Episode 725: Trade Show : Planet Money On today's show: The fight over free trade. Come for the man who dreamed of world peace through trade. Stay for Robert Smith in the mean streets of Seattle.

Episode 725: Trade Show

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It's been kind of a rough year for people who believe in free trade, who think, you know, people in one country should be able to sell stuff to people in other countries without too much trouble.


Yeah. There was this massive trade deal that the U.S. has been negotiating with Europe, and that seems to be falling apart. People in the U.K. voted to leave what is the largest free trade bloc in the world - the European Union. You may remember the Brexit vote.

GOLDSTEIN: And the TPP, the Trans-Pacific Partnership, this giant free trade deal that looked like it was going to be one of President Obama's biggest accomplishments. Well, the two people most likely to take Obama's job next year, the two candidates who agree on almost nothing, they agree on this.


DONALD TRUMP: TPP, the trade deal, Trans-Pacific Partnership - a horrible deal for our country.


HILLARY CLINTON: I oppose it now, I'll oppose it after the election, and I'll oppose it as president.

GOLDSTEIN: For decades, president after president, Democrats and Republicans, have all been pro-free trade. We've had one free trade deal after another. Now, it's, like, the complete opposite. What happened? Hello, and welcome to PLANET MONEY. I'm Jacob Goldstein.

SMITH: And I'm Robert Smith. Today on the show, we pack 240 years of trade history into a mere 22 minutes.


SMITH: We have a Scotsman kidnapped by gypsies...

GOLDSTEIN: Possibly apocryphal.

SMITH: ...A hippie dream of world peace and revolutionaries in the streets.

GOLDSTEIN: In the streets.

SMITH: (Laughter) All connected by the most important idea in economics.

GOLDSTEIN: I mean, one of the most important ideas, free trade.



SMITH: (Laughter) Yes, Jacob.

GOLDSTEIN: I'm starting the show with Adam Smith.

SMITH: That is bold.

GOLDSTEIN: I don't care what anybody says. Adam Smith is super interesting. He's keen (ph) on trade and, you know, we're an economics show, have not talked about Adam Smith in years and his big book, "The Wealth Of Nations," came out in 1776. It's perfect. This is a show about America and trade.

SMITH: In three acts, so chapter one - "Madam, I'm Adam."

GOLDSTEIN: That's like an anagram...

SMITH: Palindrome.

GOLDSTEIN: A palindrome.

SMITH: Is it?

GOLDSTEIN: I'm reading it backwards. It's true.

SMITH: (Laughter).

GOLDSTEIN: So, OK, for Adam Smith, we talked to an economic historian named Doug Irwin (ph) and we said, all right, let's start by telling the world how amazing Adam Smith is.

DOUG IRWIN: Adam Smith lived with his mother. He was a bachelor. He didn't go out at night.

SMITH: Come on, you can do better than that.

GOLDSTEIN: You of all people, Doug Irwin.

IRWIN: (Laughter) He was captured by gypsies.

SMITH: Wait, wait, what?

IRWIN: He was kidnapped.

GOLDSTEIN: For real?


SMITH: This was...

GOLDSTEIN: The Adam Smith.

IRWIN: The Adam Smith. He almost was lost to humanity.

GOLDSTEIN: OK. That's possibly apocryphal, that story. But what is true is Adam Smith grew up and basically invented economics as we know it. And a key part of that was thinking about trade in this way that was really revolutionary and that, frankly, is still central to the way economists think.

SMITH: So at the time, people measured the wealth of a country, the wealth of a nation...

GOLDSTEIN: If you will.

SMITH: ...By how much gold the country had.

GOLDSTEIN: And the pile of gold is what makes you rich. It's gold.

IRWIN: That's right. Who doesn't want gold?

SMITH: And everything a country did was to get more gold. They would explore. They would go to war. They would take over continents, and they would trade. International trade was a gold-making machine. You send cloth or grain to France. France sends you gold.

GOLDSTEIN: But the key to the way people thought about trade at the time was you wanted to keep that gold in your country. And the way you do that is you do not buy stuff from other countries, or, at least, you want to buy less from them than they buy from you. You want to run a trade surplus. That's how you get a big pile of gold in your country.

SMITH: So countries put up high tariffs, taxes on imports, and they put quotas to discourage people from buying stuff from other countries. They basically said, keep the gold here, buy everything in this country.

