International Trade and the U.S. CongressBy Matthew C. WellsPolitical Science 3080 - Senior ThesisOffices of U.S. Congressman Jim RamstadDr. Paul Soper, Internship DirectorUniversity of Minnesota – Fall 2003

The economy is the lifeblood of an industrialized nation,

and as businesses strive to compete for limited resources, the

fate of the nation balances on being able to provide a stable

market that remains competitive and profitable for business.

Despite the availability of inexpensive labor and products

overseas, conflicting opinions arise between maintaining the

status quo of a local economy and the cost-efficient pursuit of

international capitalist trade.

In the government policy making process, industries crucial

to the national economic infrastructure can often be given

preferential treatment. The temporary burden of tariffs and other

protectionist measures can help an industry restructure in order

to compete in the open market place, but in the long run they

create artificial markets dependant on subsidies which further

restrict trade and inhibit growth.

Through my internship with Republican Congressman Jim

Ramstad’s home office, representing Minnesota’s 3rd U.S.

Congressional district, I was granted an insight to governmental

office and was able to study the relationship of public service,

our elected officials, and the law making process. Congress and

the Executive Office of the President must strive to meet the

challenges that face our nation for now and for the future as the

tides of political opinion and favor rise and fall with each

election.

The laws and administration of government policy can have a

very important effect on the well being of the country. Our

nation can look to the past to see the negative effects that

tariffs can have, such as in the Smoot-Hawley Tariff of 1930,

examine the success that can be seen with the elimination of

trade barriers in measures such as the North American Free Trade

Agreement, and also examine the increasingly global marketplace

through the steel tariffs of 2002-2003.

The U.S. Congress

The United States Congress is a bicameral governing body

comprised of 535 members, each handling different aspects of

drafting legislation, planning, and oversight. The upper house,

or Senate, contains 100 members with two individuals representing

each of the 50 states. Office terms are for six years, with 1/3

of the membership up for election every two years. This

staggering helps minimize instability posed by the easily swayed

tide of public opinion. The lower house, called the House of

Representatives, contains 435 members who are up for election

every two years, and who specialize to a greater extent in their

committee assignments than their counterparts in the Senate. U.S.

Senators are responsible for many more issues and are placed on

more committees, as there are many fewer members than in the

House of Representatives. Districts of representation in the

House are proportioned by population, with an average of more

than 600,000 people in most.[1]

In the 108th Congress, Congressman Ramstad held a seat on

the Ways and Means Trade Subcommittee, which holds strong

authority in the drafting of bills and legislation regarding

nearly every aspect of tariffs and taxation for international

commerce and trade.[2] Currently with the Senate Finance

Committee, the House Ways and Means committee dominates the halls

of Congress in amending bills, informal negotiations, drafting

trade and omnibus legislation, and assigning committee conferees

to reconcile house and senate versions of bills in order to

present them to the President to be enacted into law.[3]

On the national level in the United States, Members of

Congress retain many different techniques and measures that can

affect both local interests and relations on both the local and

international spectrum. In relation to trade, Individuals that

come from primarily blue collar districts with high levels of

manufacturing generally support cost control and quota policies

that restrict inexpensive imports and provide a more competitive

business environment for the local economy. Individuals that

represent affluent districts comprised of corporate interests and

business owners often promote policies that increase profits

through open trade and lowered costs for labor and raw materials.

In many ways, the world has become interconnected, and

foreign policy can dictate economic relations with other

countries through trade, tariffs, and treaties. The effect of

policies on trade can be regarded as components of foreign policy

where different parts combine and intertwine with each other.

Tariff and commerce questions, immigration policy, foreign aid,

international security and national defense all affect trade

issues within international relations.[4] Other ramifications

include human rights, narcotics trafficking, environmental

regulations and numerous other individual situations.

The range of beliefs in policy regarding economics and trade

greatly varies, and has a history as far as can be traced. Early

sentiments of creating trade surpluses that resulted in the

accumulation of hard currencies such as gold and silver[5]

evolved into economic concepts that factor in domestic demand,

technological and productive capability, business competition

climate and global strategies.[6] As economic evaluations grow

more complicated, concepts of competing international economies

and complementary economies become intertwined with other

factors, including government actions.[7]

In the early years of the U.S., partisan views on tariffs

were the result of protective fiscal policies and principals put

forth by Secretary of the Treasury Alexander Hamilton as part of

his financial program of 1789, and continued with varying degrees

throughout the 19th century.[8] Substantial tariffs were

generally expounded and held up following the high revenue

generation needs required by the Civil War.[9] Lawmakers passed

laws representing the popular views of constituents and

industrialists, and levied tariffs as a tax against foreign

imports. This helped safeguard and promote industries such as

textiles and mining, which were essential for the development of

the country.[10]

By the turn of the 20th century, the national consciousness

had additionally grown to encompass the ideology of utilizing

government policy and the military to protect economic interests

abroad and strengthen international trade.[11] Indeed, certain

businesses survived and thrived solely through governmental

intervention, particularly in the steel industry subsidiaries

from Navy shipbuilding and the military. The combining of the

public good, private interest, and national security became

inexorably intertwined as government and military reliance on

private firms solidly established the connection of the economy

to public policy.[12]

The face of this modern period of American foreign diplomacy

began with the new acquisition of the Cuban and the Philippine

territories following the war with Spain in 1898.[13] The U.S.

broke free of its isolated continental land lock and entered into

the world of global politics. International acceptance for the

fledgling informal American colonial empire relied on

international cooperation and America’s ‘Open Door’ trade policy

that was reliant on the countries proximity to China.[14]

Trade policy depends on the continued success of trade

partners, as demonstrated with the passing of World War I. A new

international economic crisis was forming as the United States

found themselves the lessor of $10.3 billion war dollars to the

countries of Europe. To achieve repayment, Congress created a

tight fisted Debt Commission to collect funds through policies

that forbid any concessions or bargaining. While strict policy

was not completely adhered to, the Commission was in part a

reaction from Congress to gather some power back from the

Presidency lost during the war.[15] Regardless, the money was

attempted to be extracted from disparate and unenthusiastic

countries with war torn economies and little ability to pay.[16]

At home America was facing its own crises that would prove

crucial to foreign and domestic economic policy. Banks had

greatly over extended themselves in the 1920s through unsound

lending and extreme speculation and eventually leading in part to

the Great Crash of the New York Stock Exchange on October 29th,

1929[17]. American farm income also was sharply reduced in the

years following WWI as agricultural production in Europe

recovered, and world markets could not consume U.S.

overproduction. The 1920s saw farm foreclosures skyrocket as the

gross national value of farm products was nearly cut in half. In

response, Congress passed and the President signed the 1922

Fordney-McCumber Tariff Act, which attempted to provide higher

prices for farmers by raising the price of imported farm goods.

