TRADE, FOREIGN

TRADE, FOREIGN. The United States throughout its history has been relatively self-sufficient; yet foreign trade has, since the colonial period, been a dominant factor in the growth of the nation. The colonies were founded basically for the purpose of commerce: the shipment of products, particularly raw materials, to the mother country and the sale of finished goods from the shops of England in the colonies. Even had colonial plans not been centered around the welfare of Englishmen at home, the results could scarcely have been different. The Atlantic coast is particularly suited to commerce on the high seas. Deep harbors in the North and bays, indentations, and rivers and smaller streams from New York southward provided excellent ports for loading and unloading the ships of the day. Moreover, the settlements, clustered around the places where the ships came in or scattered along the rivers and creeks, were almost completely isolated from each other. As late as 1794 it took a week (under the most favorable conditions) to make the trip by coach from Boston to New York. Although the seas were infested with privateers and pirates (and the distinction was sometimes a thin one) and the ships were small and the journey long, the hazards of overland trading were still greater and the returns more uncertain.

Foreign trade was primarily in outgoing raw materials and incoming manufactured goods during the colonial period. Simple economic necessity had turned the colonists to agriculture. When surplus food production became possible, economic specialization appeared. Dictated by climatic and soil conditions, as well as by a host of other factors, production in each section determined the course of its commerce. The trade of the colonies south of Pennsylvania was chiefly with England. Ships from British ports called at the wharves of plantations along the rivers of Maryland and Virginia for tobacco and the next year returned with goods ordered from the shops of London and other cities. Furs, skins, naval stores, and small quantities of tobacco made up the early cargoes that went out from the Carolinas, but after 1700 rice quickly gained the lead as the most important export. Before the middle of the century indigo had become a profitable crop not only because it offered employment for the slaves when they were not busy in the rice fields but also because the demand for the dye in England had induced Parliament to vote a bounty. On the eve of the Revolution indigo made up by value about 35 percent of the exports of South Carolina.

The commerce of New England and the middle colonies ran counter to economic plans of empire. Grain, flour, meat, and fish were the major products of Pennsylvania and New Jersey and the colonies to the north. Yet shipment of these materials to England endangered long-established interests of Englishmen at home. Although small amounts of naval stores, iron, ship timbers, furs, whale oil and whalebone, oak and pine plank, and staves, barrels, and hoops went off to London, other markets had to be sought in order to obtain means of paying for the large amounts of goods bought in England. The search for sales brought what is often referred to as the triangular trade. Southern Europe, Africa, and the West Indies bought 75 percent of the exports of New England and more than 50 percent of those of New York and Pennsylvania.

On the eve of the Revolution the middle colonies were shipping annually to southern Europe more than 500,000 bushels of wheat and more than 18,000 tons of bread. Fish, meat, grain, ship timbers, lumber, and materials for barrels, kegs, and casks also went out in large quantities from Pennsylvania, New York, and New England. Rum was exchanged in Africa for slaves, and the slaves in turn sold in the West Indies for specie or for more molasses for New England rum distilleries. These islands, in fact, provided an inexhaustible market for fish, meat, foodstuffs, and live animals, as well as pearl ash, potash, cut-out houses, lumber, and finished parts for making containers for sugar, rum, and molasses. Corn, wheat, flour, bread, and vegetables found their greatest outlet in the islands.

Unfortunately the sellers of raw materials—the colonists—were almost always in debt to the manufacturers of finished goods—the British. Carrying charges by English shipowners ate up the favorable balance of the southerners, and the debts of the planters became virtually hereditary. Northern commercial men, selling more than they bought everywhere except in England, gained enough specie to settle their accounts in London with reasonable promptness. The persistent drainage of money to the mother country, however, was a significant factor in the discontent that developed in America.

Although the Revolution did not destroy American trade, even with the British, the former colonies obviously lost their preferred position in the world of commerce and also the protection of the powerful empire fleet. British trade regulations of 1783 (emphasized by further regulations in 1786–1787) closed the ports of the West Indies to the ships of the new nation and protected others by heavy tonnage duties. Only Sweden and Prussia agreed to reciprocity treaties. Yet this critical postwar period was far less discouraging than it is sometimes pictured to be. Varying tariffs in the ports and hostile action and counteraction among the states did keep commerce in perpetual uncertainty and prevented retaliation against European discriminations, but trade went on either in traditional channels or in new markets. Shipping interests in the new Congress secured legislation favoring Americanowned ships. The tonnage registered for foreign trade increased in the years 1789–1810 from 123,893 to 981,000, and imports and exports in American bottoms jumped roughly from about 20 percent to about 90 percent.

