U.S. trade policy from the Smoot-Hawley Tariff to NAFTA

International Financial Accounting: Imports and Exports

The objective of this work is to first, relate the history of importing and exporting in the United States and to introduce how the move from the 'gold standard' to the 'floating dollar' has affected importing and exporting for the United States. This work will further examination the devaluation of the dollar against the Euro and as well will examine how the United States will need to learn new ways to deal with emerging nations, such as India and China. Finally, this work will examine how globalization has changed the manner in which the United States conducts business both at home and abroad.

The Smoot-Hawley Tariff Act of June 1930 raised the U.S. tariff rates to levels higher than any time in history to this point and had the intention in increasing the protection to domestic farmers against agricultural imports from foreign nations. European producers recovered post WWI due to a massive expansion in the agricultural production sector outside of Europe during the First World War resulting in massive overproduction of agriculture during the decade of the 1920s ultimately resulting in a decline in farm prices. Herbert Hoover, 1928 presidential election candidate promised to assist the farmer through raising tariff levels on agricultural products. This resulted in calls for protection from those in the industrial sectors and then among other economy sectors resulting in an agreement from Congress in raising tariff levels even higher that the rates that the 1922 Fordney-McCumber Act. It is not believed that the Smoot-Hawley Tariff caused the depression but however that it did contribute to the depression. A drastic decline in international trade occurred during this time-period. U.S. important from Europe experienced a decline from a 1929 high of $1,334 million to the 1932 figure of only $309 million. U.S. exports to Europe declined from $2,341 million in 1929 to $784 million in 1932. (U.S. Department of State, nd) the world trade declined approximately 66% during the period from 1929 to 1934. The U.S. Department of State report relates: "The Smoot-Hawley tariff represents the high-water mark of U.S. protectionism in the twentieth century. Thereafter, beginning with the 1934 Reciprocal Trade Agreement Act, American commercial policy generally emphasized trade liberalization over protectionism." (nd) it is related that it is the United States, which has served as the leader toward trade liberalization.

I.U.S. STEADILY GROWING TRADE DEFICIT

The United States has experienced "steadily growing trade deficits for nearly three decades and these deficits accelerated rapidly after NAFTA took effect on January 1, 1994." (Scott and Ratner, 2005) Scott and Ratner (2005) in an Economic Policy Institute document entitled: "NAFTA's Cautionary Tale: Recent History Suggests CAFTA Could Lead to Further U.S. Job Displacement" relates that "The rise in the U.S. trade deficit with Canada and Mexico through 2004 has caused the displacement of production that supported 1,015,291 U.S. jobs since the North American Free Trade Agreement (NAFTA) was signed in 1993." (2005) Displacement is said to be "in every state and major industry in the United States" with approximately 2/3 of lost jobs in manufacturing industries. The Economic Policy Institute report states that NAFTA "is a free trade and investment agreement that provided investors with a unique set of guarantees designed to stimulate foreign direct investment and the movement of factories within the hemisphere, especially from the United States to Canada and Mexico." (Scott and Ratner, 2005) Because there were no provisions of protection relating to labor or environmental standards, "NAFTA tilted the economic playing field in favor or investors and against workers and the environment causing a hemispheric 'race to the bottom' in wages and environmental quality." (Scott and Ratner, 2005) Secondly, NAFTA has failed in delivering the promised benefits "to the poorest citizens of the hemisphere, many of them living in Mexico." (Scott and Ratner, 2005)