[18]

American financial woes were only made more difficult when

foreign countries were even more unable to repay war debts under

the system of high U.S. tariffs.[19] Retaliatory tariffs were

subsequently enacted by other countries, which subsequently

served to weaken the economy by constraining U.S. export markets.

[20]

While some individuals from both Republican and Democratic

corners correctly claimed that the tariffs were artificially

supporting domestic industry at a cost to the consumer,[21]

others claimed the increase of prosperity in the mid 1920s was a

result of tariff protectionism, and urged that existing tariffs

were not adequate to protect agricultural interests.[22] Fervent

lobbying of various interest groups[23] resulted in the passage

of the U.S. Smoot-Hawley Tariff Act of 1930 by the protectionist

factions of the Republican controlled House and Senate

majorities.[24]

Tariffs can be useful tools that are demanded by

constituents to protect the economic viability of a district of

representation, such as the farm blocs that pushed the increased

agricultural tariffs of Smoot-Hawley[25] beyond even those of

Fordney-McCumber.[26] Capaigns hinge on the issue and being

elected can depend upon it as pressured interests peddle their

influence.[27] As the constituents gather their resources and

organize, so too do elected officials gather their political

capital to increase their influence through coalitions.[28]

The Republican majority of Congress in 1929-1930 held 15 of

the 25 seats of the Committee on Ways and Means and was able to

place subcommittee chairs that controlled specific tariff

interests specific to their district. Through established rules,

the Democratic minority was not represented and had no say in the

legislative committee drafting.[29]

House Ways and Means Committee Chair Willis Chatman Hawley

of Oregon and Senate Finance Committee Chair Reed Smoot of Utah

were both avid proponents of tariffs.[30] Their partisan

counterparts and certain members from farm belt states were not

as enthused about the prospects that the higher tariffs would

bring. Farmers were pleased that certain goods such as lumber and

shingles were limited in the tariff, but overall the numbers were

beguiling due to the tariffs on other manufactured goods

outweighing any possible positive effects.[31]

Rancor between House and Senate versions of the bill was

increased by President Hoover publicly decreeing some measures of

the Senate version as unsatisfactory following the House passage

of the bill.[32] The President disliked the Senate version which

allowed Congressional altering of tariffs, while members of

Congress claimed tariffs a form of taxation and therefore not a

right of the Executive branch.[33] After six months, eighteen

days and 1,253 amendments, the bill passed the Senate and was

headed for a conference committee to reconcile the differences

with the House bill.[34]

Conference committee members are the last line of authority

in directing how a bill proceeds to the President for signature

and passage into law. Rules are generally adopted by majority

leadership to tailor the committee conferees and determine the

structure of the proceedings. Little amendment action is possible

from outside of the committee due to the tenuous and provisional

nature of bill review. Ultimately the conference report comes out

of committee, is passed by both the House and the Senate, and

then is presented to the President.[35]

Membership on the Smoot-Hawley conference committee was

limited to five members from each body of Congress, with three

Republicans and two Democrats chosen. The votes which passed the

bill through Congress had members defecting from official party

stances of conservatives and liberals on both sides of the aisle,

but the bill was not in accordance with President Hoover’s will.

Various measures in the bill were opposed in one body of Congress

but supported in the other, and the bill traveled from committee

to the floor and back multiple times. With the country challenged

by the Great Depression, the measures begettingly became law.[36]

Despite the hoped for benefits of the tariffs, world trade

and American imports and exports had dropped to between 1/3rd and

1/4th of their original values in the years following the Great

Crash of 1929.[37] Other countries quickly realized that if the

excess of American farms and industry were to compete in their

home markets, retaliatory measures would be necessary to protect

their own markets and national interests, such as quotas to limit

imports and financial tariffs.[38]

In Italy, Mussolini argued that the United States held the

right to build a tariff wall to protect American markets, but

that Europe also reserved the ability to defend the economic

interests of their own countries. He remarked,

“That capacity of America to conquer the world markets has imposed on other nations the obligation to protect their ownmarkets…No one contests the right of America to construct a tariff wall and reject all protests under the pretext that tariff policy is an interior question. However, that policy has profound and well-known repercussion.”[39]

Retaliatory measures increased the duty of inexpensive Ford

automobiles in Italy from $350 to $815.50 on an $800 vehicle. The

counter-tariffs effectively dried up the growing Italian market

for American production cars to approximately 90% of what it had

been just months previously.[40]

By 1930, thirty-eight countries had protested the United

States’ tariff increases in the Smoot-Hawley bill.[41] In

Switzerland, where 10% of the population was dependant on watch

making and the supplying trades, U.S. tariffs on watches and

clocks infuriated and insulted the Swiss economy and national

pride. Swiss importers and citizens began a boycott of American

products while favoring purchases to American competitors.[42]

Closer to home, tariff exchanges resulted in a reduction of U.S./

Canadian trade in excess of 1 billion dollars between the two

countries, approximately 2/3rds to 3/4s of the level that existed

prior to Smoot Hawley.[43]

The Great Depression had begun, and tariffs enacted began to

build up constituencies and special interests that saw a benefit

from the measures, despite the unintended consequences to

commerce and industry. Others recognized that if a benefit could

be seen by an increase in trade with other countries, then a

mechanism to lessen the restrictions placed by tariffs would be

necessary.[44]

The Republican Senate and House majorities in 1930 had

ushered in the increased protectionist measures of Smoot-Hawley,

but the rise to power of Democratic majorities in the Congress of

1934 allowed the passage of the Reciprocal Trade Agreements Act,

[45] which gave the President negotiating authority to enter into

agreements with other countries for reducing tariffs and

increasing trade. By the end of World War II, 32 such bilateral

country to country agreements had been struck by the President

with 27 countries, greatly affecting many of the dutiable imports

and exports of the United States.[46] After a return in 1942 to

levels of trade that existed prior to Smoot-Hawley and prior to

the Great Depression, U.S. exports flourished with the expansive

boom of global commerce.[47]

We have established the actions and pressures of Congress

have both domestic and international effect. With NAFTA, we will

further the examination of how multi-lateral agreements affecting

several countries are entered into, and how it benefits or hurts

different areas of economic activity.

