TRADE AND SOVEREIGNTY: WHAT YOU CAN SEE BY LOOKING.

• Author: Cass, Ronald A.
• Position: International Law and U.S. Foreign Policy

Dr. Henry Kissinger, famous American scholar, advisor to presidents, and former Secretary of State, has a widely recognized voice. (1) It is deep, resonant, cultured, and profoundly accented. Henry's brother Walter, who was a year younger than Henry, was a tad less famous. But he was notable, as is a story about both Kissingers. One of Walter's friends is said to have pulled him aside and said, "Walter, I just have to ask you something. You and Henry both came to America from Germany as teenagers. Now, you speak English like everybody else in America, while to this day Henry retains his heavy German accent. Can you explain why that is?" Walter looked him in the eye and said, "Henry actually doesn't speak with a German accent. That's simply the way you speak English if you never listen to anyone." (2)

Whether Walter's critique of Henry was valid or fanciful, the value of listening to others is undeniable. It was the great American philosopher Yogi Berra who, discussing the game of baseball, reportedly said, "You can see a lot just by looking." (3)

Trade and sovereignty are much the same.

What follows is an essay that describes what can be seen with a modest amount of looking. It reviews the meaning of sovereignty, the basics of international trade and trade policy, and the relation of considerations relevant to the two topics. In particular, the essay discusses the role that open trade plays in both protecting and potentially undermining national security and the impact of trade-related agreements and institutions on national sovereignty. The essay ends with observations about relative risks posed by particular forms of cooperation and with cautions for policymakers in the trade arena.

Sovereignty in a Nutshell

Start with sovereignty. I will use the term to refer to nation-states, although the concept pre-dates the nation-state (for centuries applying primarily to city-states and smaller principalities (4)) and, for some commentators today, extends beyond nation-states to supranational entities such as the European Union. (5)

Simply put, sovereignty denotes the right and power to do things. It encompasses control over internal governance (the who, how, and what of governing within a nation's jurisdiction), control of borders (regulating people and products crossing a nation's borders), and control over relations with other sovereign entities (how the nation relates to other nations, cooperatively or antagonistically, at war or peace). (6)

Sovereignty is not measured by how aggressive a nation is in its exercise of those prerogatives. It is not a matter of the choices a nation makes with respect to these powers, although those choices may affect the quality of life for the nation's residents and even the nation's ability to exercise sovereignty in the future. Whether a nation chooses to have an economy that is controlled by the government or is relatively laissez-faire, implementing either choice is an exercise of sovereign authority. So is the choice between open borders and tightly controlled borders, though, again, that choice may have considerable impact on the quality of a nation's sovereignty going forward, as it can alter the effective power to control different aspects of life within the nation.

Trade: A Primer

Trade, here meaning international trade, is equally simple. Although generally thought of in terms of international product (or service) flows and the rules that govern them, the underlying decisions that drive trade are more granular. Trade is best understood by looking first at individual-level decisions.

The essence of international trade is a decision by someone in one sovereign jurisdiction to buy something that will come from another sovereign jurisdiction. This simple version of trade oversimplifies in important respects but provides a useful starting heuristic for understanding trade. (7) The fact that trade takes place across sovereign borders is important, but understanding trade begins with the considerations that drive individuals' decisions on both sides of a transaction.

In its most basic sense, trade takes place because one person wants to acquire something that is better, cheaper, or different-something that person values more than his or her next best use of whatever the thing costs--and the person on the other side of the transaction values the money price more than the goods being sold. You buy things because you want them and think they are worth the cost; people sell them to you because they think the price gives them something more valuable than the goods. From a strictly economic standpoint, trade makes parties on both sides better off.

Of course, this does not mean that trade makes everyone better off. If I buy from you instead of John (my former supplier), you and I are both better off, but John is not. That relationship is endemic to competition, domestic or international. And that observation provides an essential insight into much of the controversy about trade. With trade, as with pretty much everything else, people tend to make arguments that are consistent with their own self-interest, whether promoting or opposing trade restraints.

U.S. Trade History

In the United States, from the nation's inception, international trade has been recognized as both important and politically divisive. The very first substantive law passed by the first Congress was an international trade bill that placed tariffs on a variety of items. (8) The southern states wanted tariffs on agricultural goods (which they produced) but not on finished products (which they primarily purchased). (9) The northern states wanted tariffs on finished products (their own focus for production) but not agricultural goods or inputs to production. (10) And our political forebears did things the way we have always done them: they compromised by putting tariffs on both! (11)

Our nation has, over time, had an up--and-down relationship with tariffs. From about 1820 to 1900, U.S. tariffs were relatively high compared to most of the world. (12) After that, the tariffs came down substantially until 1930 when the Smoot-Hawley Tariff raised tariffs to prior levels. (13) Other countries placed reciprocal tariffs on our exports to them, (14) and in a period of two years, the GNP of the United States dropped by...