III. FACTORS for CONSIDERATION in U.S. TRADE RELATIONS WITH CHINA

Scott (2007) relates: "China has purchased more than $1 trillion in U.S. Treasury bills and other government securities in recent years in order to artificially and illegally hold down the value of its currency, and thereby lower the cost of its exports to the United States and other countries. It has repressed the labor rights and wages of its workers, making its exports artificially cheap, further subsidizing its exports. Wal-Mart has aided China's abuse of labor rights and its violations of internationally recognized norms of fair trade behavior by providing a vast and growing conduit for the distribution of artificially cheap and subsidized Chinese exports to the United States. The U.S. relationship with China needs fundamental change: addressing the exchange rate policies and labor standards issues in the Chinese economy are important national priorities. Wal-Mart's huge reliance on Chinese imports illustrates that many powerful economic actors in the United States benefit from China's unfair trading system. Wal-Mart's gain, however, is not the country's gain, as their imports have contributed to the ever-growing trade deficit that imperils future economic growth." (Scott, 2007) the problem in China is addressed in the work of Cui (2007) entitled: "China's Growing External Dependence" published by the International Monetary Fund Journal of Finance and Development (IMF) relates that the key to the remarkable economic performance of China over the past three decades has been its.." rapidly growing foreign trade..." (Cui, 2007) Cui states that the conventional view is that the growth for China is "largely domestically driven...China uses its abundant labor to assemble imported inputs into low-tech consumer goods and capital goods exports, making it the world's workshop.' (Cui, 2007) Cui states in analysis that: "The contribution of net exports to China's growth has increased significantly in recent years, as reflected in the surging trade surplus as a share of GDP. The analysis suggests that a significant part of the increase reflects structural changes in the Chinese economy, particularly the rising domestic content of its exports. Moreover, the two key trends described here imply that China has become more vulnerable to external shocks, such as a real exchange rate appreciation or a slowdown in external demand, than is generally assumed. This underscores the need to hasten the rebalancing of China's growth away from potentially volatile net exports toward a more sustainable path driven by domestic demand." (2007) According to Cui: "The structural changes in China also have important regional implications for trade flows within Asia and the evolution of regional production networks. In recent years, China has displaced the United States as the largest export market for an increasing number of Asian countries. It has also been pivotal in boosting intraregional trade and FDI, particularly in the form of intermediate goods channeled through multinationals as part of cross-border chains. Indeed, intermediate products account for almost three-fifths of the increase in trade within Asia over the past decade. But as China begins to specialize in more parts of the production chain, its imports of intermediate goods from the region could start to fall." (Cui, 2007) Cui predicts that as the comparative advantage of China evolves that the consequence will be a rise in labor costs with "the lower-income countries in Southeast Asia" taking the place of China "at the lower end of these networks." (Cui, 2007)

V. GLOBALIZATION and the CHANGES in CONDUCTION of Business BOTH at HOME and ABROAD for the UNITED STATES

Actions reported by the United States Trade Representative, in the work entitled: "U.S.-China Trade Relations: Entering a New Phase of Greater Accountability and Enforcement" a 'Top-to-Bottom' review of the trade policy with China states that six objectives would be pursued by the United States in the future, which are those as follows:

Participation - Integration of China more fully as a responsible stakeholder into the global rules-based system of international trade and secure its support for efforts to further open world markets;

Implementation and Compliance - Monitor China's adherence to international and bilateral trade obligations and secure full implementation and compliance;

Enforcement of U.S. Trade Laws - Ensure that U.S. trade remedies and other import laws are enforced fully and transparently, so that Chinese imports are fairly traded and U.S. And Chinese products are able to compete in the U.S. market on a level playing field.

Further Market Access and Reform - Beyond what is granted under China's current commitments, secure further access to Chinese market and greater economic reforms in China to ensure that U.S. companies and workers can compete on a level playing field;

Export Promotion - Pursue effective U.S. export promotion efforts with special attention to particular U.S. export growth potential in China; and Proactive Identification and Resolution of Trade Problems - Identify mid -- and long-term challenges that the trade relationship may encounter, and seek proactively to address those challenges. (U.S. Trade Representative, 2007)

SUMMARY and CONCLUSION

The hope for promises of the NAFTA free trade agreement have not culminated in many situations and China has not followed the trade rules as closely has would have been desired initially however, new groundwork has been laid in coping with the complexities of the import and export trade with China which has been acknowledged as beneficial for both China and the United States. It will be of primary importance that China is held to the trade regulations in a transparent manner. Greater accountability and enforcement are the call-words in the future trade relations with China and other developing, emerging and rapidly growing countries involved in import and export trade with the United States. The United States has announced intentions to promote export trade with China and other developing countries and their markets.