The North American Free Trade Agreement

The increased tariffs produced benefits for various sectors

of the American economy, but the trade associations, industry and

farm blocs favored could not solely account for the entire

interest of the U.S. economy. Ancillary industries, parallel

industries, and ultimately the consumers who are dependant on low

tariff imports and materials bear the burden of the domestic

catering and protectionist measures that benefit particular

fields and industries. However, the diffused political capital of

consumers does not provide incentive and direction to lawmakers

as does the direct interests of producers who collectively lobby

for protective tariffs.[48]

Further developments in addressing trade policy would

continue through the second half of the twentieth century, with

the President taking on the burden of negotiating and initiating

trade policy. General Agreements on Tariffs and Trade (GATT)

between multiple countries were constructed to address

increasingly complex world economies and improve the impact of

addressing multiple tariffs rather than single items. New

negotiations would occur under a series of ‘rounds’ that could

address further needs and developments. After Smoot Hawley,

tariffs fell from 60% to less than 6% as a result of GATTs

between the 1930s and the 1980s.[49]

The power of the Executive branch to negotiate trade is

granted by Congress. In the Trade Act of 1974, the President was

granted ‘fast-track authority’ which required Congress to act

quickly on trade agreements that the President negotiated. The

U.S. President was also authorized by Congress in the 1979 Tokyo

Round to set codes with multiple countries simultaneously to

address important non-tariff trade barriers and concerns such as

product standards and government subsidized industries.[50] Fast-

track authority is examined periodically by Congress according to

the needs of a specific round of trade agreements, and would play

a large role in NAFTA politics.[51]

Executive and congressional decision making can have a

monumental impact on individuals and on businesses. Businesses

and trade associations in the U.S. and around the world have

gathered their resources to help direct government policies such

as taxation, tariffs, labor standards, pricing and the like. The

relationships that are forged between industry, government

agencies and elected officials create strong and lasting ties

amongst individuals with similar regulatory concerns for

constituents and the business power base. Due to the three sided

connection and the strong intrinsic nature of the views promoted,

the relationships forged are called ‘Iron Triangles’.[52] In the

United States, the first recorded associations and business

groups began in the 1700s, the most important of which still

remaining are the New York Chamber of Commerce, the New York

Stock Exchange, and prior to the Civil War, the American Iron and

Steel Institute.[53]

The ‘Iron Triangle’ relationship can often be convoluted,

even when all interested parties share a specific vision.

Opposing interests often form similar associations which can keep

particular agendas from dominating industry and policy matters.

[54] Leaders of different groups find that control over the

prosperity and welfare of a region is a matter of great concern

to its citizens. Those interests can rise above the electoral

politics as those who support their policy goals can rely on

their political support.[55] With NAFTA, winners and loser both

would face significant change without concrete foresight of

results.

In the law making process, even when political priorities

are aligned and bills are drafted, it is still important to have

coherent and solid policies which allow companies the leverage to

pursue business that can compete in the open market. Other hoped-

for policies include education friendly legislators that

encourage the development of skills to meet the needs of

business, regulations considerate to companies regarding human

resources, a lessened tax burden and others.[56] With the advent

of free trade agreements, foreign direct investment and laws

accommodating to international business, the role of

multinational corporations has rapidly expanded. In order to

streamline operations, secure sources of raw materials and

improve profitability, businesses operate in several countries

with controlling ownership of multiple entities or subsidiaries

that vertically integrate all aspects of operations from raw

material acquisition to end sales.[57]

A brief look at history will show that the struggle for the

comforts and securities of prosperous trade has been developing

for generations, ingrained in the sense of our common

consciousness. Multilateral trade agreements and conflicts of

trading between multiple countries are not new developments.

Remnants of prehistoric cultures offer evidence of dispersed

trade in the Upper Paleolithic Era from around 40,000 to 10,000

B.C.[58] In the more recent common era, the European Hanseatic

League was a commercial alliance of merchants and cities in

several countries which traded multilaterally with each other and

operated independent of military or territorial concerns from the

mid 12th to mid 17th centuries in the Baltic and North Sea areas.

[59] The conditions for cooperation in the League were likely

similar to requirements of modern nations entering into free

trade agreement such as NAFTA, or in the 80s, the Free Trade Area

of the U.S. and Canada. Areas like general government policy,

economic and political risk, banking and investment climates and

regulations, market conditions, geographical considerations,

trade infrastructure, and social-cultural conditions are all

facets to consider in the development of trade policy.[60]

In the 1980s, President Ronald Reagan of the United States

met with Prime Minister Brian Mulroney of Canada and proposed

that all tariff and non- tariff barriers to trade be eliminated

between the two countries. With the United States being the

dominant economic power in North America, the dissent and

opposition was short lived in comparison to Canada, whose

Parliament remained split over the matter until elections settled

clear majorities that offered their support. The resulting

bilateral agreement, called the U.S. Canada Free Trade Agreement

(FTA) addressed tariffs, investments, disputes and governance of

more than $150 billion dollars of trade between the two

countries. Its success led to the proposal of the trilateral

North American Free Trade Agreement (NAFTA) between the U.S.,

Canada and Mexico.[61]

With the elder U.S. Bush Administration temporarily

approving NAFTA on December 17th, 1992, trade and investment

barriers were eliminated between the U.S., Canada and Mexico,

creating the world’s largest single market with $6 trillion in

gross domestic product and 360 million consumers.[62] Different

associations, trade blocks, multinational corporations and

Members of Congress came into conflict over the passage of free

trade agreements eliminating both trade tariffs and non-tariff

trade barriers (NTBs). Similar to Canadian opposition to the FTA,

many in the United States argued that jobs would be lost,

environmental concerns ignored, and other factors taken into

consideration that would limit widespread support for the trade

agreement between the three countries.[63] Complex networks of

jurisdictions, negotiations, bartering, authority, enactment, and

oversight comprises trade policy and would prove directly or

indirectly responsible for NAFTA’s passage.[64]

The bulk of Oval Office duties in negotiating trade policy

are relegated to the cabinets, departments, agencies, and

coordinating groups that make the Executive Office of the

Presidency.[65] President William Jefferson Clinton inherited the

NAFTA agreement from the previous Bush administration, and his

credibility as a world leader and a negotiator of foreign policy

was dependent on its approval by Congress before January 1st,

1994, or the agreement would sunset, ending it.[66]

A complete breakdown of interests and factors President

Clinton had to consider involving the NAFTA treaty is impossible

without a thorough examination that can identify the social,

economic and ideological mores of numerous participants.

