from the German on the World Wide Web, www.linksnet.de/artikel.php.]

September 14, 2003 like September 11, 2001 was an historical turning point. The irrational and symbolic act of the destruction of the World Trade Center may have found a parallel in the failure of the World Trade conference in Mexican Cancun.

The conference was to codify rules for liberalizing trade. However no agreement occurred because a coalition of developing- and threshold countries rejected that liberalization. Sober thinkers ask whether the World Trade Organization still has a future after the failure of the 1999 WTO-conference in Seattle and the meager results of Doha 2001.

What is the background? The background consists of the free trade lies spread by the World Trade Organization, the International Monetary Fund, the World Bank and numerous economists against which developing- and threshold countries resisted at last. This free trade lie says that trade is a motor of development. Whoever screens himself blocks this chance for progress.

This is hypocritical because a radical market opening is demanded from developing countries while the industrial countries only open their markets very restrictedly for agricultural products and textiles from the South. Thus trade is not free for everyone equally. However it is also hypocritical because industrial nations force developing countries to join in free trade although they themselves were successfully very protectionist in their development phase. Industrial nations first gave priority to their own production. When they could first afford it, they proclaimed and practiced free trade. When they now recommend the opposite orientation to developing countries, indigenous production is hindered rather than promoted.

Correspondingly the demands of developing countries go in two directions. On one hand a truly free trade is demanded, that is improvement of market access in the North. On the other hand the right to state protection was self-evident to industrial countries in their early development phase. This state protection is sued for by developing countries today. This protection could also be called the right to un-simultaneity. Why should state protection that once helped industrial countries to their market power be suddenly prohibited to those coming later?

The demands are addressed to all industrial countries but especially to the US whose hegemony created the present free trade system. “The present world market is a structure created by people – one may say: by Americans, the result of more than 50 years of American diplomacy, American pressure and American readiness to open the US market first and widest” (declares the US political scientist Edward Luttwak in his book “Turbo-Capitalism”.

They could create the free trade system because they were most resolute and successful in protectionism. That was the basic contradiction of the whole system. Free trade conquers the world on the basis of the protectionism of one nation. Alexander Hamilton, the first American Secretary of the Treasury, laid its theoretical foundations in 1790. In his “Report on Manufactures”, Hamilton explained that a real independence of the New England states could be first proclaimed when they no longer depended on imports from the former mother country but produced their own manufactured goods. George Washington symbolically confirmed this insight when he consciously wore clothing out of native cloth on the day of his 1789 inauguration “to give an unforgettable lesson to all his successors in the office and to all future generations on promoting the welfare of the country in the simple expressive way characteristic of this great man.”

When free trade increasingly defined public debate in Europe and prevailed from the middle of the 19th century, the US remained the “mother country and bastion of modern protectionism” (as the French economic historian Paul Bairoch declared). The main reason was the opposite interest of the latecomer compared to Great Britain. This came to light in the Civil War (1861-65). While industry in England championed free trade, namely the abolition of tariffs on agricultural products and raw materials, the North in the US intent on industrial rebuilding was interested in protective tariffs while the agricultural South emphasized free trade, namely the export of cotton and grain to England. The Civil War turned out to be a conflict over the position of the US in the world economy. Since the protective tariff policy of the North conquered, the US was able to quickly catch up with Great Britain and joined in the imperialist policy of the superpowers after the end of the free trade period in Europe. However when the European powers were weakened after the 1st World War and the US became the leading industrial power, they didn’t proclaim free trade but intensified protectionism with the Fordney-McCumber tariff of 1922. The tariffs on industrial products reached a height of 50 to 80 percent, in some cases up to 200 percent.

The 1930 resolution of Congress for an increased tariff around 10 to 30 percent for both agricultural and industrial products was irrational and injurious for its own economy. This increased tariff only reflected the interest in definitively overpowering the British Empire as competition. The Indian economist Jagdish Bhagwati called this notorious Hawley-Smoot tariff the greatest “act of madness” against the free exchange of goods since the collapse of world trade made the financial crisis into a worldwide economic crisis.

In the 2nd World War no one believed any more in the freedom of trade since the United States never practiced free trade. The US was confident of emerging from the war as a victor. Free trade appeared for the first time as an element of the post-war order in the Atlantic Charter in which the US reached agreement with Great Britain on war goals. Free trade was urged by the US to break the British Sterling block! This was, so to speak, the procreative act of the second free trade period continuing up to today. For around 150 years, the US gained a monopoly position with a share of nearly 50 percent in world industrial production that allowed them to proclaim free competition to the world.

Back to our starting point. If the present world trade system is a product of US hegemony and is now put in question, this hegemony will be questioned. What would free trade look like without hegemonial power and with development possibilities?