IN THE REARIEW MIRROR Trading Places: Protecting American Industry Is So Yesterday
The current recession has been brutal on manufacturing workers. Between December 2007 and December 2009, over two million of the country’s 13.7 million manufacturing jobs disappeared. Six million industrial jobs have vanished since 1998 and manufacturing employment today is only 60 percent of its peak in 1979. Walking around the mall, it sometimes seems impossible to find a product made in the U.S.A.
It is a piety of present politics that the United States needs to rebuild its manufacturing base, an idea that the labor movement, the president, and most of the public support. But the financial interests that increasingly dominate our economy tend to see greater profit opportunities in globalization than in domestic manufacturing, which is one reason why little has been done to staunch the flow of jobs abroad. Indeed, these peak financial institutions grew to their present preeminence in part by systematically looting and shutting down American industry over the past quarter century. Policies aimed at reviving domestic industry—tariffs, currency revaluations, state-sponsored reindustrialization schemes—were, until recently, relegated to the margins of political discourse and situated largely outside of the realm of democratic governance.
This was not always the case. From the earliest days of the United States, promoting and protecting manufacturing jobs was a rallying cry for workers and a hotly debated electoral subject. With little exaggeration, one might say that industrializing America constituted the core of public policy for more than a century. One reason artisans—both journeymen and the masters who employed them—supported the ratification of the Constitution was their belief that a strong federal government would be better able to enforce restrictions on imports than the individual states, thereby protecting their markets, jobs, and wages. “Taxes on imported goods,” wrote one Philadelphia plebian, “can distress none but the rich.” As artisans hoped, the newly created Congress did pass a tariff, and—during the decades that followed—labor groups continued to agitate for high tariffs. During the Gilded Age, workers carried on a no-holds-barred, often violent battle with employers over the distribution of income and power on the shopfloor. Yet they found themselves allied politically inside the Republican Party in defense of the protective tariff. That irony is one of the reasons labor remained so weak politically, at least at the national level. In the 1880s and 1890s, the tariff became a leading electoral issue. The debate pitted the protection tariffs provided for domestic manufacturing against the lower prices that might come from reducing the penalties on foreign-made goods, and the advantages—to international merchants and commodity exporters—of low trade barriers. (Farmers felt doubly disadvantaged by import duties, resenting the high price of manufactured goods and fearful that other countries would raise tariffs on agricultural goods.) Generally the Democrats, strongly influenced by their Southern wing, wanted to lower tariffs while the Republicans sought to keep them high, retaining the support of working-class voters, even in 1896 when populist Democrat William Jennings Bryan won considerable union backing.
The Great Depression and World War II changed the politics of trade and pushed the issue of protecting domestic manufacturing to the back burner. Most New Dealers believed that high tariffs, and their retarding effect on international trade, contributed to the depth of the global economic downturn of the 1930s. Also, Southern Democrats—an important component of the New Deal coalition—generally supported free trade because they did not want other countries imposing tariffs on exported cotton. When the Roosevelt administration moved to negotiate bilateral agreements lowering tariffs, it won backing from internationally oriented banks and manufacturing companies, and from oil companies, all of whom backed free trade. As the labor movement exploded in size and cemented its ties to the New Deal, it largely abandoned its earlier protectionism.
World War II further changed the calculus of trade. The United States emerged from the conflict as the world’s unchallenged industrial power. Rather than facing a threat from imports, American companies had the opportunity for a massive expansion of exports and overseas investment. American policymakers pressed for lower tariffs and reduced trade obstacles, which they believed would benefit the American economy and promote international stability. But sometimes they departed from this goal in order to strengthen the economies of American allies, with an eye toward the Cold War contest with the Soviet bloc. So they looked the other way when Japan and the European Economic Community (the predecessor of the European Union) put up barriers to imports from the United States. With unemployment rates low during the quarter-century after the war and the United States exporting more goods than it imported, even unionists expressed relatively little concern about the foreign threat to domestic manufacturing jobs.