Different views on trade and government intervention are held by

individuals depending on how they are affected. Those employed at

support jobs and who rely on government intervention and

regulations for the protection of an industry often support

subsidies and tariffs. Executives at transport companies and

corporations who are able to open valuable avenues of revenue

generation abroad are generally free traders who desire lessened

trade barriers and freedom from financial restrictions. Multiple

viewpoints are then represented at state and national offices

through the voting process for candidates who share their views

and promote their concerns. For the Members of Congress elected

to Washington, NAFTA is both a national and international issue.

Members are placed into various committees and are able to

vote up or down on different bills, but also are able to gain

crucial experience, pursue their districts needs, and develop

personal agendas through member placement in subcommittees and

specialty caucuses where they can broaden their expertise and

where their influence can be utilized. In specialty caucuses,

both current and former Members of Congress convene along with

public and private leaders to discuss opinions regarding

different issue areas and pursue agendas in their field of

interest like members from Steel producing states joining

interests in the Steel Caucus, which will be discussed in the

third section.

Coming from a district with a strong business interest in

medical technology, Congressman Ramstad founded and co-chairs the

Medical Technology Caucus. He also has been involved chairing the

House Law Enforcement Caucus, where his involvement led him to

authoring multiple anti-crime bills that were made into law.[67]

From session to session, members routinely rotate in and out of

committees, representing both major elected political parties.

The party who holds a majority of elected members in either the

house or the senate, however, is given a majority of the seats in

committee, and also authority over committee chair appointments.

The committee chairs control action on bills and usually have the

longest elected tenure and also hold political views aligned

closely with the political ideology of party leadership.[68]

Party leadership can reward members for their work with sought

after placements and committee chair positions, or can have them

taken away for obstructing party agendas.[69]

Individual members still must utilize complicated reasoning

and consider political positioning when faced with crucial

decisions that affect the lives of their constituents, such as

the far-reaching NAFTA measure, HR3450, that faced members in the

103rd Congress of 1993 and 1994. Various employers, workers,

farmers, capital interests, corporations, political groups, and

consumers lobbied arguments both for and against the NAFTA issue.

[70] The interests of so many differing factions make analysis of

such a broad topic problematic. Quite similar to Smoot Hawley,

the arguments can be streamlined into views that range from

dogmatic to rational in promoting labor and economic agendas.

Views could be conciliatory or contradictory to other viewpoints

in attempts to preserve and maintain a status quo of livelihoods

and business operations.

The political clout of these groups vary from district to

district, and greatly affects the way that officials are elected

and work with each other in any given election year. Politicians

and candidates campaign on various platforms, and their

incumbency or ability to get elected can rely on the record of

how they vote on ‘button’ issues. The public accordingly expects

Congress to pass laws that reflect majority opinions while

addressing national problems, and may likely offer support only

to candidates who support their top concerns.[71] Issues like

NAFTA could increase the profits of many businesses in one

district while shutting down a factory in another, causing

gridlock in the legislative and executive offices.

In Pennsylvania’s ‘Steel-Belt’, NAFTA was viewed as an

escalator to lost jobs and closed factories. Strong unions

promoted their anti-NAFTA views, proclaiming their steel

dependent economy as the ‘Rust Belt’ that would suffer even more

as jobs head south of the border to take advantage of lax

environmental regulation and inexpensive labor. In response to

their worries, a first term Congressman promptly began an Anti-

NAFTA Caucus in Washington.[72]

The views of worried employees and managers were not without

substantiation. From 1980 to 1986, Colgate-Palmolive was a global

corporation whose profits nearly quadrupled from $122.5 million

to $580.2 million. The widely successful company saw stock prices

and dividends nearly triple. Exports from the United States,

however, fell as labor and materials allowed foreign countries to

operate without the use of American labor and manufacturing.

Their domestic workforce was cut from 21,800 US employees to

6,410 as overseas employment increased 15% to 30,890.[73]

Questions regarding the regulation of tariffs and market

issues arose from different sectors, throwing uncertainty into

NAFTA’s passage with support or opposition fixed across regions,

states and individual businesses. In Washington, American

interests still dominated the legislative agenda, but their

elected officials were not the only players. In 1970, there were

157 registered foreign lobbyists working in the Washington, D.C.

area. By 1995, that number had grown to 554.[74] Conflicting

interests from different countries was common, like the Mexican

sugarcane industry and American corn sugar interests embattled

against each other regarding the sugar industry.[75],[76]

In Minnesota, where beet sugar is produced and many

businesses and livelihoods are dependent upon its production,

U.S. Congressman Collin Peterson stated that approximately 1/4 of

all businesses in the 8th congressional district would be out of

business if the sugar beet industry was wiped out from

international competition.[77] Other Minnesota businesses, such

as Bloomington based electronics retailer Best Buy, would see

benefits in increased sales and profits on inexpensive imports

from exporting foreign countries. With so much at stake, the

lines were drawn in attempts to reconcile the economic demands of

global change and the economies of existing infrastructures.

The anti-NAFTA side cites statistics that support overall

American job losses from increases in imports,[78] while many

pro-NAFTA businesses wave a big dollar sign of potential profit

increases in support of the free trade agreement. In 1990, US

exports to Canada and Mexico totaled $112.3 billion, while

imports from Canada and Mexico to the US amounted to $121.6

billion. Despite placing significant constraints on segments of

the economy, agreements like NAFTA promise to increase profits

from reduced tariff levels, the utilization of foreign labor, the

opening of new trade markets, lower consumer prices, and an

increased access to oil and natural gas reserves, all combining

to great potential benefits to US consumers and business. Further

regulation of issues such as intellectual property law and other

international legal matters also become items of interest to any

business operating beyond American borders.[79]

President Clinton began his press for NAFTA and his desired

changes, which included tougher environmental protections, worker

safety standards, and American presidential oversight. The scope

of NAFTA is monumental, but Clinton viewed it as another building

block of his administration to combine with taxation and health-

care reforms.[80] Former U.S. Presidents lined up in support of

the measure. Critics of the agreement, however, began making

Clinton’s promises to Canada and Mexico difficult. H. Ross Perot,

the 1992 third party Presidential candidate, consumer advocate

and corporate watchdog Ralph Nader, conservative Patrick

Buchanan, and liberal Jesse Jackson came out with others strongly

against the measure, as did the Democratic House Minority Leader

Dick Gephardt. Further complicating matters was a change in the

political majority in Canada, but became offset by rebounds in

the Mexican economy. [81]

President Clinton had to balance the economic benefit of the

U.S. with the angry voters and business owners who would be

displaced if the NAFTA agreement was made permanent. Having

focused on budget setting and the deficit for the first half of

the year, the Clinton administration had to tackle anti-NAFTA

groups who were bulwarking on Capitol Hill. Labor associations

like the AFL-CIO slated NAFTA as a litmus test of support from

legislators, and environmentalists urged clauses ensuring that

companies would not eagerly leave US soil to take advantage of

lax foreign restrictions on environmental standards.[82]

Clinton began combing his list of influential politicos who

would be of help to the NAFTA agreement, with both his

administration and his credibility as a negotiator of foreign

policy on the line. He appointed a US Trade Representative,

Mickey Kantor, who had not been firmly entrenched in the camps of

either the free trade or protectionist camps,[83] whom with

former Minnesotan Congressman Bill Frenzel, Jim Ramstad’s

predecessor, Clinton had a valuable insider who could help gather

key Republican votes and help sway Members of Congress like Newt

Gingrich, who was rising up through the conservative political

ranks. Through William Daley, brother to Chicago’s Mayor and

another cabinet level contender in Clinton’s fold, the President

had the ability to coordinate the congressional campaign and

connect with Democratic heavyweights.[84] In addition to former

Presidents Nixon, Ford, Carter, Reagan and Bush lending at least

their nods of approval for NAFTA, 300 economists from varying

schools of thought signed on, stating that jobs and income would

increase across the board. The Clinton administration began

pulling bi-partisan Congressional votes off the fences and into

their camp.[85]

The political maneuvering was not simply playing pat-a-cake

with Washington, however. Clinton had to pursue aggressively

against labor interests, drawing criticism from his own party,

but gathering respect from Members of Congress across the aisle.

Party politics could not be relied on in the matter, and fine-

tuning the agreement required concessions that catered to

interest blocs – namely textiles and the big three auto

manufacturers, both whom desired to keep foreign competition from

setting up shop in the Mexican or Canadian markets and then doing

tariff free business in the U.S. Also included were prohibitions

regarding sugar, and to a lesser extent, citrus production,

stifling to the Mexican economy, but not so much as to neglect

the benefit of the trade agreement.[86]

The President also knew the deal would profoundly affect the

U.S. economy and foreign policy. When he sent Vice President Gore

to debate NAFTA opponent and presidential candidate Ross Perot on

Larry King Live, the stakes were high, but Gore easily won. The

NAFTA agreement passed with votes to spare, 234-200 in the House,

and 61 to 38 in the Senate.[87] President Clinton spoke regarding

the measure:

“Just a few minutes ago, the House of Representatives voted to approve the North American Free Trade Agreement. NAFTA will expand our exports, create new jobs, and help us reassert America’s leadership in the global economy. This agreement is in the deep self-interest of the United States.It will help make working Americans, the world’s most productive workers, winners in the world economy.”[88]

He signed the measure into law on December 8th, 1993, and in

one broad stroke of his pen, Clinton had proved himself to be

worthy as chief negotiator of legislation and shaper of both

domestic and foreign policy.[89]

In the years that followed, detractors and proponents would

both find circumstance and figures to cite conversely

indemnifying or supporting the NAFTA measure. The left catering

liberal magazine The Nation states: Subsidized American farm

products have put many small Mexican farmers out of business,

with corporate interests and NAFTA jurisdiction leaving local

governments and controls powerless. With China’s government

arranging better deals on technology and controls on foreign

direct investment prior to entering the WTO, many of the hoped

for benefits were lost or marginalized in Mexico.[90] On the

flipside of arguments, the free-trade backing British newspaper,

The Economist, wrote that following the passage of NAFTA, U.S.

exports to Mexico grew 22 percent, and imports from Mexico gained

23 percent. [91] Despite NAFTA gains, Mexico was dealing with

prevailing financial difficulties, rampant inflation, budget

deficits and devaluation of its currency, and their NAFTA

honeymoon was short lived. Canadian and U.S. interests bailed out

the Mexican economy with billions in emergency credits, and later

the Clinton administration procured $50 billion in loans for the

lagging country.[92]

At any measure, the economy of Mexico has expanded, with

many workers seeing the benefits in new factories opened by

American companies to rebound from Asian competition. The seven

decade one party system was replaced with a multiparty democracy,

high school graduation rates have increased, and exports doubled

from 15% to 30% of the GDP, which itself increased from $403

billion to $594 billion. Many gains have only been seen by a

margin of Mexican companies, however, and much of the growth has

been isolated in border states.[93] Naturally some of these

developments are pragmatic in nature, but the circumstance that

factored into the decisions of the executive branch can be

examined in multiple arenas. In the following section, the

younger President Bush’s application and then repeal of steel

tariffs would be directly affected by the organization of world

economic trade that began with the passage of NAFTA by President

Clinton.

Tariff Case History: Congress, President Bush and the Steel Tariffs of 2002

In January of 1999, thousands of steel mill workers

descended into Washington D.C. to protest the effects of high

quality and inexpensive steel imports from foreign countries.

With a domestic steel industry workforce reeling from the

economic impact, workers numbering in the thousands were facing

unemployment or had lost their jobs already. President Clinton

clearly was at an impasse between his position in making foreign

policy and the domestic needs of the U.S.[94] In order to

understand Clinton’s positioning a bit better and the immediate

impact of the Bush administration’s first term, we will first

take a brief look at the history of the steel market in the U.S.

