Today’s global economy is most often viewed as a product of the post-war world. But in fact, its origins can be traced to the New Deal and the efforts of the Roosevelt Administration to liberalize world trade in the mid 1930s. The driving force behind this effort was FDR’s Secretary of State, Cordell Hull, who waged a ceaseless and often lonely campaign to reduce international tariff rates and open up the world’s markets. Given the long-standing protectionist tendencies of the U.S. Congress, Hull faced an uphill struggle to accomplish this task. He also had to overcome FDR’s initial reluctance to embrace his ideas, as the President preferred to embrace the policies of the “economic nationalists” within his administration during his first year in office. By 1934, however, FDR’s attitude began to change and in March of that year the President threw his support behind Hull’s proposed Reciprocal Trade Agreements Act — a landmark piece of legislation that fundamentally altered the way in which the United States carried out foreign economic policy.
Convinced that the country was not ready for a truly multilateral approach to freer trade, Hull’s legislation sought to establish a system of bilateral agreements through which the United States would seek reciprocal reductions in the duties imposed on specific commodities with other interested governments. These reductions would then be generalized by the application of the most-favored-nation principle, with the result that the reduction accorded to a commodity from one country would then be accorded to the same commodity when imported from other countries. Well aware of the lingering resistance to tariff reduction that remained in Congress, Hull insisted that the power to make these agreements must rest with the President alone, without the necessity of submitting them to the Senate for approval. The amount of reduction authorized was based on the 1930 Hawley-Smoot tariff (the highest tariff in US history). Under the act, the President would be granted the power to decrease or increase existing rates by as much as 50 per cent in return for reciprocal trade concessions granted by the other country.
In urging its passage FDR stressed that the powers it granted the executive were necessary because other countries (most notably Great Britain), were using reciprocal agreements to expand their trade at the expense of the United States. To back up his claim, Roosevelt cited the tremendous drop in US exports, which in 1932 alone had fallen to a mere 52 per cent of the 1929 volume. FDR also indicated that he regarded the legislation as part of his emergency economic program because a “full and permanent domestic recovery” would not be possible without the revival of international trade. After the addition of two amendments, the first of which called for hearings of interested parties before a trade agreement could be negotiated, and a second which limited the term of the legislation to three years, the Reciprocal Trade Agreements Act (RTAA) was signed into law on June 12, 1934.
The RTAA was renewed in 1937 and 1940 and over the course of these years the United States managed to negotiate twenty-two reciprocal trade agreements. Of these, the two most consequential were the agreements with Canada, signed in 1935, and Great Britain, signed in 1938, in part because they were regarded as indicative of growing solidarity among the Atlantic powers in the troubled years leading to the Second World War. Indeed, Hull, like many of his contemporaries, including FDR, regarded economic nationalism as one of the root causes of war and remained convinced that one way to reduce the likelihood of a future conflict was to reduce trade barriers.
Inspired by this sentiment, Congress renewed the RTAA again in 1943 and 1945. Moreover, the RTAA would go on to serve as the model for the negotiation of the 1947 General Agreement on Tariff and Trade (GATT); the critical institution upon which the modern global economy stands and the precursor to the World Trade Organization (WTO) established in 1995. Hence, it was U.S. reciprocal trade policy-a policy that had changed little since its inception in the New Deal-combined with a newfound determination to play a leading role in world affairs, that guided U.S. policy-makers in the mid 1940s towards a new post-war international economic order-an economic order we still enjoy to this day.
David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute.