“Give us a protective tariff, and we will have the greatest nation on earth,” once declared Abraham Lincoln, who like many other major figures in American history was a firm believer in using protectionist policies to help develop young American industries. Contrary to what some believe today, the great industries that rapidly grew during the nineteenth and twentieth centuries were
mostly guided by the federal government
, and were able to compete with powerful foreign competitors because of protective barriers like high tariffs.
Back when America was founded, the first Secretary of Treasury Alexander Hamilton believed that aggressive protectionist tactics were needed to help American industry compete with the powerful English, and the first act to pass congress under the constitution was the Tariff Act of 1789. Hamilton believed that the lack of manufacturing ability in America was a direct threat to its security, as seen during the Revolutionary War, when America did not have weapons manufacturing capabilities, and was ultimately rescued by France. On the natural disadvantages that America had with more developed countries, he wrote: “The disparity, in the one, or in the other, or in both, must necessarily be so considerable, as to forbid a successful rivalship, without the extraordinary aid and protection of government.”
Of course he was correct, American industry simply could not compete with manufacturers in England without protectionist policies. Predictably, the South was the most anti-protectionist, as they were major exporters to the manufacturing power of England, and were content with being and agrarian slave state. They also were not pleased with tariffs for the simple reason that it was the major source of income for the government, so they shared a disproportionate tax burden, being major material exporters.
Today, America’s trade policies have predictably changed quite a bit. Now, as the wealthiest country in the world with immense industrial power, we no longer want protectionism, but free trade. Just as England wanted free trade in the late eighteenth century, because they had a competitive advantage as the manufacturing power, America and other developed nations want todays developing countries to forfeit the right to protect their young industries that will no doubt be at a disadvantage.
But its not that simple. Modern free trade deals are not just about getting rid of artificial protective barriers, like tariffs and subsidies. In fact, trade barriers are already rather low between nations involved in massive deals like the Trans-pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). For example, on average, tariffs between United States and Europe are quite low, at under three percent. The reality is that these trade deals are actually quite protectionist, but not in the usual sense of protecting developing industries. No, these deals include provisions that protect multi-national corporations that are already fully developed.
Now, you may be thinking, why would big corporations need the help? Doesn’t, say, big pharma already make enough in profits? To an outsider, it definitely looks that way. In fact, the pharmaceutical industry is one of the most profitable around, and in 2013 was tied with the banking industry for highest profit margins. But still, when competing in a capitalist society, one must always aim for more. And provisions within the TPP would help make this happen by expanding drug patent rights beyond the original twenty years. This will very likely keep important medicines, sometimes life-saving, overpriced and unaffordable in many nations around the world, especially in developing ones.
And what about the notorious investor-state dispute settlement (ISDS) provision? This mechanism allows corporations to sue sovereign governments through international law whenever a domestic regulation may hurt profit. This includes regulations for the environment and health of citizens. An example of a company suing over environmental activism comes in Canada, where the company Lone Pine is currently suing the Canadian government after they filed a moratorium on on hydraulic fracturing. Another case is in Australia, where the beloved tobacco company Philip Morris is suing the government after they enacted a plain-packaging policy on cigarettes, which has show to reduce smoking in young people.
These sort of provisions that are expected to be included in upcoming trade deals protect the profit rate for big corporations. So in a sense, they are protectionist, but only for fully grown multi-national corporations, not for young industries that will help increase domestic jobs. When it comes down to it, free trade is just not enough for corporations, they need extra support from the government too.
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