The control of mineral and ore resources and subsequent

industry can make a country a global power or the lack thereof

leaving a country economically subordinate to other countries and

secondary in foreign policy negotiations.[95] In the early 20th

century, vast resources of mineral deposits like iron and coal

gave the U.S. a strong position in industrial development and the

global marketplace.[96] Western Pennsylvanian coal, a majority of

the world’s petroleum production and northern Minnesotan iron

deposits gave the U.S. an abundance of the iron and fossil fuels

needed for steel production. The emergence of the industrial

revolution not only affected commerce, but also led to a shift in

nationalized power being dependent on industrial production and

mechanized armies rather than the traditional masses of

individual soldiers.[97]

Steel had been a vital component in the building of

railroads, the construction of urban cities, the emerging

automobile market, the changing tool and manufacturing markets,

and the development of integrated corporations and big business,

but the new development of military power drove a national

conjoining of military and business interests.[98] These

interests, further propelled by the U.S. entry as an

international global power following the Spanish-American

conflict, affected not only domestic steel production and

governmental relations with steelmakers, but also altered

relations abroad. The profits of making armor were remarkable;

industrialist Andrew Carnegie recognized the financial benefit of

military contracts, stating that railroads were too poor to

further business, and, “general trade may be better but there’s

no profit in that. Good thing we are to get more Armor this

year”[99]

Producing steel domestically for defense rather than abroad

was a security interest for the U.S., and it affected the

development of the industry.[100] Trading with other countries

offered strategic advantage or a disadvantage,[101] and the

awarding of navy contracts and government needs furthered the

U.S. steel industry in a short time, much faster than would any

amount of commercial interests. Fueled by military profiteering,

the emerging consolidated steel companies and their competitors

now turned to pressuring commercial markets with the same

political maneuvering and machinations that quickly brought steel

manufacturing to prominence.[102]

The protected nature of the steel industry, however, led to

difficulties as big steel ignored smaller consumers of steel in

the marketplace, and steel worker union led strikes forced larger

steel consumers, such as the automobile industry, to look

overseas for assured supplies of steel. New demands and

improvements were ignored and the emergence of better quality and

less expensive steel from international competitors ensued. This

foreign manufacturing advantage was strangely established with

post WWII reconstruction funds from the U.S. government and the

backing of dominant U.S. steel interests, whose dated furnaces

would get continuous supplies of scrap steel from the new

overseas producers. Steel formerly exported was now being

imported, and quality control in U.S. steel furnaces declined.

The U.S. position was still successful, but it fostered

complacency in the domestic industry and union guaranteed

production quotas replaced an industry response to steel

consumers and the adoption of new technologies. By the 1980s,

waves of high quality imported steel had, according to Thomas

Misa and his book A Nation of Steel, “wiped out domestic

producers.”[103]

Since 1968, lawmakers in Washington had held several methods

of maintaining controls of steel imports to the benefit of the

domestic industry. Measures included congressional quotas that

would peg domestic production output minimums against foreign

imports, escape clauses allowing temporary relief through the

General Agreement on Taxes and Tariffs, countervailing and anti-

dumping duties levied against foreign subsidized goods being into

domestic markets, and voluntary export restraints (VRAs) based on

mutual bilateral agreements.[104]

The execution of some of these methods, however, can result

in threatened economic conflict and retaliations from other

countries.[105] When the U.S. International Trade Commission

(ITC) found that some international steel products were injurious

to the domestic industry in the late 1970s, President Jimmy

Carter asked for voluntary trade constraints with leading

exporters. When only Japan complied, a three year agreement was

undertaken with them, and quota controls were enacted against

other suppliers. These types of trade adjustment measures are in

constant flux, with petitions and concessions constantly being

sought by firms in every country, sometimes with desired

outcomes, and other times with the efforts being denied. Once

achieved, the benefits are reaped, and when expired, they are

sought again for their substantial financial gains.[106]

Negotiations for tariffs can be interesting, as major issues

such as investment privileges, intellectual property rights,

strategic goals and political aims can hover above the

negotiating table along with discussions involving the price of

imported canned hams, or details involving the production and

shipping of poultry. Inevitably, marketplace changes and

developments make the negotiations a constantly changing

landscape. The floor of yesterday’s fought-for-minimums become

the ceiling of today’s surpluses that require proposing

concordances with different countries in order to harmonize

pricing and multilateral stability in several sectors. Despite

attempts by all interested parties to avert difficulty or promote

growth in negotiations, underlying and looming market conditions

can overpower any measures undertaken, nullifying disadvantages,

minimizing benefits and stupefying reciprocal attempts to achieve

a good deal.[107]

Negotiations must also pay attention to the domestic

constituencies whose support is needed for the crucial votes in

Congress. Proper deals can placate factions like the steel and

textile industries, and votes in Washington can be assured once

negotiations are finalized. Trade negotiations that offer

industry the most recourse to the international trade process

generally are supported.[108]

In Congress, the Congressional Budget Office (CBO) is one

means by which effects of bills and other congressional actions

can be watched and analyzed. This analysis is undertaken for acts

already passed into law, but also for future planning in areas

like nuclear proliferation acts, belligerent country sanctions,

trade acts, banking regulations and other Acts of Congress.

Different sanctions are available tools to Federal Government,

affecting commercial relations, private commerce, government

assisted commerce, financing, and military procurements all

around the world.[109] At any time, these areas of Congressional

study can be affected by Executive branch decisions through

actions such as restricting travel and communication, the use of

licensing and inspections to limit goods coming and going at

port, changing tariff rates or quotas, reducing, increasing or

eliminating government assistance, and the denial of private

financing.[110],[111] Parallel industries and interests can be

affected to different extents by these actions, and costs can

vary for both countries depending on the political or economic

purpose beyond the methods employed.[112]

Throughout the late sixties, seventies and early 80s, U.S.

steel producer interests had secured noteworthy protections

against foreign imports. The lobbying by collective interests

from steel producing regions of the producers themselves, the

steelworker unions, and members of Congress themselves held more

clout than the individual efforts of domestic steel consumers.

[113]

Despite a weakened political strength that resulted from a

greatly reduced steel workforce shrinking to 236,000 in 1984 from

572,000 in 1960, the steel industry still has major proponents.