The Napoleonic Wars turned production forces to military goods, drove merchant ships from the seas, and pushed prices upward rapidly. Although many ships were seized, American merchant captains and the nation prospered until President Thomas Jefferson, seeking to maintain peace, induced Congress in 1807 to pass the Embargo Act. Exports dropped from $108.3 million to $22.4 million within a year; imports fell from $138.5 million to $56.9 million. Repeal of the embargo brought some revival, but other restrictions and the war against England drove exports to $6.9 million in 1814 and imports to $12.9 million.

Foreign trade in the years between 1815 and 1860, though fluctuating often, moved generally upward. Agricultural products made up the major part of the exports. Cotton led all the rest—production mounted from about 200,000 bales in 1821 to more than 5 million in 1860,80 percent of which was sold abroad. Great Britain and France were the two greatest purchasers, but Germany, Austria, Belgium, Holland, and Russia bought appreciable quantities. The West Indies and South America took large amounts of grain and flour, and English demands increased steadily after the repeal of the corn laws in 1846. Tobacco, rice, meat, and meat products, as well as lumber,

naval stores, barrels and kegs, staves, and hoops moved out in large quantities. Cottons, woolens, silks, iron, cutlery, china, and a miscellany of other items made up the bulk of the incoming cargoes. But the glory of the clipper ship was being obscured by the iron-hulled steamers that came from the British shipyards; the day of the whalers was ending even before oil began to flow out of the first well at Titusville, Pa., in 1859.

As the nation became increasingly industrialized between the Civil War and World War II, domestic production and domestic trade were its basic concerns. Railroads knit marketing centers together and economic specialization reached maturity. Agriculture, spreading into the West, increased each year its outpouring of foodstuffs; and industry, entrenched behind a high protective tariff, grew with astounding rapidity. The American merchant marine declined rapidly as investors turned their dollars into railroads and other industrial ventures at home. The percentage of foreign trade carried in American bottoms decreased from 66.5 percent in 1860 to 7.1 percent in 1900. That did not mean, however, any lessening in total ocean commerce. The value of exports and imports combined rose from $686,192,000 in 1860 to $4,257,000,000 in 1914. Cotton, wheat, flour, and other farm products continued to move out in ever-larger amounts, but it was obvious that agriculture was losing out to manufactured goods. The changing nature of exports and imports clearly revealed the fact that Europe was becoming each year relatively less important in American foreign trade. Shipments to and from Asia, Oceania, Africa, Canada, and Latin America were growing rapidly.

World War I restored temporarily the supremacy of Europe as a consumer of American agricultural products. But new goods also made up large portions of the cargoes—chemicals, explosives, firearms, special woods for airplane propellers, barbed wire, and a host of other needs of fighting forces. The value of exports and imports more than doubled during the war. The huge purchases of the Allies were based on government credits in the United States, and the slow growth for the next decade was financed largely by American loans. The economic structure fell apart in 1929. Prices declined sharply everywhere; world credit and world finance broke down; foreign exchange transactions were curtailed or taken over completely by government in many places; and the principal powers sought to maintain themselves by hiding behind high tariffs, trade licenses, and fixed quotas. The United States had for a decade been shutting itself off from the world. The climax was reached in the Smoot Hawley Tariff of 1930, which brought retaliatory restrictions from other nations. Foreign trade of the nation dropped to $2.9 billion in 1932. The slow climb upward to $6.6 billion in 1940 was in part the result of the insistence of Secretary of State Cordell Hull that reciprocity agreements rather than trade restrictions were essentials in commercial revival. By authority of the Reciprocal Trade Agreements Act of 1934 he made a series of executive agreements with foreign nations by which he encouraged American trade, and, by applying the most-favored-nation clause, spread the gains widely over the world.

