Planet Money - Summer School 5: 250 years of trade history in three chapters

Episode Date: August 7, 2024

Episodes each Wednesday through labor day. Find all the episodes from this season here. And past seasons here. And follow along on TikTok here for video Summer School. Trade has come up in all of the episodes of Summer School so far. An early use of money was to make trade easier. Trade was responsible for the birth of companies and the stock market. And trade was the lifeblood of the early United States.Today's episode covers 250 years of trade history in three chapters. We start with one of the founding texts of economics, Wealth of Nations, in which Adam Smith argues a country's true value is not measured in gold and silver, but by its people's ability to buy things that enhance their standard of living. Then we'll watch American politicians completely ignore that argument in favor of protecting domestic industries – until one congressman makes a passionate case for free trade as the means to world peace. And finally we'll follow the trade debate up to the modern day, where the tides of American politics have turned toward regulation. This series is hosted by Robert Smith and produced by Audrey Dilling. Our project manager is Devin Mellor. This episode was edited by Planet Money Executive Producer Alex Goldmark and fact-checked by Sofia Shchukina. Subscribe to Planet Money+ for sponsor-free episode listening in Apple Podcasts or at plus.npr.org/planetmoney.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Do you want in on a secret? Like why bro culture is making a comeback or why a makeup fat is suddenly sweeping your feed? On the It's Been A Minute podcast, we know these things don't happen by accident. So join me as we go beyond the trends and find out the why. Follow the It's Been A Minute podcast from NPR. This is Planet Money from NPR. Welcome back everyone to Planet Money Summer School, economic history of the world. Considered a master's degree you can literally do with your eyes closed. In fact, it's better with your eyes closed because in your mind you can meet the economic geniuses, the crafty idealists, and the greedy raconteurs that created the

economy we have today. This is Lesson 5, The Rise and Fall of Free Trade. I'm Robert Smith. Trade between nations. Well, it started before there were nations. In prehistoric archaeological digs, we find evidence that early humans somehow obtained stones and shells from faraway places. Trade has come up in all of the episodes of summer school so far. One of the early uses of money was to make trade easier. Trade was responsible for the birth of companies in the stock market, and trade was the lifeblood of the early United States. But over the last few hundred years, governments have placed more and more regulations on trade. Nations had to figure out whether they should encourage buying from other nations, or should they try to protect their own industries? Those questions are playing out in politics even

today. We'll have just one story today about the history of free trade and helping us understand all the moving parts is our economics professor for this lesson, Gordon Hanson from the Harvard Kennedy School. Hey, professor. Hey there, Robert. Trade is obviously everywhere around us. So how are we all part of the trading system?

You, Robert, are an exporter of communication and radio services to the rest of the world. Just like- Yes, I love it. I'm an exporter of educational services to the rest of the world. Although sometimes that involves people coming from other countries in order to study with you. That's the fun thing about trade is sometimes it involves goods going to consumers and sometimes

it involves consumers going to the, and sometimes it involves consumers going to the goods as it happens with education or tourism and the like. What is it inside of all of us that creates this economic push to always be trading? Think of my hometown where I grew up, Fresno. Bills itself is the raisin capital of the world. Where Fresno, not to export its raisins everywhere else, we'd have loads of really cheap raisins. We'd be knee deep in raisins in Fresno. That then would spark the interest of raisin lovers

everywhere to say, hey, Fresno's got a bunch of cheap raisins, let's import them. And that would help relieve us of that surfeate of raisins running around the streets of our town. So if we're looking at big picture, what happens to the poor raisin producer outside of Paris, France, who can't compete with these awesome Fresno raisins? They are likely going to have to find something new to do.

As we think about globalization, we think about the benefits of free trade, we tend to like to focus on the positive stories. But because trade is disruptive, bringing in imports from somewhere else means you're not buying them from somebody who's local. There's a downside to trade creates winners and losers. The winners are going to be the folks, the raisin producers in Fresno who now get to sell their raisins to a bunch more places, the losers are going to be those who find themselves competing with much cheaper goods coming in from places you didn't anticipate having to compete with.

As we listen to our history story today, what should our students keep in mind? I feel like we're at this real crossroads right now in the US and in the world too about how we should manage trade. The big challenge that we face is figuring out how do we want to engage with the rest of the world. Since World War II, we were moving towards more openness, making our markets more accessible to other people so that we can import French wine and Italian fashions and semiconductors from Taiwan.

