Trade Protection and Tariffs from Reagan to Trump

"This is not your father's Republican Party" is a well-established cliche by now, with near complete turnabouts on once rock-solid conservative policy stands from industrial policy to our commitment to NATO. However, no change in conservative political economy is more dramatic than the adoption of free trade.

Free trade was always seen as a logical and necessary component of free market capitalism in the years preceding the Reagan-Thatcher decade of economic reform and deregulation. Ronald Reagan first proposed what became the 1993 NAFTA treaty in 1979 and achieved the first step toward the treaty with a free trade agreement with Canada before leaving office in 1988. During Reagan's presidency, the number of goods without tariff into the United States from developing countries was sharply reduced.

Reagan frequently argued publicly in favor of free trade, as seen in this excerpt from a 1986 radio address: “Our trade policy rests firmly on the foundation of free and open markets. I recognize … the inescapable conclusion that all of history has taught: The freer the flow of world trade, the stronger the tides of human progress and peace among nations.” In his post-presidential memoirs, Reagan cited the disastrous experience with the Smoot-Hawley tariffs during the Great Depression, adding that "I am a free trader. I firmly opposed import quotas." One of his first acts in office in 1981 was terminating Carter-era import quotas on shoes from Taiwan and South Korea.

Hence, Donald Trump's enthusiastic embrace of tariffs and protection for American industry appears to be a complete reversal of Reagan and Reagan-era policy. Reagan wrote in his memoirs, "When I was young and a Democrat, the Democratic Party was the party of free trade and the Republicans were the party of high tariffs and protection. Today, it's just the opposite. I've wondered how that happened." Now, he might wonder how it happened again.

But is this accurate?

Strict libertarians and ardent free traders have long criticized Reagan for what they perceived as hypocrisy on trade, as he instigated or signed off on numerous protectionist measures throughout his presidency, starting with his first months in office in 1981. During this period, he persuaded Japan to adopt significant "voluntary" automobile import restraints, which remained in effect until 1985. During that time, economists estimated that the quotas raised car prices for consumers by about $1,000. (Incidentally, Arthur Laffer—a Trump supporter—estimates Trump's 25 percent auto tariff could increase new car prices by $4,700.) Japan was told bluntly that if they didn't agree to this, Congress would impose harsher import quotas and extend them to other Japanese products, which was possibly true. Reagan also secured agreements from several European and Latin American nations to adopt similar "voluntary" quotas on steel exports to the U.S. Additionally, Reagan imposed protectionist measures on textiles, specialty steel, Canadian wood products, Italian pasta, motorcycles, and even mushrooms during his two terms. In 1986, Reagan threatened to impose a 200 percent tariff on Spain for its restrictions on U.S. grain imports.

While continuing to fly the banner of free trade throughout his presidency and achieving some progress in speeding up multilateral reductions in tariffs, Reagan conceded that "Many countries, including Japan, continue to impose barriers that give them an unfair advantage in international trade, and until they become more willing to compete on a level playing field, they can expect protectionist sentiment to grow in this country."

Heeding this pressure, in 1984 alone (an election year, to be sure), the Reagan Administration filed over 200 petitions with the International Trade Commission for relief (meaning retaliatory tariffs) from foreign market protection. During that same year, Reagan was quietly encouraging the efforts of the Emergency Committee for American Trade, a business group formed to oppose protectionist trade bills.  

Reagan fought a rearguard action against protectionist sentiment throughout his presidency. Although he correctly noted that Democrats, spurred on by their powerful labor union interests, provided the primary impetus for protection, there were still enough pro-protection Republicans in Congress to form a bipartisan protectionist majority. At one point in 1985, the Senate voted 92 - 0 and the House 394 - 19 for resolutions calling for retaliation against Japan unless it reduced its trade imbalance with the U.S. In 1985, 300 protectionist bills were introduced in Congress.

Sometimes, protectionist legislation was sponsored by Republicans. Reagan wrote in his diary on September 18, 1985: "Last night I vetoed the Trade Bill which was a protectionist attempt for textiles, shoes & copper. I called Strom Thurmond—author. He took it better than I thought he would." (Thurmond was not the only Republican to sponsor protectionist legislation during Reagan's presidency.) Reagan vetoed several trade protection bills and had to work hard to round up enough Republican votes to sustain his vetoes. Reagan veto threats in other cases scuttled trade bills bubbling up in Congress.

In other words, the Trump disposition was widespread in Congress in the 1980s, and not coincidentally, Trump was making "unfair trade" one of his central public pronouncements as he was building his celebrity empire. Political scientist James Shock observed in a 1994 assessment of the period: "Democratic attempts to exploit the trade issue regularly prodded the White House to take moderately tough trade actions, especially just before elections on key congressional votes, resulting in a ratcheting up of U.S. trade policy during the 1980s." A bitter David Stockman, Reagan's first budget director, lamented: "The essence of the Reagan Administration's trade policy became clear: Espouse free trade, but find an excuse on every occasion to embrace the opposite. As time passed, we would find occasions aplenty."

Stockman's judgment is too harsh. The point is that free trade was on the defensive throughout the 1980s. Purists may accuse Reagan of appeasement of protectionist interests, but given the increasing trade deficit in the 1980s—largely the result of the rapidly growing U.S. economy (much faster than our trading partners in most cases)—it is arguable that Reagan maneuvered adroitly to minimize the damage Congress would have inflicted if he hadn't compromised. It is conveniently forgotten today that the politics of trade were on a knife's edge throughout the decade, with the Reagan White House genuinely fearful that it would lose control of the issue.

Today the scene appears to have reversed, with a weak bipartisan consensus in Congress in favor of liberalized trade (with certain exceptions such as China). At the same time, we have a president who loves tariffs and sounds like the Democrats of the 1980s (Trump among them at that time) who charged Reagan with "turning Uncle Sam into Uncle Sap." A closer look reveals a more confused landscape, however.  Some of the protectionist ideas Reagan and Republicans successfully fought off in the 1980s, such as "industrial policy," domestic content mandates for manufacturing, and plant-closing notification legislation, have been embraced by some of the "national conservatives" and put into practice here and there.

Beyond these circuitous turnabouts, one key distinction should be kept in mind: Reagan accepted some protectionist measures largely in service of opening foreign markets to fair competition from otherwise robust American competitive production, while President Trump truly seems to think American industry can't compete against the comparative advantages of foreign competition without protection, though there is some sign that Trump may actually be engaged in a game-theory exercise to force open liberalized trade after all—in other words, "fair trade" rather than "free trade." As with many aspects of Trump's words and deeds, it is difficult to discern from moment to moment.

Steven F. Hayward is the Edward Gaylord Distinguished Visiting Professor at Pepperdine University's School of Public Policy.