In the war years 1941–1945 more than $50 billion in goods went out of American ports, and $17 billion came in. But about $32.9 billion of the exports were lend-lease war materials to fighting allies and no payment was expected. That was a startling change in the customary creditor-debtor relationship following World War I, but the experiences of that war dictated the decision. The whole international economic structure was, in fact, undergoing a basic revolution.

By the end of the war production facilities had roughly doubled; the nature of the outpouring products had changed astoundingly; and the people of the nation in general and the agricultural and industrial working force in particular had not only found new homes but also new wants and new hopes.

Tired of rationing and eager for a new world, Americans were at the end of the war impatient with the delays in transforming the industrial plants from war goods to peace goods and intolerant of any threats of wage cuts. But reconstruction in the nation was slow. Shelves were long empty and shortages of many essentials developed. Europe was paralyzed, and multilateral trade had all but ended.

Fearful of communism and convinced that hunger must be eliminated if traditional nations were to be reestablished and if new ones were to be created on the principle of freedom of choice, the United States initiated (1947) the Marshall Plan, which, as proposed by U.S. Secretary of State George C. Marshall, provided $12 billion in aid for the economic recovery of Europe. Already American loans, credits, grants, and relief—private and public—had exceeded that amount by several billion dollars. The plan was not envisioned as a relief program but as a cooperative venture that would restore, or create, economic well-being for all. On 3 April 1948, President Harry S. Truman signed the European Recovery Act, which, through the Economic Cooperation Administration, headed by Paul G. Hoffman and a European coordinating body, the Organization for European Economic Cooperation, gave out through sixteen national offices in Europe and a mission in China at least $17 billion over a four-year period.

Machinery for regulating international monetary and trade relations had already been established by the end of the 1940s. The International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (the World Bank) had been created at a meeting in Bretton Woods, N.H., in 1944. The General Agreement on Tariffs and Trade (GATT), with authority to agree on tariff rates in the free world, floundered for a while but became firmly established by late 1947.

If the 1940s were years of destruction and reconstruction, the 1950s were, throughout the free world, years of growth and of adjustments in a transition from a basically nationalistic thinking concerning tariffs and trade to a basically international philosophy of freedom of world commerce from deadening restrictions. The experiences of the Great Depression and World War II turned thoughts earnestly toward free trade. Led by the social philosophers and economists the movement gained remarkable headway, even among political leaders.

Conscious of the disadvantages of small and sometimes jealous countries in building an industrial structure and in bargaining with great nations, such as the United States and the Soviet Union, Europe turned to unity. Assuming an independent stance, although still drawing appreciable amounts of U.S. aid, France, Belgium, West Germany, Luxembourg, Italy, and the Netherlands in 1957 formed the European Economic Community (EEC), most often referred to as the Common Market. Since the primary purpose of the organization was to improve the economy of all the members by throwing a common barrier around the whole and harmonizing restrictions within, various interests in the United States, especially farmers, were deeply concerned.

Within three years after the formation of the Common Market, Great Britain, Sweden, Norway, Denmark, Austria, Switzerland, and Portugal formed the European Free Trade Association (EFTA). (Finland became an associate member in 1961.) With the United States and Canada, the groupings came to be called the Atlantic Community.

But not all was harmony in the new economic community. The mercantilists quarreled with the tariff reformers everywhere, and in the United States there was opposition to shifting control of tariff rates from Congress to an international body. The decade of the 1960s was at times a period of bitter controversy. President John F. Kennedy early in 1962 requested Congress to delegate some of its authority over tariffs to the executive department so that he might make revisions at home and might, in the meetings of GATT, bargain for ends that would further the trade of all of the countries involved. The Trade Expansion Act of 1962 granted much authority to the president, notably the power to reduce tariffs on a linear basis by as much as 50 percent on a most-favored-nation basis.

American delegates and officials of the Common Market, who were determined to assert themselves politically and economically, gathered in Geneva in 1964, in what is called the Kennedy Round of the GATT discussions. The ministers of the various countries had met the year before in a somewhat vain effort to work out ground rules for the proceedings. Agreements concerning rates on even the simplest industrial groups were troublesome to reach, and reductions in agricultural tariffs were arrived at—if at all—only with great difficulty. After nearly four years of controversy, the meeting adjourned with average tariff rates lowered to somewhere between 35 and 40 percent. Many industrialists and laborers in the United States, wholly dissatisfied, returned to protectionism. Members of the Common Market were unhappy in many ways also, but obviously pleased that they possessed the power to challenge the United States.