GOLDSTEIN: Now, Adam Smith looked at these policies and just said that just doesn't make sense.

IRWIN: And he said it's not how much gold you have. It's how high your wages are and the standard of living of people, not what's socked away in the government coffers.

GOLDSTEIN: The standard of living of ordinary people - that's just how much stuff can ordinary people buy. And those high tariffs and quotas, they made it so people could not buy as much stuff. In Great Britain at the time...

IRWIN: They had a lot of restrictions on imported food. It's just harming working people by making them buy high-priced food.

GOLDSTEIN: Adam Smith says this, at the time, revolutionary thing. He says get rid of those tariffs and quotas. Food will get cheaper, lots of things will get cheaper. People's standard of living will rise. They'll be able to buy more stuff. The nation will get wealthier.

SMITH: Now, there are farmers who are selling expensive food who might be temporarily hurt. But the idea, Adam Smith said, was that those farmers, they will change jobs. They can start, say, making cloth, which maybe they can make better and more cheaply than people in other countries. And then they can trade that cloth.

GOLDSTEIN: Yeah. I mean, Smith steps back and says free trade can make everybody better off.

SMITH: And so he sort of writes the original "Get Rich Quick" book but for nations, right? "The Wealth Of Nations" is the name of his book, and the book is a big hit in Britain, and it makes its way to America.

IRWIN: "The Wealth Of Nations" was brought over on ships to the United States. And Jefferson, Adams, Hamilton, they all read Adam Smith. We have the Constitution, 1787...


IRWIN: First Congress meets, 1789.


IRWIN: The second bill they pass is a tariff bill.

SMITH: What?

IRWIN: It's one of the first things they do because the government needs revenue.

SMITH: They had the book, Jacob. They read the book. They ignored the book.

GOLDSTEIN: Yeah. The tariff starts out as a way to get revenue. But as soon as the U.S. has any industry to speak of, factory owners start going to Congress and saying, hey, we need more tariffs to protect us from foreign competition. And Congress agreed.

SMITH: And from that point forward in American history, there are ups and there are downs but pretty much we are a protectionist country.

GOLDSTEIN: And this political outcome, it makes sense when you look at it. You know, it's really a classic thing. You have this relatively small number of people who benefit from a tariff, and they care a lot about it. You know, these are people with factories who would have to compete against imports. So, of course, they're going to push for a tariff. They're going to go to Congress and say, look, I'm going to go out of business. All my workers are going to lose their jobs. You have to protect me.

SMITH: But then you have basically everybody else in the country who are going to pay more for their stuff as a result. But it's not as big of a deal because it's not, like, their job or their company depends on it. They aren't going to get on a horse and ride to Washington, D.C., to yell at their senators and complain that their stockings, say, cost two cents more. How dare you, sir.

GOLDSTEIN: Yeah, this is, like, a political truth. You know, when you have a concentrated benefit - in this case the factory owners - up against a diffuse cost - everybody else - the concentrated benefit usually wins, even if it's much smaller than the cost. And that's really the story of chapter one. Tariffs win. Adam Smith loses.

SMITH: And tariffs in the U.S. stayed really high for a really long time. But that finally changes largely because of one guy. I'm going to take this one. Chapter two - "A Man, A Plan, A Free Trade Hero, Cordell Hull."

GOLDSTEIN: Not a palindrome.

SMITH: True, but this was the man who unleashed free trade upon the entire world.

GOLDSTEIN: Was he abducted by gypsies as a baby?

IRWIN: (Laughter) No, but he was a hillbilly from Tennessee.

GOLDSTEIN: Doug Irwin told us Cordell Hull grew up in a log cabin. I read that when Hull was a kid, he would go on these trips where they would make a raft out of a bunch of logs, float on the logs down the river and then sell the logs in Nashville.

SMITH: In the South where Hull was growing up, and this is around the turn of the 20th century, most of the politicians were anti-tariff, not because they had read their Adam Smith and thought everybody should get cheaper goods.

GOLDSTEIN: Obviously.

SMITH: But because the farmers in the South grew tobacco and cotton, which people all over the world wanted to buy. They were exporters. They loved free trade.

GOLDSTEIN: But the U.S. factory owners, these are mostly northern Republicans at the time, they mostly wanted to sell stuff to customers in the U.S. So they wanted protection from foreign competition. They wanted tariffs.