Trade issues reemerged with a vengeance when the period of post-World War II prosperity ground to a halt in the 1970s. By then, Germany and Japan had rebuilt their industries to become formidable competitors to the United States and many American companies had set up overseas operations, which—in some cases—shipped goods back to the United States. In 1971, the International Ladies’ Garment Workers’ Union—hit hard by the growing importation of apparels—launched a long, unsuccessful drive for protectionist legislation.
When the automobile and steel industries plunged into deep crises in the late 1970s and early 1980s, unions representing their workers joined the debate about protecting domestic manufacturing. The United Automobile Workers called on the public to “Buy American” and promoted legislation to require specified levels of domestic content in vehicles sold in the United States. But the consensus in support of low trade barriers had become so strong that—even as the balance of trade reversed and, in 1971, the country became a net importer for the first time since 1893—no fundamental move away from free trade occurred.
What did change, however, was the international currency system. Under the Bretton Woods agreement, worked out during World War II, most capitalist countries pegged their currencies at fixed rates to the dollar, which the United States in turn backed with gold reserves, also at a fixed rate. In August 1971, President Nixon took the dollar off the gold standard, which had the effect of replacing fixed currency exchange rates with floating rates. Once currency exchange rates became variable, they could protect or undercut domestic manufacturing.
Nixon initially pressed Japan to raise the value of the yen in relation to the dollar to help U.S. exports and win him workingclass votes in the upcoming election. But later administrations often preferred a strong dollar, which benefited consumers and Americans investing abroad.
During the 1980s and 1990s, the labor movement and its allies continued to oppose the movement toward free trade, but with only modest success. The relocation of American industrial and financial investment abroad commanded the allegiance of both parties. President Bill Clinton broke with unions when he pushed the NAFTA treaty through Congress with only fig leaf protections for labor. The movement against corporate-oriented globalization reached a high point in the protests at the 1999 meeting of the World Trade Organization in Seattle. But the protests were not strong enough to reverse the basic thrust of American economic policy. In recent years, pressure from the labor movement and domestic manufacturers occasionally has gotten the federal government to pursue charges of unfair trade practices against other countries, but there has been little debate about the principle of low tariffs.
Which leaves currency exchange rates as one of the few tools that might be used to protect domestic manufacturing from foreign competition. Whereas late-nineteenth-century arguments over the gold standard verged on civil war that pitted debtors against creditors, today such debates remain confined to circles of experts, despite the fact that the value of the dollar in relation to other currencies—the Chinese renminbi, especially—has a fateful impact on the health of American manufacturing. As in the Cold War, domestic manufacturing gets sacrificed to foreign policy concerns (like Chinese cooperation in dealing with North Korea and Iran), and to the interests of American financial institutions and corporations with investments and suppliers abroad (including domestic icons like Apple and Wal-Mart, whose businesses essentially consist of selling goods manufactured in China).
Of course, there are steps other than currency manipulation that would help U.S. manufacturing. The only long-term strategy for supporting domestic American manufacturing—and, in the process, for reversing the generation-long underdevelopment of the national economy—is a state-sponsored program of high-tech, energy-efficient reindustrialization. Infrastructure development, worker training, targeted government investments and credit, research programs, and domestic content provisions in government procurement are among the steps that could be taken. Unlike in the past, when Congress openly debated and set tariff rates and currency policies, today they are largely outside the realm of public control, controlled by opaque, insulated agencies. Not many liberal politicians or activists seem very interested. The Obama administration’s “Framework for Revitalizing American Manufacturing” never even mentions currency rates. Some labor supporters, including Robert Pollin in the Fall 2010 issue of New Labor Forum, are skeptical that tariff or currency adjustments would make much difference in restoring manufacturing. But with the fate of hundreds of thousands—if not millions—of manufacturing jobs at stake, trade policy, currency rates, and national industrial policy need to be placed at the center of political debate and democratic decision-making, much as the tariff was during the first century-and-a-half of the Republic.