The foreign trade of the United States had undergone profound changes. The great surpluses that had marked U.S. world commerce from the 1870s began in the 1950s a decline that reached significant proportions in the 1960s. The great steel empire that Andrew Carnegie and Henry Clay Frick had done much to make the wonder of the industrial world was crumbling because of new mills and less costly labor in other countries. Freighters put into ports on the Atlantic, the Pacific, and the Gulf and even traveled down the Saint Lawrence Seaway to Cleveland, Detroit, and Chicago to unload finished industrial goods in the heart of America. As Europe and other countries of the free world made a remarkable recovery from the war years, products from their new plants poured into the stream of international commerce. Between 1960 and 1967 finished goods in U.S. imports increased 150 percent. Steel, automobiles, textiles, and electronic goods led the new imports. Incoming steel, until 1957, was insignificant in amount and had grown only to some 3 million tons in 1960. But by 1967 shipments had reached 11.5 million tons, and the next year reached 18 million. In 1971 steel imports amounted to 18.3 million tons—nearly 18 percent of all steel sold in the nation that year, when total employment in American mills also fell to its lowest point since 1939.

Competing steelmaking plants, although new, were not appreciably more efficient than those of the United States. Basically the steel problem was too much steel. Production facilities over the world were far in excess of need; yet Japan, for instance, although having to both bring in raw materials and send its finished product to faraway markets, ever increased its output. Even production in Mexico, South Korea, Spain, and the Philippines, for example, grew steadily as capacity outside the United States doubled in the 1960s.

American steelmakers were both unwilling and unable to bargain in the marketplace. They blamed cheap labor (the European advantage, they asserted, was about $20 a ton; the Japanese roughly twice that amount) and liberal governmental assistance in the form of border taxes, license requirements, special levies, quotas, export rebates, hidden subsidies, value added tax, and other monetary and legislative provisions for hindering exports from the United States and encouraging exports to the United States. They turned to Congress for help. Both European and Japanese producers agreed to limit further shipments of steel for the next three years to an annual growth of 2.5 percent.

The automobile industry was turned topsy-turvy also. Large British and French cars—once popular as prestige vehicles—steadily declined among American imports as small European cars, encountering little American competition, began to appear in ever-larger numbers in the United States. Only in the export of trucks, buses, and automotive parts and equipment did the United States keep the unfavorable trade to a reasonable limit in the automotive field.

Textile and footwear manufacturers, too, protested the loss of markets because of competing goods from other countries, especially Japan. Some agreements were reached concerning shipments of cotton cloth into the United States, but the whole field of synthetic fibers remained open. Between 1965 and 1969 American imports of man-made fiber textile increased from 79 million pounds to 257 million pounds. During the same period imports of wearing apparel of man-made fibers grew from 31 million pounds to 144 million pounds. The number of imported sweaters rose from 501,000 dozen in 1965 to about 6.9 million dozen in 1969. Imports of footwear were increasing also: 96 million pairs in 1965; 202 million pairs in 1969. In the first four months of 1970, one-third of the demand for footwear was being met by foreign shops.

Electronic goods in foreign trade added appreciably to the deficit in the United States. Between 1963 and 1970 such imports, by value, mostly from Japan, increased at the annual rate of 32 percent. By 1970 they accounted for 37 percent of the television sets, 63 percent of the phonographs, 92 percent of the radios, and 96 percent of the tape recorders sold in the United States—though some of the parts were made in American plants or in Americanowned foreign plants. Even the developing countries exported local products, including tropical fruits and novelties, and such substantial products as special steels.

The basic problem in American foreign trade in the early 1970s was that imports had increased more rapidly than exports. Building on the foundation of American aid after World War II, and to an appreciable extent on borrowed American technology, Europe and parts of Asia performed an industrial miracle and captured markets over the world, especially in the United States, with their well-made goods. Moreover, the United States, suffering from persistent inflation and its consequent high prices, could not effectively compete in world markets. Imports were cheap in comparison with domestic prices, and foreign goods flowed freely into the ports.