And they would return the favor by allowing us to export pickup trucks and cell phones and digital services to their economies. We have now hit pause on all of that. And we don't have a new model for how we want to go about trading with the rest of the world, having recognized that trade to date has created a lot of losers from that process of globalization,

who we've taken pretty poor care of. And the big debates that we're having about trade policy right now really emanate from that challenge. What do we do about peoples whose lives are disrupted by international competition? Coming up, we begin with a famous economist. In fact, the most famous economist in the world being kidnapped as a child. And how that gets us to the dream of world peace after the break. 2024 is the first year ever that the Olympics will have the same number of athletes competing

in women's sports as men's, which sounds like a big win for gender equality, right? There are more athletes competing in women's sports than ever before. And we're also seeing a rise in policing who is eligible to compete. Listen to the It's Been A Minute podcast from NPR. They're all over the internet and bumping out of people's cars. They're the songs of the summer. And this year includes the domination

of Charli XCX and Brat Summer. She's really tapping into this moment where we are all chronically online, but also chronically outside. We are talking about the songs of the summer and why they're so catchy and inescapable. Listen to the pop culture happy hour podcast from NPR. All right. All right, everyone pencils ready. We are about to do 250 years of history in around 20 minutes.

Before we start, I just wanted to get one definition from our professor Gordon Hansen. We'll be hearing a lot about tariffs. So what is a tariff? A tariff is a tax and it's a tax on goods that we buy from other countries. So when we have wine from France or we have automobiles from Japan that show up in a US port, if you want to bring those goods actually into the country, US Customs is going to say, oh, you got to pay a tax in order to do so. Now, which international goods should be taxed? Which countries should we target? How high should the tariff be? These are the questions we will explore in this classic episode from 2016, hosted by

the great Jacob Goldstein and myself. We'll tell the history of free trade in three chapters. And we'll bring back our professor after chapter one about an economist you have probably heard of. Robert. Yes, Jacob. I'm starting the show with Adam Smith. That is bold.

I don't care what anybody says. Adam Smith is super interesting. He's key 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. In three acts.

So chapter one, madam, I'm Adam. That's like an anagram. So chapter one madam. I'm Adam That's like an anagram a palindrome. Is it I'm reading it backwards. It's true So, okay for Adam Smith we talked to an economic historian named Doug Irwin and we said alright Let's start by telling the world how amazing Adam Smith is Adam Smith lived with his mother. He was a bachelor He didn't go out at night. Come on, you can do better than that. You of all people, Doug Irwin.

He was captured by gypsies. He was kidnapped. Wait, wait, what? For real? Yes. Adam Smith, the Adam Smith? The Adam Smith. He almost was lost to humanity.

We should probably note here that so many false accusations were made against the Roma people back then that the story is likely apocryphal. 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. So at the time people measured the wealth of a country, the wealth of a nation, if you will, by how much gold the country had. And the pile of gold is what makes you rich.

It's gold. That's right. Who doesn't want gold? 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.

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 wanna run a trade surplus. That's how you get a big pile of gold in your country. 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. Now, Adamsmith looked at these policies and just said, that just doesn't make sense. 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.

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. They had a lot of restrictions on imported food. It's just harming working people by making them buy high-priced food. 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 cheaper, people's standard of living will rise. They'll be able to buy more stuff. The nation will get wealthier. 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. Yeah, I mean, Smith steps back and says, free trade can make everybody better off. 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. 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. Yay! First Congress meets, 1789. The second bill they pass is a tariff bill. What?

It's one of the first things they do because the government needs revenue. They had the book, Jacob. They read the book. They ignored the book. Yeah, the tariff starts out as a way to get revenue. But as soon as the US 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. And from that point forward in American history, there are ups and there are downs. But pretty much, we are a protectionist country. 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 import. So of course, they're gonna push for a tariff They're gonna go to Congress and say look I'm gonna go out of business. All my workers are gonna lose their jobs You have to protect me. 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 are 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?

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. And tariffs in the US stayed really high for a really long time. Hey, this is Robert Smith in the year 2024, rudely interrupting my own story,

interrupting my own self from 2016 because I just wanted to discuss a few things with our professor, Gordon Hanson, before we move on to Chapter Two. Hey there, Robert. This argument that the early United States makes, oh, we're just a small country, we can't possibly compete with France and England, so we need to have high tariffs. We hear this argument even today from a lot of developing nations.