SMITH: Cordell Hull becomes a lawyer, then a congressman from Tennessee. And during World War I, he has this revelation. He realizes tariffs aren't just about economics. There is something much bigger at stake.

IRWIN: And as he looked at the war, he said there were economic causes to this war. Those causes are that there was protectionist policies, the lack of international - free international trade, and that led to political frictions, which led to war. And therefore, my mission, my life goal, is to bring about freer trade because that will bring about world peace.

SMITH: Think of how amazing this argument was at the time. He was saying Germany and France would not have needed to fight in those trenches if they had traded more stuff with each other, if there were thousands of businessmen in Paris and Berlin saying, hey, don't shoot them, those are my customers.

GOLDSTEIN: But that argument didn't really - didn't really convince the world.

IRWIN: It wouldn't be the first thing you would say caused World War I. But he - Cordell Hull latched on to it and pushed it and pushed it and pushed it.

GOLDSTEIN: In the '30s, Hull becomes FDR's secretary of state, and he does have some success. Congress passed this law that said the president could negotiate lower tariffs with other countries.

SMITH: Still, Irwin says that Hull's obsession that the key to world peace was free trade, that all you need, man, is free trade. This just rang false in the 1930s.

IRWIN: People thought he was nuts. The reason why there's Nazi Germany is because they didn't trade enough, because they didn't have free trade? And even Roosevelt - President Roosevelt thought, you know, he's a really - a little bit misplaced here. He's, you know, the world's, you know, burning up around us, and he's talking about trade agreements. And people said that's just not it. He's off base.

SMITH: And there was something else. There was another reason why people were not taking Cordell Hull seriously.

IRWIN: He also spoke with a lisp. He spoke like Elmer Fudd. Dean Acheson, in his memoirs - he was at the State Department the time - he said these off-enunciated words due to a speech impediment emerged as wecipwocal twade pwogwam to weduce tawiffs (ph).

SMITH: This is sort of mean. So - this is sort of mean.

IRWIN: I think it's mean.

SMITH: People are making fun of him at the time.

IRWIN: They are. They are, behind his back. But we really haven't reached the Hull moment because he does win.


SMITH: Dun, dun, dun (ph) right after the break - right after the break, how Cordell Hull changed the world.

GOLDSTEIN: Cordell Hull's moment came because of World War II.

IRWIN: And the State Department was not responsible for fighting the war. That's the - so they're spending the entire war thinking about what comes next.

SMITH: And there's this moment. There's this pause. Nobody knows which direction to go in, and Cordell Hull steps forward and says, how about this direction?

IRWIN: Absolutely.

SMITH: I'm going to play some music under you (humming). Give me a Cordell Hull speech that is the most idealistic, the most visionary, the best possible pitch of his for free trade after the war.

IRWIN: I'd say this is the pitch - by turning inward after World War I, the United States abandoned its international responsibility, and we had World War II. That was a grievous mistake. We cannot repeat this mistake after World War II. We have to become an economic leader, a political leader in the world. And an essential component to ensuring peace in the postwar period is having a strong economic foundation. If people are fully employed and trading with one another and they're economically prosperous, they'll have a vested stake in preserving peace. If they're unemployed and there's economic rivalry and bitterness and resentment about, you know, other countries stealing our jobs or this or that, it's going to lead to a political breakdown and lead potentially to another war.

SMITH: That's a pretty good pitch.

GOLDSTEIN: Yeah. And imagine hearing it as as World War II was winding down. You know, the world was exhausted and devastated, and Cordell Hull stepped forward with this plan, this plan he'd been working on for decades.

IRWIN: And the president - President Roosevelt strongly supported all this, and that was his moment.

SMITH: So Cordell Hull is standing there. He finishes his pitch, and there is dead silence in the room. And then all of a sudden in the back, Dean Acheson, the man who had mocked him for a speech impediment, stands up and starts a slow clap and locks eyes with Cordell Hull. And then everybody starts to stand up. Hull, Hull, Hull, Hull - and through the whole room is going - Hull, Hull, Hull, Hull, Hull, Hull, Hull, Hull, Hull, Hull, Hull, Hull, Hull, Hull, Hull, Hull - in 1945, Cordell Hull wins the Nobel Peace Prize.

GOLDSTEIN: That was amazing.

SMITH: You've pictured it.