Many industrialists and wage earners in the United States resented the economic penalties they thought the changing foreign trade situation had brought. During the 1960s ever-increasing numbers of U.S. corporations and individuals set up factories throughout the world. Some said they were fleeing behind the protective walls that prevented Americans from selling in many world markets; others said they were escaping the high wages at home that choked them out of world competition; a few said they were getting away from the irresponsible American workmen. Discontent in the nation continued to grow, and American industrialists and laborers and a great number of other citizens, convinced that the whole international experiment had been a failure, turned to protection. Arguments by theoretical scholars and realistic statisticians that free trade had created more jobs than it had destroyed and that a return to the old order would bring economic tragedy were unconvincing to factory owners with limited markets or to men without jobs.

American foreign trade was involved not only in the complex industrial world but also in the even more complex monetary world. The annual unfavorable balance of payments, sometimes of several billion dollars, made it difficult for the nation to pay its bills. The merchandise exchange was with few exceptions favorable to the United States; it was the balance of payments that embarrassed the nation. Military commitments in Europe and elsewhere, the Vietnam War, heavy expenditures of American tourists abroad, shipping charges, and a host of other payments left the nation each year through the 1960s and at the beginning of the 1970s heavily indebted. This debt steadily increased the claims on the gold reserves of the United States and brought an ever-growing doubt concerning the dollar.

The essential monetary difficulty was not so much the problem of gold as it was the problem of adjusting the existing monetary system to the needs of the new international situation and the overvalued dollar—the only currency in the free world with a fixed value based on a specific amount of gold. (The designers of the IMF at Bretton Woods had set up that standard with all other currencies having a parity relation to it. There was a modest permissible variation in the rate of exchange.) If, however, the unit value of any currency became too cheap or too expensive in terms of other currencies, it could be devalued or revalued upward to be realistically realigned with the dollar. In the 1960s most of the currencies of the major countries had become greatly undervalued in terms of the dollar, notably the West German mark and the Japanese yen. Thus imports were temptingly cheap in American ports, and exports discouragingly costly in foreign markets.

Through the 1960s U.S. imports grew twice as fast as exports, and the small trade surplus fell each year far short of meeting the persistent foreign debt. Dollar claims piled up in Europe. In 1968 additional reserves (often referred to as paper gold) were provided by the creation of Special Drawing Rights issued by the IMF. But the imbalance continued. There was no lack of suggested remedies: devalue the dollar; increase the price of gold; widen the parity margin; float all currencies; desert gold altogether. Each proposal stirred some doubts, and each one presented a plethora of known and unknown difficulties. As the 1970s began, there was no question that the dollar was under tremendous pressure.

The impending crunch came in August 1971, when higher interest rates in the United States, rumors of revaluations, and a growing American deficit, swelled by strikes and threatened strikes, poured a flood of unwanted dollars into Europe. Speculators, corporations, commercial banks, and other holders, protecting themselves from changes in currency values, began to scurry out from under their surplus dollars. They returned to the United States $4 billion in the second week of August. The nation at the time held only $13 billion in its gold reserve against some $60 billion in short-term obligations. On 15 August President Richard M. Nixon closed the door on gold redemptions and levied a 10 percent surtax on dutiable imports. The drastic action, it was hoped, would force Japan and the major European countries to revalue their currencies upward, remove some of their manifold barriers to United States trade, and share the costs of American military forces stationed abroad. Despite many fears that the action might disrupt the monetary world, the situation cleared appreciably, although the bitternesses that had long existed did not disappear.

By February 1972 the monetary situation had begun to deteriorate rapidly. Fearful that Congress, dissatisfied with promised trade concessions from the Common Market, Canada, and Japan, would severely amend the devaluation proposal, Europe began to enact currency controls. American foreign trade throughout the year remained the largest in the world, but exports made no appreciable gains on imports. The surtax, soon removed, had not lessened appreciably the amount of goods coming into American ports. Tariff walls had come down, but other barriers had gone up.

The dollar, devalued again in February 1973 and further deteriorated through the succeeding currency float, continued to decline relative to the currencies of the Common Market and Japan. A gasoline shortage developed with the oil embargo of October 1973, and by the early months of 1974 the economic situation was recognized by even the most optimistic as a full-blown depression, with further unemployment but no end to inflation. Quarrels in the free world intensified as the United States established détente with the Soviet Union and offered a friendly hand to China. Sales of grain to the Soviets, reductions in military and other world expenditures, augmented returns from foreign investments, and other favorable factors pushed the balance of trade substantially in favor of the United States by the beginning of 1976.