So this is known as the infant industry argument, and it was something the US embraced pretty wholeheartedly even before we had a term for it, beginning with Alexander Hamilton. And there are many cases where protecting those nascent industries from import competition could make sense. For instance, I can imagine a country that is just starting to make cars, say.

And they might want to put a temporary tariff on foreign cars so that their local car companies could you know get a little time To get better at manufacturing before they have to compete with a Ford or a Honda from overseas the challenge in doing so is that Everybody feels like they deserve that sort of protection. And so what might began with an effort to Strategically target some industry that could be really important for you in the future ends up covering everybody. So we talked about Adam Smith in the previous episode, but we left out another huge figure

in the sort of economic theory of trade and that's David Ricardo. He was born sort of a few years before Adam Smith published The Wealth of Nations. Who was David Ricardo and why does he matter? David Ricardo was one of the great classical economists coming a generation after Adam Smith. And he elaborated the idea of comparative advantage, which is one of the most powerful concepts in economics. So explain this to us.

Comparative advantage is about the idea that different places tend to be good at producing different things. So when Ricardo tried to explain comparative advantage to the world at the time, he used the example of Britain and Portugal. So Portugal at that moment in time was pretty good at producing wine. What Britain had was an abundance of good technical knowledge in making things that allowed Britain to become very good at making textiles. wine, we should let Portugal do that because we can import all of this great Portuguese wine much cheaper than we could ever imagine producing it for ourselves. This was also a good thing for Portugal in David Ricardo's view. Portugal can then turn around and buy that English cloth. So it's using wine to buy cloth. English cloth. So it's using wine to buy cloth.

So under comparative advantage, a country should look toward the thing they are most efficient at. Well, here's the interesting thing about Ricardo's idea. Countries don't need to look for it. If you just engage in free trade, markets will guide you towards doing that thing. All the government needs to do is kind of stand back and let the trade happen and markets will take care of the rest. Because the poor person who was trying to make cloth in Lisbon, Portugal, will find that their shirts

are just way too expensive in the world market. Their shirts are way too expensive and the wine producers are hiring all of their workers. Yes, and they have perks that you don't get in a factory. Exactly. Free samples. Let's take a quick break here and then when we return, a hero of free trade emerges and shows the haters how trade can maybe even bring world peace. There's nothing more inspiring than a blast of Olympic glory.

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the quote, kind of show people listen to in a more perfect world. So make your world more perfect. Every week, Bullseye people listen to in a more perfect world. So make your world more perfect every week. Bullseye puts the pop in culture, interviewing brilliant authors, musicians, actors, and novelists to keep you on your pop culture target. Listen to the Bullseye podcast only from NPR and Maximum Fun. At this point in the show, we want to take a moment to give you an exciting update from the world of NPR+. The NPR Plus bundle option is now available to everyone in the US.

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So if you want to make a bigger impact and get more in return, visit plus.npr.org and select the bundle option today. And thank you so much to everyone who has already signed up. All right, now back to the show. Alrighty, everyone, let's return to our history of free trade in the United States of America. When we last left our story, Chapter 1, the founding fathers of the United States studied

Adam Smith carefully and then they threw his book out the window. We decided to be a protectionist nation, high tariffs, and the US stayed that way for a long time. But it finally changes, largely because of one man. Chapter two, a man, a plan, a free trade hero, Cordell Hull. Not a palindrome. True, but this was the man who unleashed free trade upon the entire world.

He was a hillbilly from Tennessee. 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. 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. Obviously. 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. 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. Cordell Hall 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. 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. 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. But that argument didn't really convince the world. It wouldn't be the first thing he would say caused World War I, but Cordell Hull latched

onto it and pushed it and pushed it and pushed it. In the 30s, Hull becomes FDR Secretary of State. And he does have some success. Congress passed this law that said the president could negotiate lower tariffs with other countries. Still, Erwin 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. 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 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. And there was something else There was another reason why people were not taking Cordell Hull seriously He also spoke with a lisp. He spoke like Elmer Fudd Dean Acheson in his memoirs. He was at the State Department at the time He said these often unciated words due to a speech impediment emerged as reciprocal twaid

program to reduce tell us by think this is sort of mean I think it's meaning this is sort of mean people are making fun of them if they are they're behind us back but we really haven't reached the mall whole moment because he does win Cordell Hall's moment came because of World War two in the State Department is not responsible for fighting the war that's the so they're spending the entire war thinking about what comes next. Pete 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?

