By William Reinsch
Green Day’s lyrics perhaps best describe the trade landscape we currently face, “Another turning point, a fork stuck in the road.” Today’s column is about choices and their consequences — consequences that sometimes occur long after the choice is made, sometimes without us even knowing they have happened. An excellent case in point is spelled out in Ted Alden’s latest book, Failure to Adjust — an excellent read, by the way. It concerns the Burke-Hartke trade bill, named after Congressman James Burke (D-MA) and Senator Vance Hartke (D-IN), which Alden calls “the most important trade bill that never passed the U.S. Congress.”
First introduced in 1971, and then periodically thereafter, it contained many overtly protectionist provisions, notably one which would freeze the import share of the U.S. market at the 1965-1969 average, but more important were its provisions on investment. They would have authorized the president to block any outbound technology transfer that would have reduced U.S. employment or any offshore investment he considered not to be in the U.S. national interest, including if it would reduce U.S. employment. In addition, there was a tax provision that would have eliminated deferral of taxes on overseas profits.
This was an obvious — and clearly stated — attempt to keep companies and jobs onshore as well as limit competition from imports. The bill was strenuously and successfully opposed by the business community as well as by the successive administrations that had to deal with it, but it is significant because it offered a fundamental choice — a fork in the road, if you will — between an inward looking and isolationist America and an outward looking internationalist America. The former prevailed throughout most of our history, but the latter has guided our policy since World War II, and it beat Burke-Hartke.
This is important because we face this same choice again but under different circumstances. Burke-Hartke was initially proposed in what was largely a pre-globalization world, where global supply chains were the exception rather than the rule, and products were made here and shipped there and called exports and imports were the reverse. While it would have been a major mistake, it was nonetheless a viable policy option. We could at that point probably have made the transition to a Burke-Hartke world without the dislocation that would occur today. The result would have been a world in which the U.S. attempted to maintain its dominance by hoarding its technology, being as autarkic as possible, and maximizing its exports. In short, a classic mercantilist policy.
That might have worked then — after all it worked for us in the 18th and 19th centuries — but it won’t work now. Then the gap between us and everybody else was much greater than today, when we face serious economic rivals, including China and the EU, and others on the way up. Then trade was a much less important part of our economy, where most of the stuff we needed, aside from coffee and bananas, could be made here (it was the fact that that was beginning to change that led to Burke-Hartke). Today we live in a world of global value chains where everything is made everywhere, and we live in a mature slow-growth economy where 95% of the world’s customers live outside our borders. Like it or not, our growth these days depends on further integration into the world trading system, not withdrawal from it.
Yet statements by the president-elect and some of his nominees suggest that Burke-Hartke is closer to what they have in mind than the free trade policies of their Republican predecessors. In a November 30 CNBC interview, Wilbur Ross, the nominee for Secretary of Commerce, said, “What has to be put into perspective, we are the big market. We are the world’s biggest importer. We need to treat the other countries as good suppliers. Not as determining the whole show.” Mr. Ross’ comment seems to view the U.S. as primary manufacturer and the rest of the world as suppliers of raw materials for us. That fit our country in 1870, but it is not a viable path today. We crossed that Rubicon when we rejected Burke-Hartke.
By opting for engaging with the world for the past 70 years, we have led the creation of a very different global economy than the one we had to deal with in the 1950s and 60s. Burke-Hartke stuck a fork in the road in the 1970s, and, wisely or not, we chose to go in a different direction. Donald Trump may see the same fork now, but it is too late to choose a different path. We are stuck with what we have created —we can’t uninvent the technologies that have enabled global inter-connectedness. The best course is to figure out how to thrive within it rather than to try to undo it.
William Reinsch is a Distinguished Fellow with the Stimson Center, where he works principally with the Center’s Trade21 initiative.