Between the 1970s and the mid-1990s the U.S. post–World War II dominance of world trade came to an end. Major changes in transportation, finance, corporate structures, and manufacturing restructured the global economy, erasing the significance of international economic boundaries. Whole industries in the United States were largely eliminated, unable to compete effectively against cheaper and often better imports. In labor-intensive industries, such as textiles, shoes, and assembly work, the competition came from low-wage developing countries; in the automobile, steel, and electronics industries it came from technological innovators abroad who developed new products and efficient manufacturing.

The United States continued to be the world's largest internal economic market, but this did not isolate the United States from international trade, as it willingly imported goods and services and eagerly exported goods and know-how. The United States sought a role in the global economy, as evidenced by the North American Free Trade Agreement (NAFTA) and major revisions in the General Agreement on Tariffs and Trade (GATT). NAFTA, which became effective in January 1994, created a major regional trading block including Canada, the United States, and Mexico. This far-reaching agreement reduced tariffs over a fifteen-year period, eased cross-border transportation, and opened Mexico to U.S. and Canadian investments, even in banking and state-owned energy monopolies. Labor unions opposed NAFTA, asserting that corporations would transfer jobs and plants to Mexico because of lower wages and lax environmental regulations. GATT negotiations were protracted. Revisions were negotiated by three presidents—Ronald Reagan, George Bush, and Bill Clinton—who supported cutting tariffs among 123 nations. The GATT agreement known as the Uruguay Round reduced tariffs by 40 percent, cut agricultural subsidies, extended patent protection, and set out rules on global investment. Disputes were to be resolved by the World Trade Organization (WTO), a powerful arbitration board that would decide whether a nation's domestic laws violated the agreement.

The arguments for trade liberalization through NAFTA and GATT were the classic economic arguments of comparative advantage originally articulated by the early nineteenth-century British economist David Ricardo. The idea was simple—nations should specialize in products they can produce cheaper or better. Deciding what products that would mean for the United States was problematic. The last U.S. trade surplus (U.S. exports exceeding imports) occurred in 1975, when the nation enjoyed a $12.4 billion surplus. By 1984, however, the United States was posting $100 billion-plus trade deficits each year, reaching a record $166 billion in 1994. The trade deficit is a summary statistic for a more complicated set of relationships that includes country-to-country deficits and surpluses and differences between economic sectors. In 1993, for example, the United States ran a trade surplus of $12.8 billion for foods, feed, and beverages but had large deficits in automotive vehicles ($50 billion) and consumer goods ($79.4 billion).

U.S. productivity lost its advantage when other industrializing nations used new technologies and lower wages to gain access to the vast U.S. market, outcompeting domestic manufacturers. A television-addicted nation sat glued in front of foreign-produced sets. The last U.S. television factory—operated by Zenith Electronics Corporation in Spring field, Mo.—closed in 1992, leaving more than 1,300 workers jobless when production shifted to Mexico. Japan cut into several consumer markets—electronics, cameras, computers, automobiles. Japanese brand names became household words: Sony, Mitsubishi, Toyota, Nissan, Honda, Hitachi, Mazda, Sharp, Canon, Panasonic. The United States turned to quotas to stem Japanese imports. Japan responded by opening plants in the United States that employed U.S. workers but still diverted dollars abroad.

Labor unions urged the public to "buy American," but identifying the products was far from easy. A car "made in America" contained components built in more than a dozen countries on three continents and ultimately assembled in a U.S.-based factory. Was the car American made? A General Motors executive in 1952 testified before Congress: "What is good for the country is good for General Motors." The reasoning no longer held as GM moved jobs and facilities to East Asia or to Mexican plants along the U.S. border. Displaced from well-paying jobs, U.S. workers and managers found reentering the workforce difficult. Even in a growing economy, new jobs paid less. The Census Bureau found that workers who left or were laid off between 1990 and 1992 saw their weekly wages fall 23 percent when they regained employment, often without health insurance and other benefits.

The international economy developed an infrastructure of transportation, financing, and communications that made the movement of money, information, and goods easier and cheaper. Corporations moved money around the world to finance trade, protect against currency fluctuations, or to seek higher returns on investments. Meanwhile U.S. individual and institutional investors looked overseas for investments, often financing enterprises that competed against U.S.-based companies. Huge amounts of capital that otherwise might have been invested in domestic companies found its way abroad into emerging markets in Eastern Europe, Latin America, and the Pacific Rim. Money could be moved instantaneously around the world. Capital's loyalties were not to governments or domestic economies but to the best rate of return.

Making the United States competitive internationally was easier to advocate than accomplish. It put pressures on corporations to reduce employment and improve production. Problems created in the United States by trade liberalization remained largely unaddressed by the end of the 1990s. For the public, trade liberalization was complicated and confusing, with contradictions that were difficult to explain or accept. If trade agreements were good for the nation, why were jobs lost and industries hurt? In 1994 the United States displaced Japan as the world's most competitive economy, based on an annual index by the World Economic Forum. The international economy subjected the U.S. labor force to new economic pressures—job insecurity, stagnant wages for nonskilled labor, and fewer company-sponsored benefits, particularly health insurance. U.S. wage rates were substantially lower than those in Germany and Japan, but within the United States something else occurred—a long-term trend of widening income inequality between the nation's rich and the poor and middle classes. Meanwhile, the domestic economy was transforming itself, moving from an industrial age to the information age, one for which many workers were ill prepared. The questions were how many high-tech, well-paying jobs could the economy realistically create and how could those stuck in low-wage jobs in the growing service section support themselves and their families.

BIBLIOGRAPHY

Audley, John J. Green Politics and Global Trade: NAFTA and the Future of Environmental Politics. Washington, D.C.: Georgetown University Press, 1997.

Buchanan, Patrick J. The Great Betrayal: How American Sovereignty and Social Justice Are Sacrificed to the Gods of the Global Economy. Boston: Little, Brown, 1998.

Dunkley, Graham. The Free Trade Adventure: The WTO, the Uruguay Round, and Globalism, a Critique. New York: St. Martin's Press, 2000.

Ferguson, Niall. The Cash Nexus: Money and Power in the Modern World, 1700–2000. New York: Basic Books, 2002.

Friedman, Thomas L. The Lexus and the Olive Tree: Understanding Globalization. New York: Anchor Books, 2000.

Hufbauer, Gary C., and Jeffrey J. Schott et al. NAFTA: An Assessment. Washington, D.C.: Institute for International Economics, 1993.

Krugman, Paul R. The Age of Diminished Expectations: U.S. Economic Policy in the 1990s. Cambridge, Mass.: MIT Press, 1990.

Pomfret, Richard W. T. International Trade: An Introduction to Theory and Policy. Cambridge, Mass.: Blackwell, 1991.

Yergin, Daniel. Commanding Heights: The Battle between Government and the Marketplace That Is Remaking the Modern World. New York: Simon and Schuster, 1999.

James A.Barnes

BrentSchondelmeyer/a. g.

See alsoDollar Diplomacy ; Foreign Investment in the United States ; Imperialism ; Latin America, Relations with ; Most-Favored-Nation Principle ; Pan-American Union ; Reciprocal Trade Agreements ; South America, Relations with ; Treaties, Commercial .

Trade, Foreign. This essay on foreign trade as an instrument of foreign and defense policy is divided into three sections: Wartime provides an overview of the role of foreign trade in U.S. strategic and economic policies in wartime; Trade Restrictions examines the use of embargoes and economic sanctions as instruments of U.S. security policy against hostile nations; and Neutral Trade explores America's assertion of commercial rights when it was a neutral nation affected by other countries' wars.
Trade, Foreign: Wartime The drive for American national economic security has existed since 1776, and foreign trade has played a strategic and economic role in U.S. policy. The interaction of commerce and defense was necessary and obvious. Historians have long argued over the relative importance of economic and strategic concerns in foreign policy, with revisionists emphasizing the profitability of trade expansion and realists stressing strategic defense imperatives. Regardless of this debate, the trade/security linkage has prevailed throughout the nation's history.

