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Douglas Irwin discusses the post-WWII trade system

Douglas Irwin 444x718On June 8th, The Institute of World Politics welcomed Dr. Douglas Irwin to the Marlatt Mansion to speak on the history of the post-World War II free trade system, its importance in shaping American foreign relations, and the symbiotic relationship between free trade and democratic societies. As Dr. Irwin explained, trade policy is an extension of foreign policy, and the consequences of protectionism and politically motivated economics are of huge global importance.

Dr. Irwin noted that in 1930, Congress passed the Smoot-Hawley Tariff Act, which increased import taxes to an unprecedented level on thousands of foreign goods.  As a result, individual states and districts in the U.S. lobbied for their own economic interests, instead of considering the national interest as a whole. This meant that it became nearly impossible for international products to compete with their domestic counterparts. A retaliatory response from American trading partners began a vicious trade war that would see American exports falter on the world market. Traditional U.S. partners like Canada realigned themselves with the United Kingdom, and American reputation and influence briefly waned as a result.

A new international order was now composed not of amicable and interdependent economies, but of states hostile to American interests and trade. In 1934, Congress passed the Reciprocal Trade Agreements Act, which for the first time gave the President the power to undertake tariff negotiation with foreign countries. President Franklin D. Roosevelt successfully initiated a liberalization of American tariffs pursuant to reciprocal agreements overseas. This process, known as the General Agreement on Tariffs and Trade, would serve as the framework for an open trade system on which the international community is now modeled.

Dr. Irwin explained how this model is paramount to ensuring a peaceful coexistence of nations. Trade, he said, is what keeps states interested in each other’s continued well being. Furthermore, trade has often encouraged democratic transitions, fostered middle classes, and forged lasting alliances among otherwise contentious governments. In essence, the advent of open trade policies since World War II has been a critically important feature of the international peace process. Throughout the course of his lecture, Dr. Irwin emphasized the importance of cultural exchanges that are inherent in trading economies. This secondary effect of open trade is responsible for many of the successes of American engagement abroad.

Dr. Irwin fielded a number of questions at the conclusion of his lecture and impressed upon the audience the need to end any renewal of debate on the merits of protectionism and tariff policy. He left the audience with a quotation: “We cannot succeed in building a peaceful world unless we build an economically healthy world.”- FDR

This lecture, entitled “The Post-WWII Trade System: A Pillar of Freedom,” was the first in a series on Economics and Foreign Policy sponsored by the Charles Koch Foundation.