GOLDSTEIN: Astonishingly, only the last sentence was true. The whole thing about Acheson in the room, that's from the movie you just made up in your head.

SMITH: It's a John Hughes movie.

GOLDSTEIN: But he actually won the Nobel Peace Prize. In 1945, he won the Nobel Prize, partly for his work creating the United Nations, also for his idea that trade barriers are - and I'm quoting from the awards speech here - quote, "barriers also to lasting peace."

SMITH: A couple years after that, Hull's free trade dream comes true. Twenty-three countries create - wait for it - the General Agreement on Tariffs and Trade.


SMITH: (Laughter) It is the GATT, the first really big mechanism for free trade between countries. And the amazing thing about this was that the usual people who would stand in the way of free trade, you know, U.S. manufacturers, all of a sudden, they looked around in the world and said, you know what? We're the only factories left standing. This is a chance for us to sell to the world.

GOLDSTEIN: Yeah, so the manufacturers and, for that matter, the unions, too, like, they were like, yeah, this will be more jobs for us. Let's lower tariffs so we can sell more stuff to the rest of the world.

SMITH: And, Jacob, look what happened. The GATT ground down trade barriers around the world. In 1945, at the end of the war, tariffs on imports to the U.S. were around 30 percent - 30 percent. Fifty years later, by the mid-'90s, tariffs had fallen to 5 percent, from 30 percent to 5 percent.

GOLDSTEIN: And that's - that's essentially the end of of chapter two. Cordell Hull and, for that matter, Adam Smith, they won.

SMITH: Chapter three - this is our last chapter. Chapter three - "Able Was I Ere I Saw Seattle."

GOLDSTEIN: A palindrome.

SMITH: Close enough. So if free trade won, why does it seem like we're still arguing about this? Why are we talking about trade all the time?

GOLDSTEIN: I called up Joe Stiglitz on this. He is famously sort of skeptical of a lot of globalization and of parts of trade. He's also a famous economist, won the Nobel Prize, the econ prize. And back in the '90s, he was an adviser to Bill Clinton and worked at the World Bank. And at that time, when he got to Washington, he noticed something strange.

JOSEPH STIGLITZ: One of the realizations I had was that the free trade agreements were not free trade agreements. They were just called free trade agreements.

GOLDSTEIN: The deals did lower some tariffs but, remember, tariffs were already super low.

SMITH: A bigger deal, according to Stiglitz anyway, is all these other things going on in these trade agreements. So let's say a corporation disagrees with a foreign government about a certain regulation.

GOLDSTEIN: Yeah, that trade deals have special, like, panels to settle those disagreements. The deals also had stuff about, like, how long drug patents were good in different countries. And economists started looking at all this stuff and saying, wait - what?

STIGLITZ: There was a broad sense that these shouldn't be in a trade agreement. They were actually restricting trade.

SMITH: And it wasn't just economists.


GOLDSTEIN: This is the sound of thousands of people chanting and protesting in the streets of Seattle. The year was 1999. And everybody was there to protest a meeting of the WTO, the World Trade Organization. Robert Smith, you were a cub reporter in those streets.


SMITH: Well, as we saw yesterday, I mean, clearly there are enough police officers here. Although, I don't see them now, and I don't really know where they are. I'm sure they're ready to shut down any protest.

(Laughter) You pulled the tape. How did you get that? I didn't think they even recorded things back in 1999.

GOLDSTEIN: We called the station.

SMITH: (Laughter).

GOLDSTEIN: They pulled it off of the wax cylinder and sent it to us. Baby Robert Smith, it sounds like - what were you? - 12 years old. Your voice hadn't changed yet.

SMITH: (Laughter) So we're in the streets of Seattle. People are protesting the WTO, which is the modern incarnation of the GATT - the thing that Cordell Hull inspired. GATT had changed its name to WTO, World Trade Organization.

GOLDSTEIN: Yeah, that had just a couple of years before. That happened in the mid-'90s. And I have this theory that I totally just made up, that's probably false. But my theory is that that was a huge branding mistake, changing the name, because, you know, think of GATT - the General Agreement on Tariffs and Trade. That is so boring. You don't even get to the end of the acronym before you're like I got to go do something else. But then you hear World Trade Organization.

SMITH: The WTO - it sounds like a Bond villain stroking a cat going, we are going to lower tariffs, Mr. Bond, and there's nothing you can do to stop us.