International commerce was central to the American search for independence in the Revolutionary War. The alliance with France, 1778–1800, allowed trade to serve political purposes. As president, George Washington perceived national security in terms of commercial relations and a military establishment, not entangling alliances, yet trade discrimination, mercantilism, and pirates threatened the security of the new nation. In response, Secretary of State Thomas Jefferson issued a Report on Commerce in 1793 that would reflect trade ideology for the next two centuries. Recommending specialization at home, Jefferson demanded reciprocity treaties and equal access to markets abroad to enhance national defense. American commerce flourished in the early nineteenth century, but was inevitably vulnerable to reprisals from warring Europeans. Terminating the commercial alliance with France in 1800, the country still developed North Atlantic and western frontier trade. Neutrality and trade expansion collided with British maritime coercion and led to mutual sanctions. The nearly disastrous War of 1812 convinced U.S. policymakers further that trade and military power were complementary.

Although American diplomacy was “altogether, of a commercial character,” as the historian Theodore Lyman wrote in 1828, the dimension of power was integrated into the trade/security formula in the late nineteenth century. While it still neglected the merchant marine fleet, the government funded a modern navy in the 1880s to promote commercial penetration overseas. Seapower and vigorous trade were complementary, wrote Alfred T. Mahan in promoting American greatness through imperialism, and pursuit of an interoceanic canal became part of this equation. By 1890, tariff policy shifted from protectionism to export expansion through reciprocity treaties as a way to boost American power. And trade and security—essential elements of international status—fused after the Spanish‐American War of 1898, as America acquired territories in the Caribbean and stepping‐stone islands across the Pacific to the fabled China market.

Officials did not necessarily elevate trade over diplomatic issues, yet they understood that trade policy meshed with global strategic objectives. President Theodore Roosevelt recognized the limits of American power in Asia, for instance, but viewed export growth as a component of military might, industrial strength, and domestic social order. Maintaining a balance of power in Europe, predominance in Latin America, and a presence in Asia all hinged on expanding and defending trade routes to U.S. possessions and markets. The building of the Panama Canal exemplified this coupling of commerce and security.

By World War I, this bond was inseparable. President Woodrow Wilson's Fourteen Points proposed that peace and prosperity could exist only by equal access to markets and an end to trade conflict. In the 1920s, American officials such as Secretary of Commerce Herbert C. Hoover also realized that America depended on foreign supplies of raw materials for its industrial production, which strengthened the country's military. Oil imports, for instance, became a priority. Thus, the commercial retaliation of the early depression gave way to mutually beneficial negotiations under the Reciprocal Trade Agreements Act of 1934, the brainchild of Secretary of State Cordell Hull. Protectionism led to political strife, he claimed, and his proof was that no trade agreement signee ever fought America. In the movement toward World War II, the administration of Franklin D. Roosevelt looked on German trade autarchy as a threat to U.S. commerce and peace, while American security required an export embargo to slow Japanese aggression in Asia. By the end of World War II, Washington planned for a cooperative, multilateral trade system based on nondiscriminatory commercial practices as the economic means to assure peace and security.

Multilateralism was a pillar of national security policies in the Cold War. With unparalleled economic power, America forged a trade system under the General Agreement on Tariff and Trade (GATT) in 1947 that boosted the recovery and prosperity of its Cold War allies. GATT promoted trade liberalization among the capitalist nations, strengthened their economies, and thereby brought them political stability, rendering them invulnerable to Soviet penetration. Liberal trade with American allies, and commercial restrictions against Communist rivals, were hallmarks of the Cold War until the demise of the Soviet bloc by 1991. Every president since Harry S. Truman has pursued liberal trade as a weapon against aggression and instability. Multilateralism built world trade equilibrium and interdependence among like‐minded nations, continuing the service of trade to security imperatives.

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Peggy Liss , Atlantic Empires: The Network of Trade and Revolution, 1713–1826, 1983.
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Walter LaFeber , The American Search for Opportunity, 1865–1913, 1993.

Thomas W. Zeiler

Bibliography

Stuart L. Bernath , Squall Across the Atlantic: American Civil War Prize Cases and Diplomacy, 1970.
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Thomas W. Zeiler

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Louis Martin Sears , Jefferson and the Embargo, 1966.
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Thomas W. Zeiler