Free Trade and The U.S.

Written by Frank Li

As the trade war between the U.S. and China escalates, there is no better time than now to truly understand the issue of “free trade” from both perspectives: China and the U.S.

In this post, I will focus on the U.S., while my last post focused on China (Free Trade and China).

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1. Pre-requisite

Read: Free Trade and China for some essentials, such as the definitions of, and the difference between, “free” trade and “free trade”.

2. America’s free trade from 1776 to 1860

After declaring independence from Britain in 1776, America continued the British policy of “free trade”. Two big examples:

1. Slave trade.
2. Stealth via “free trade”.

Let me highlight each …

2.1 Slave trade

The image below is worth more than 1,000 words.

2.2 Stealth via free trade

Below is an excerpt from a well-known book on American history (“A People and A Nation – 8th Edition“, pages 246-247):

Although Americans pride themselves on inventiveness and hard work, their start in industrial development depended on importing technology, sometimes by stealth. Greta (sic) Britain, which in the late eighteenth century had pioneered the invention of mechanical weaving and power looms, knew the value of its head start in the industrial revolution and prohibited the export of textile technology. But the British-born brothers Samuel and John Slater, their Scottish-born power-loom-builder William Gilmore, and Bostonians Francis Cabot Lowell and Nathan Appleton evaded British restrictions and patents to establish America’s first textile factories.

As an apprentice and then a supervisor in a British cotton-spinning factory, Samuel slater (sic) had mastered the machinery and the process. Britain forbade the export of textile technology, so Slater emigrated to the United States disguised as a farmer. In 1790 in Pawtucket, Rhode Island, he opened the first water-powered spinning mill in America on the Blackstone River, rebuilding the complex machines from memory. With his brother John and their Rhode Island partners – Moses and Obadiah Brown and William Almy – Slater later built and oversaw mills in Rhode Island and Massachusetts. In 1815 he hired a recent immigrant, William Gilmore, to build a water-powered loom like those used in Britain. Later in the 1820s, the Slaters introduced British steam-powered looms. Spinning and weaving would now be done in New England factories organized along British models.

In 1810 Francis Cabot Lowell had the same idea as the Slaters: to build modern mills with mechanical, water-powered looms. Lowell took a family vacation to Britain, and in Edinburgh, Scotland, he met fellow Bostonian Nathan Appleton. Impressed by the textile mills they had seen in Britain, they laid plans to introduce water-powered mechanical weaving into the United States. They knew they had to acquire the “improved manufactures” from Britain that had made Manchester famous as a textile center. Lowell went to Manchester, during the day visiting and observing the factories, and meeting the factory managers. At night he returned to his hotel to sketch from memory the power looms and processes that he had seen. Back in the United States, he and others formed the Boston Associates, which created the Waltham-Lowell Mills based on Lowell’s industrial piracy. Within a few years, textile would be a major American industry, and the Boston Associates would dominate it.

Thus, the modern American industrial revolution began with international links, not home-grown American inventions. Ingenuity and industrial piracy put the United States on the road to industrial advancement.

3. America’s free trade from 1861 to 1945

Throughout this period, America thrived. Three major milestones:

1. 1890: America became the largest economy in the world (surpassing China).
2. World War I: America helped the allies win the war.
3. World War II: America not only helped the allies defeat Nazi Germany (Who Actually Decisively Defeated Nazi Germany?), but also decisively defeated Imperial Japan (Who Actually Decisively Defeated Imperial Japan?).

Two huge set-backs for “free trade†during this period, thanks to the Great Depression:

1. Wikipedia – Hawley Tariff Act.
2. Wikipedia – United States farm bill.

Let me elaborate on each …

3.1 Hawley-Tariff Act

Below is an excerpt from Wikipedia – Hawley Tariff Act.