GOLDSTEIN: Robert, I'm not even going to try and do that voice, but I would say that Bond villain would also be saying, like, and we're going to monkey with your regulations. We're going to change the dynamics of power between corporations and government.

SMITH: And that was the amazing thing you saw in Seattle. The protesters were not carrying signs that said, oh, we need higher tariffs on sneakers, say. They were there dressed as sea turtles saying, oh, what the WTO does is ruin environmental regulations around the world.

GOLDSTEIN: And this is still the trade fight we're having today. You know, when you look at the TPP, the Trans-Pacific Partnership, this deal that's at issue in the presidential election, a lot of the fight over it is over stuff like generic drugs and companies challenging governance. I asked Joe Stiglitz about this.

So is the TPP even a trade deal?

STIGLITZ: Not really. It's mostly about other things than trade.

GOLDSTEIN: So is it possible to be pro-free trade and anti-TPP? Is that a consistent view?


GOLDSTEIN: And you hear a lot of this when Hillary Clinton and Donald Trump talk about the TPP. They do talk about a lot of this nontariff stuff like drugs and rules.

SMITH: But they also say the kind of things you might have heard 200 years ago, stuff that someone probably said to Adam Smith's face. You know, hey, what about the workers? The workers who compete against imports are going to be hurt by this deal.

GOLDSTEIN: They definitely both say that, but when you dig in a little more and you read, you know, Hillary Clinton and Donald Trump on trade, there are some some pretty big differences, right? When Clinton talks about TPP, one of the things she says is U.S. workers need more of a safety net. You know, trade deals make our economy as a whole get wealthier, but some people do get hurt. And one thing you can do is take some of that extra wealth you're getting from trade and give it to the people who get hurt. This is, like, a standard economic idea.

SMITH: And whatever the rhetoric may be now around TPP, Clinton's views on trade are pretty firmly in the Cordell Hull/Adam Smith universe, which is basically the same universe that Barack Obama lives in and George W. Bush and before that Bill Clinton.

GOLDSTEIN: Yeah, it's the universe where trade between countries can make both countries better off.

SMITH: Donald Trump talks more about trade in terms of winners and losers. China's been killing us on trade. Mexico's taking our job. Cordell Hull is a wimp and a loser - sad, exclamation point.


SMITH: But he would. It's as if Donald Trump looks at the world and says, hey, everybody's laid down their trade weapons and why don't we pick up this pointed stick? Why don't we pick up this 45 percent tariffs on imports in China and poke them with it?

GOLDSTEIN: Joe Stiglitz says that is a dangerous stick to pick up.

STIGLITZ: Cooperation in one area does build up into cooperation in others. I think that was probably Cordell Hull's - of his insights is about trade leading to peace. I mean - and by the same token, aggressiveness in one area can lead to aggressiveness in another. You know, and that's part of the danger of Trump, that he could throw a hand grenade in the construction of what took decades.

SMITH: I think if Cordell Hull were alive today and watching this presidential race, he would say, listen, it may be tempting to take a certain point of view for votes or it may be tempting to use a tariff as a weapon for a short-term gain. But what he would say is like, think about what I lived through, I, Cordell Hull, lived through, the horrors of World War I, of World War II. Slapping a high tariff on another country is not just about trade. It's about something much bigger.


SMITH: We would love to hear what you think of the show. You can email us - planetmoney@npr.org - or tweet at us. We're @planetmoney. We watch it obsessively.

GOLDSTEIN: Our show today was produced by Elizabeth Kulas. Special thanks to Mike Moore, former head of the WTO, who talked to us but didn't make it into the show; also Michael A. Butler, author of "Cordell Hull: Cautious Visionary."

SMITH: And also thanks to my home station, my dear love, KUOW in Seattle and to producer Sally Helm who helped us get that tape. And now that you're done with this particular episode, may we recommend another favorite, the NPR POLITICS podcast. Monday, you probably know this, is the first presidential debate, and the very next morning, the NPR POLITICS team will have a podcast ready for you, telling you not only what happened during the debate but what it means. That's the NPR POLITICS podcast. They're going to do a special show after every debate. Subscribe or listen on the NPR One app. I'm Robert Smith.

GOLDSTEIN: And I'm Jacob Goldstein. Thanks for listening.

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