[114],[115],[116] John Heinz, a Republican from Pennsylvania on

the Senate Finance Committee, helped create bipartisan caucuses

of members representing steel districts in both the Senate and

the House. The Steel Caucus began moving quota legislation

through Congress and in 1982, the steel industry itself began

flooding the International Trade Commission with antidumping and

countervailing tariff petitions.[117] President Reagan reacted

quickly and began to negotiate new restraints on steel imports

from Europe. Steel again became an issue in the 1984 campaign,

when the commission ruled in favor of domestic producers under

antidumping laws and recommended that the White House impose

tariffs or quotas.[118]

Despite studies showing great costs to consumers and the

economy, the measures were justified as a means to further the

economic gains of the aging U.S. steel industry for retooling and

competitive modernization.[119] The efforts became adopted by

leadership of both parties in a presidential election year, as

the Democratic presidential challenger from Minnesota, Walter

Mondale, quickly declared his support for tight steel quotas.

[120] President Reagan responded to the recommendations of the

ITC by appointing the United States Trade Representative to again

negotiate with foreign governments for voluntary export

restraint. Congress specified if the Executive goals were not

met, further action would be undertaken.[121]

The Office of the United States Trade Representative (USTR)

is crucial to the relationship involving trade between the

Executive and Legislative branches of government. The cabinet

level USTR is the primary negotiator between Congress and the

President on trade issues, and leads policy formulation and

negotiation as the official envoy to international trade

organizations. Other Executive groups, councils and departments

provide crucial advice on matters ranging from the budget to

national security and coordinating policy.[122]

President Clinton, and other presidents, had other offices

from which crucial feedback and advice could be gathered from

domestic and international venues. In addition to the DC budget

offices and the USTR, other traditional roles generally held in

high regard as emissaries between economic security and foreign

policy include the National Security Advisor, the Secretary of

State, the State Department, ambassadors, the Pentagon, and the

intelligence communities.[123] President Clinton faced pressures

in showing good faith in assisting countries rebounding from the

Asian financial crisis of the late 1990s, but at the same time he

offered tax breaks to a steel industry that was reeling from

increases in Japanese steel imports.[124]

Congress likewise undertook efforts to provide support for

the steel industry, but faced jurisdiction and legal differences

with the new World Trade Organization. On March 17, 1999, the

House of Representatives passed, by a landslide, a bill to impose

steel quotas for three years. The quotas were to be found illegal

under WTO rules, and placed the President under scrutiny from the

international community. Clinton vowed to veto it unless it was

rewritten,[125] but the Senate companion bill couldn’t gain the

votes necessary to end debate on the matter, effectively ending

its progress. Introduced by members of the House and Senate Steel

Caucuses, the bills still put public pressure on President

Clinton to act, and he agreed to impose over $400 million in

tariff protections on imported steel.[126]

The same genre of problems that President Clinton faced

would carry through to President Bush during his first term. It

was reported in January of 2002 in The Contractor, the industry

newsmagazine of mechanical contracting, that the ITC had

recommended President Bush to place tariffs up to 40% on low-cost

steel imports. Members of the industry association American Iron

and Steel Institute mentioned the decline of prices and steady

stream of foreign steel has led to further difficulties with the

U.S. industry staying competitive and operating at all.[127]

Indeed, while imports of foreign steel had actually gone down

from 37.7 million metric tons in 1998 to 29.7 million metric tons

in 2002,[128] the U.S. steel magnate Bethlehem Steel filed for

Chapter 11 bankruptcy protection and government and industry

leaders alike were pressing for corporate consolidation.[129]

Under political pressure from the steel industry Bush had

initiated the ITC case in June of 2001. Following the ITC’s

recommendation and appealing to voters in key steel producing

states who were rightly worried about their pensions and

economies, Bush widely applied tariffs against several countries

and on many steel products in March of 2002. He wrote to

Congress:

In accordance with section 203(b) of the Trade Act of 1974, as amended (the “Act”), I hereby transmit documents to the Congress that describe the safeguard action that I have proclaimed on imports of certain steel products, pursuant tothe authority vested in me by section 203(a)(1) of the Act and as President of the United States, and the reasons for taking that action.

George W. BushThe White House, March 5, 2002[130]

The steel industry had requested even further safeguards,

while detractors said the tariffs would only prolong the

inevitable changes needed in the industry. Opponents also said

that the ruling would not be upheld at WTO appeals, and would be

damaging to trade in other sectors.[131]

Facing trade imbalances can put governmental policy at a

delicate position between domestic and foreign necessity. While

securing domestic supplies is an important factor in decision

making, policies that oblige sectors to remain in decline leads

to national sentiment for the support of displaced workers and

against losses in manufacturing.[132]

Despite this prevailing sentiment towards maintaining U.S.

job sectors, sources in Congress often have contradictory

opinions. Members of the Steel Caucus are likely to place

different context on the benefits to the industry and economic

climate at large than individuals who testify at hearings before

the Committee on Small Business. The Honorable committee Chairman

Donald Manzullo(R-IL) held a pair of hearings on the issue in

2002 that focused on the unintended consequences of steel tariffs

on American Manufacturers, including lost jobs and increased

competition from imports. Published by the US Government Printing

Office, the two volumes contain the testimony of small business

owners, operators and leaders regarding the increased prices and

lessened availability of steel and how their customers are not

willing to pay more for the increased costs. Bush’s 30% steel

tariffs took effect on March 11, 2002, and by the first hearing

of July in that same year, numerous media outlets had reported of

the high costs, and hundreds of emails and letters from steel

consuming businesses detailed the immediate hardships placed on

their businesses.[133]

The tariffs were intended to help the suffering U.S. steel

production industry, and did bring the industry financial and

market share relief from the onslaught of steel imports, having

an effect of staving of some of the dire consequence of

profitability and lack of competitiveness in the international

steel community. A letter from the Bethlehem Steel Company to the

Committee remarked, “..Millions of tons of domestic capacity

(have) shut down. Had the President not acted, there is no doubt

that other steel companies would have been forced out of

business, resulting further in supply shortfalls and additional

price increases.”[134] Another letter from a steel consumer

commented on the tariffs, “So far, no effect. We have been buying

primarily U.S. produced steels all along.”[135]

The international trade market problems do not affect

relations solely within the U.S. sphere, and other countries have

their own collective lobbying and trade organizations. Like the

aforementioned American Iron and Steel Institute, the Pig Iron

Association and Steel Products Associations cartels of early 20th

century Japan helped regulate steel controls sales and pricing,

especially in times of need.[136] At the same time the U.S. was

placing tariffs on foreign steel in 2002, the brisk market

demands for steel in burgeoning China led to a flood of Japanese

steel, and China threatened the modern Japan Iron & Steel

Federation group of steel producers with export curtailing

tariffs.[137]