The Tariff Act of 1930 (codified at 19 U.S.C. ch. 4), commonly known as the Smoot – Hawley Tariff or Hawley – Smoot Tariff,[1] was an Act implementing protectionist trade policies sponsored by Senator Reed Smoot and Representative Willis C. Hawley and was signed into law on June 17, 1930. The act raised U.S. tariffs on over 20,000 imported goods.[2]

The tariffs (this does not include duty-free imports – see Tariff levels below) under the act were the second-highest in the U.S. in 100 years, exceeded by a small margin by the Tariff of 1828.[3] The Act and following retaliatory tariffs by America’s trading partners were major factors of the reduction of American exports and imports by more than half during the Depression.[4] Although economists disagree by how much, the consensus view among economists and economic historians is that “The passage of the Smoot – Hawley Tariff exacerbated the Great Depression.”[5]

Bottom line: Strictly speaking, the U.S. is not a country of “free tradeâ€, if there is any restriction, such as the tariffs.

3.2 U.S. Farm Bill

Below is an excerpt from Wikipedia – United States farm bill.

In the United States, the farm bill is the primary agricultural and food policy tool of the federal government.[1] The comprehensive omnibus bill is renewed every 5 years or so and deals with both agriculture and all other affairs under the purview of the United States Department of Agriculture.[2]

It usually makes amendments and suspensions to provisions of permanent law, reauthorizes, amends, or repeals provisions of preceding temporary agricultural acts, and puts forth new policy provisions for a limited time into the future. Beginning in 1933, farm bills have included titles on commodity programs, trade, rural development, farm credit, conservation, agricultural research, food and nutrition programs, marketing, etc.[3]

Bottom line: Strictly speaking, the U.S. has not been a “free market” economy ever since the bill was in effect in 1933!

4. America’s free trade from 1945 to 1991

Throughout this period, America not only experienced great prosperity, but also generously helped all its allies, especially in the name of “free markets”, “free trade”, and democracy.

This period was capped by the end of the Cold War in 1991, with America winning decisively.

5. America’s free trade from 1991 to 2003

After the Cold War ended in 1991, America, the only superpower left on earth, had a unique opportunity to lead the world with more peace and prosperity. But it errored hugely. Two big examples:

1. NATO and the EU aggressively expanded eastwards, in the name of “free markets”, “free trade”, and democracy, right to Russia’s doorstep.
2. America interfered too much in the Mideast, resulting in the attack on America on September 11, 2001. In response, America launched not only a war in Afghanistan in 2001, which is still on-going, but also the Iraq War in 2003, which is still unfinished, with long-term negative impacts to America for decades to come.

6. America’s free trade from 2003 to present

While America has been totally consumed in self-destruction both at home, thanks to Democratic Socialism, and abroad, thanks to Democratic Imperialism, Russia is back and China continues to thrive. As a result, America has trade deficits with more than 90 countries.

With the election of Donald Trump as the President in 2016, America has officially begun to retreat, starting with “free trade” by launching various trade wars against everybody, especially China.

Like most recent wars in which America was involved, America’s trade war against China will certainly work out like this: America will win the first few battles, but China will win the war! Two informative readings:

1. The U.S. vs. China: A Trade War (II)?
2. Extremism in America.

7. Discussion

“Free trade” per se seems to be mostly for empires. For instance, Adam Smith invented it for the British Empire, while Milton Friedman advocated it for the American Empire. It faded in Britain as the British Empire faded, and is now fading in America as the American Empire is fading.

America has been in a steep decline over the past decade at least. “We, the People†simply do not know what to do, other than trying something, anything, very different, such as electing someone very different to be the President – First Barack Obama and then Donald Trump. For more, read: The Second American Revolution under Way?

The root cause of America’s decline is our failing political system. Therefore, unless we reform our political system, as I have suggested, nothing else matters, or worse, we make a bad situation worse. For example, as we have trade deficits with more than 90 countries, are we going to argue with each and every one of them about fairness, or address the real issue: our cost structure is too high?

To truly know what’s wrong with America and how to fix it, please read this book: American Democracy – Why is it failing & how to fix it?

8. Closing

This post has focused on America, supplementing my last post on China. Hopefully it has helped you better understand America, especially in terms of “free trade”.

Now, please sit back and enjoy the long video below. After watching the video, please read: Milton Friedman: A Man of the Past?