in the words of Henry Kissinger’s assistant for international economic affairs Fred Bergsten: “Foreign economic policy” has been the abettor of “overall U.S. foreign policy,” and that “foreign policy considerations have dictated the U.S. position on virtually all issues of foreign economic policy.”
While the benefits of trade liberalization in the postwar period have been abundant, readers may be surprised to learn how secondary (or even nonexistent) consideration of such possible benefits were to U.S. policymakers. Rather, trade liberalization following World War II was primarily conceived in terms of political and security priorities. As an April 1950 report by the Bureau of the Budget put it: “Foreign economic policies should not be formulated in terms primarily of economic objectives. They must be subordinated to our politico-security objectives and the priorities which the latter involve.”
As will be shown, because trade as a percentage of GDP would not rise above ten percent until the 1970s, trade policy was seldom front and center in Washington and could therefore be quietly used by policymakers as a bargaining chip to get their way with Western Europe, Japan, and other allies on non-economic matters. As Harry Truman’s Assistant Secretary of State for Economic Affairs put it: “The great question is whether the country is willing to decide in the broader national self-interest to reduce tariffs and increase United States imports even though some domestic industry may suffer serious injury.”
An early example was in 1953, following the “loss of China,” when the National Security Council advised opening the American market to Japanese goods on the grounds that failure to do so might slow Japan’s economy and create an opening for the (non-existent) Japanese communists to exploit. From Harry Truman to Richard Nixon, such necessary strategic interests as the employment of shoemakers in Italy and Spain, farmers in France, or synthetic textile producers in Japan were given priority by officials in the Executive Branch and State Department. Despite occasional attempts by Congress to intervene, the wisdom of those like George Ball, John F. Kennedy’s Undersecretary of State for Economic Affairs, and previously a lobbyist for the newly formed European Economic Community (EEC), triumphed. “Americans,” he said, could “afford to pay some economic price for a strong Europe.”
Indeed, the pursuit of strategic objectives over domestic economic interests would continue into the 1960s, with the Trade Expansion Act of 1962 authorizing the president to make huge discretionary cuts in U.S. tariffs. Ardently advocated for by the Kennedy administration, whose representatives testified before Congress regarding the windfall benefits sure to follow, former FDR administration economist Oscar Gass noted that such further trade liberalization was such a “holy cause” that “decent people were prepared to lie for it.” The act was followed by the so-called Kennedy Round of trade talks (1964-67), which resulted in further such cuts to U.S. tariffs, subsidies, and quotas.
These were decidedly one-sided trade concessions. And so it is important to make clear, particularly as an advocate of actually free trade, that what Washington was creating was deliberately not free trade; it was a policy of asymmetric concessions in the name of maintaining the easy cooperation of allied governments. As one of Nixon’s State Department trade specialists Philip Trezise put it later: “We did make some big tariff cuts and didn’t get any reciprocity. It was quite deliberate.”
But what started as using the American market as an incentive and destination of last resort for anything allies wanted to offload, quickly cut into the American current account once these states had been rebuilt (with U.S. aid and corporate transfers) and Washington’s spending on war and welfare reached unsustainable levels. Indeed, by 1970 Nixon had begun to feel uneasy about the domestic political implications of the policy, cautioning his NSC to “take greater cognizance of the problems of U.S. businessmen and their concerns abroad, even when ultimately they may have to be overridden by foreign policy considerations.”
Unsurprisingly, no real change in policy followed.
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