Trade, protectionism and the future of welfare capitalism.

• Author: Ruggie, John Gerard
• Position: Contemporary Issues in World Trade

For more than 20 years now, commentators have detected a "disastrous isolationist trend" in U.S. foreign economic policy, warning of "the first real international trade war since the 1930s" and recalling that "trade wars could become full economic wars, precisely as they did under similar international conditions in the 1930s."(1) Thus, recent charges that the Clinton administration's "results-oriented" trade policy vis-a-vis Japan could end up destroying the international trading order echo a long stream of anguished cries, as do pointed reminders that East Asia, "just across the Pacific from America, is probably the world's most dangerous region."(2)

The consequence of predicting imminent collapse over so extended a duration and being consistently in error may be that the intended audience by now is so inured to further outcries, as in the fable about the boy and the wolf, that it ignores the real thing when it finally does arrive. That prospect can only be reinforced by the successful completion of the North American Free Trade Agreement (NAFTA) as well as the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). The trouble all along has been that the conventional wisdom clearly is of little help in recognizing the real thing in the first place.

If we are to get a better handle on the future of the international trading order, we must devise an alternative interpretation that will enable us to assess more effectively where real dangers lurk, and where they do not, in the commercial policy world. This brief article can do little more than sketch the outlines of an alternative view.(3) I begin by correcting the free trade bias in the prevailing model, which from the outset channels assessments in the wrong direction. Correcting for that bias also makes it easier, in turn, to see why the so-called "new protectionism" has not produced the deleterious effects so often predicted for it. I then describe briefly a very different source of potentially serious problems for the international trade regime: the growing inability of governments at home to sustain their part of the social compact on which postwar international liberalization has hinged.

THE BASE LINE

Contrary to what liberal economists would like us to believe, free trade, in the sense of unrestricted trade, has never been the mandate of GATT. Commenting on the negotiations for an international trade charter in 1947, Jacob Viner wrote that "there are few free traders in the present-day world, no one pays any attention to their views, and no person in authority anywhere advocates free trade."(4) Even for the relatively more liberal United States, the international edifice of the "open door" had to accommodate the domestic interventionism of the New Deal. No country anywhere was prepared then -- or at any time since -- to subordinate domestic stabilization to free trade.

At the same time, the Gatt-based regime for the governance of international trade relations sought to ensure that domestic intervention did not reproduce the mutually destructive consequences of the interwar period, and that it be constrained by multilateral norms. From those twin concerns emerged a historic institutional compromise that I have elsewhere called "embedded liberalism."(5) Unlike the economic nationalism of the 1930s, the international economic order would be multilateral in character; but unlike the laissez-faire liberalism of the gold standard and free trade, its multilateralism would be predicated upon domestic intervention. Domestically, this was a compromise among the major societal groupings (agriculture, labor and capital), as well as between export-oriented and import-competing industries. Additionally, it was a compromise between the legislative branch, which retained the right to authorize trade negotiations and to ratify their results, and the executive branch, which was given the right to conduct trade policy. Intemationally, it was a compromise between the United States -- where domestic stabilization measures remained the least comprehensive and systematic and the most constrained by opposition -- and the European states, where rejection of liberal orthodoxy was universal but the objects and objectives of economic protection varied widely among the left, right and center of the political spectrum.

Once negotiations on postwar commercial arrangements got underway seriously, in the context of the International Conference on Trade and Employment, the principles of nondiscrimination and tariff reduction were affirmed, but so were safeguards, exemptions, exceptions and restrictions -- all designed to protect the balance of payments and a variety of domestic social policies. The proposed charter for an all-encompassing International Trade Organization became internally so inconsistent that it is difficult to say to just what sort of regime it would have given rise. In any case, the U.S. Senate refused to ratify the charter, it being too intrusive for some and not activist enough for others.(6) As a result, a far smaller domain of commercial relations became subject to the trade regime than would have been the case otherwise. Among the most important areas excluded were the regulation of commodity markets, restrictive

business practices and international investments -- the absence of which has severely plagued the international trade regime in recent years. The...