The U.S. and the European Union (EU) were leading the world

in the use of countervailing duties, tariffs and anti-dumping

protections, but the world has been catching up in ways to

instigate or retaliate against unfair or injurious trade

practices. One agribusiness owner remarked to Congress that he

felt a canceled wheat order from China was part of retaliation

for the loss of business resulting from U.S. steel tariffs.[138]

Claude Barfield, resident scholar with the American Enterprise

Institute for Public Policy Research, states, “In 1990, the U.S.

had 193 antidumping orders in place, the EU 93, and all other

countries 118; in 1997 the United States had 294, the EU 135, and

all other countries 438.”[139]

Within the international community, Japan announced their

first retaliatory action against a trade partner by levying 15

percent tariffs against U.S. steel.[140],[141] These actions

joined the countries of Canada and the 25 nations of the EU, who

also applied tariffs to U.S. steel industries as retaliation to

the structuring of steel tariffs under the 2000 Byrd amendment.

Under the Byrd amendment, named after Senator Robert Byrd of West

Virginia, tariff revenues collected by the U.S. government on

foreign steel were given as additional subsidies to the domestic

industry, effectively doubling the benefit of the steel tariffs.

[142] While some anti-U.S. provisions were modest in their

economic impact, the total amount of threatened EU sanctions

alone was an imposing $2.2 billion dollars.[143]

On November 10th, 2003, the WTO ruled that the U.S. steel

import tariffs were illegal under the agreement, and in violation

of the international trade body bylaws. The decision marked that

U.S. actions were improper, and that the retaliatory action from

affected countries was thereby justifiable, and legal.[144]

Despite having recommended the U.S. tariffs, the ITC had also

estimated great domestic costs to the U.S., owing to $700 million

in lost profits and 26,000 lost jobs in other industries. The

ruling added legitimacy to the threat of massive sanctions from

the EU and other countries, giving President Bush a change of

heart. On December 5th, 2003, he lifted the steel import tariffs.

[145]

US Trade Representative Robert Zoellick deferred that the

U.S. broke no WTO rules and the decision to lift the tariffs was

made without regard to the ruling. He stated that after 20 months

of import steel tariffs, the domestic steel industry had

dramatically improved. The tariffs were lifted 16 months earlier

than promised to key steel producing areas, and even with key

financial and market gains, the United Steelworkers of America

said the administration betrayed workers and steel communities by

giving way to a bluff of European blackmail.[146]

In my personal correspondence with Congressman Ramstad’s

Chief of Staff, Dean Peterson, and Senior Legislative Assistant

on trade issues, Adam Peterman, the Representative from

Minnesota’s 3rd legislative district greatly supported the repeal

of tariffs on steel, stating:

“Jim was very supportive (of repealing) the steel tariffs asthe increase in steel prices was very damaging to the international competitiveness of Minnesota manufacturers.”

When questioned about which local steel interests were in

the blanket of western Twin Cities suburbs that Congressman

Ramstad represents, his Chief of Staff, Dean Peterson declared,

“all consumers!”[147] While the 3rd district has multiple

constituent and district pulls, Representative Ramstad is rated

as one of the top free-traders in Congress, based on his voting

record from the 107th Congress and according to the Cato

Institute, a Washington based political think tank.[148]

With little interest in the district for steel production,

the increased cost effectiveness of manufacturing with cheaper

foreign steel means greater ability to compete and post profits

through increased exports in the world market. More business

competition in the foreign market then results with less

expensive goods for consumers.

The Bush Administration was faced with decision making

pressures that are akin to every administration. In dealing with

foreign policy and international trade, measures must be

undertaken to address issues like import export imbalances and

the resulting flow of capital, the interests of domestic

producers and consumers, pressures from foreign governments, and

pressures related to political and strategic national security

concerns.[149] President Bush stated that he had acted on the ITC

report detailing the effects that excess steel production imports

were having on the steel industry. He had hoped the measures

would give the steel industry time to adjust, and make a

statement to the world that the U.S. was willing to trade fairly

with other countries.[150]

Conclusion

Smoot-Hawley showed us that when combined with other global

market conditions and prevailing economic difficulties,

protectionist measures can produce disastrous effects in

recessions at home and abroad. The implementation of high cost

tariffs results in increased amounts of retaliatory measures from

other countries, whose collective clout rivals the economic

strength of the U.S. Maintaining a world stage of agreed upon

environmental, economic, human, and strategic rights requires a

body of international oversight and forums to address grievances.

The expanding global economy, increased communication

technologies and reduction in trade barriers have brought new

problems along with hoped for benefits. Small local businesses

and farmers may now see competition from corporate chains that

operate in several countries with streamlined business operations

that vertically integrate material acquisition, product

development, manufacturing, shipping and sales. In the era of

free trade agreements such as NAFTA and the global trade

authority vested in the WTO, worldwide steel and metal industry

mergers and acquisitions nearly tripled to $71.7 billion in 2006.

[151]

The well funded and organized groups with consolidated power

and concerted efforts tend to have the resources and political

capital to affect decisions at every level of government, much

more so than the diffused interests of consumers or a dispersed

affected populace. Subsidies, quotas, tariffs and trade barriers

in the steel industry are helpful for allowing continued business

operations, retooling, an updating of technology, and increased

market competitiveness. Protectionism can also be harmful to

domestic manufacturing, construction and other steel consuming

factions, placing strains on government bonding and private

industry. Cutbacks and layoffs also occur at parallel industries

like mining and foundries, causing consumers and businesses to

suffer outside the districts and states that are targeted to

benefit from protectionist measures.

Members of Congress hold an interest in shaping trade and

government policy to appeal to conflicting factions of

constituents, unions and businesses. It is crucial to balance the

need for shorter term financial and industrial protectionism with

the longer term viability and increased growth of open and free

markets. Favoring particular sectors of industry can be

undertaken for strategic, economic and political reasons, and

these issues plague our policy makers and drive national

elections. Actions like President Bush’s application then repeal

of tariffs will be inevitable, as will the cyclical business

gains and losses that accompany efforts riding upon economic

advantages and disadvantages. Ultimately, public service must be

undertaken that provides a standard of living for individuals and

families whereupon businesses thrive.