Pete Absolutely. Pete I'm going to play some music under you. 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. 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 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 post-war 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. That's pretty good pitch. Yeah, and imagine hearing it as as World War II was winding down. You know, the world was exhausted and devastated. And the president, President Roosevelt, strongly supported all this, and that was his moment.

So Cordell Hull is standing there. He finishes his pitch and there's dead silence in the room. And then all of a sudden in the back, Dean Acheson, the man who had mocked him for speech impediment stands up and starts a slow clap. And locks eyes with Cordell Hall. And then everybody starts to stand up. Ho, ho, ho, ho. The whole room is going crazy. Ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho.

In 1945, Cordell Hall wins the Nobel Peace Prize. That was amazing. You pictured it. Ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, ho, United Nations, also for his idea that trade barriers are, and I'm quoting from the award speech here, quote, barriers also to lasting peace. 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. Gat. It is the gat, 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, US 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. 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. 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. And that's essentially the end of Chapter 2. Cordell Hull, and for that matter, Adam Smith. They won. Chapter three. This is our last chapter.

Chapter three, Abel was I, heir I saw Seattle. A palindrome. 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? 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 advisor to Bill Clinton and worked at the World Bank. And at that time, when he got to Washington, he noticed something strange. One of the realizations I had was that the free trade agreements were not free trade agreements They were just called free trade agreements The deals did lower some tariffs, but remember tariffs were already super low a bigger deal according to Stiglitz Anyway, it's 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 Yeah So let's say a corporation disagrees with a foreign government about a certain regulation. 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? There was a broad sense that these shouldn't be in a trade agreement. They were actually restricting trade. And it wasn't just the comments. 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. 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 protests. You pulled the tape. How did you get that? I didn't think they even recorded things back in 1999. We called the station. 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. 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.

That had happened just a couple 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 Tariff 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. 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. 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 governments. 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. This is still the trade fight we're having today. Because all of a sudden free trade was being debated in a broader context. Yes, free trade helps economies grow. Yes, comparative advantage can overall make countries more efficient and lower

prices. But the focus after the battle in Seattle was on the victims of free trade. Workers trapped in sweatshops, endangered animals killed by industry, and people in the United States who lost their jobs when their factories moved to a cheaper country overseas. After 2000, the push for free trade and globalization faced more backlash. And Cordell Hull wasn't there to defend it. By 2016, we saw both Democrats and Republicans in the United States come out against new free trade agreements. The

UK, home of Adam Smith, leaves the world's largest free trade zone, the European Union, called a Brexit, and some countries around the world start to bump up their tariffs. Coming up after the break, we'll ask, what happened to the great age of free trade? On this week's episode of Wild Card, soccer legend Abbie Wambach says the transition from professional athlete to normal person can be tough. There's this innate narcissism that is almost required in order to be a high-level athlete. I'm Rachel Martin. Join us for NPR's Wild Card Podcast, the game where cards control the conversation. Back with us is our professor, Gordon Hansen from Harvard's Kennedy School. Thanks for joining us again. My pleasure Robert. So what happened? What happened to

the dream of Cordell Hull? Well I think we need to give Cordell Hull a lot of credit because a good part of his dream was realized. When we went from the General Agreement on trading tariffs to the World Trade Organization, what we did was take what had been a small group of trading nations with low trade barriers, with low protectionism, and turn that into a much, much larger group. The fall of communism and the embrace of more free market policies on the part of lower income countries in the rest of the world in the 1980s and 1990s meant that there was a moment when Cordell Hull's dream, it was there.

Now there was a bunch of complications that came from taking his vision, which was really about kind of the US and Europe and a handful of other countries, and extending it to the world as a whole. And that complication comes from the fact that when everybody is trading with everybody, man, we're allowing comparative advantage to fully play itself out. And what that means is, for lots of stuff that any economy produces, there's gonna be somebody who does it better. And that's gonna push you to specialize on a narrower and narrower set of things. And it means that you're gonna have lots of parts

of your economy that are gonna face job losses and factory closures and the disruptions that come from global competition. Let's talk about the moment that everyone refers to now as the big moment of reckoning of world trade. And that's when China enters the WTO, the World Trade Organization, in the year 2001. You've done a ton of research on this. What happened?

Because China was so big, having a comparative advantage in those industries meant that, wow, from one year to the next or one decade to the next, all of a sudden, the supply of this stuff on the global market just exploded. And it was something we just hadn't seen before, comparative advantage playing out on global scale out on global scale in a really compressed timeframe. And the consequence was lots of really cheap goods available at Walmart in the United States and lots of job loss on the part of factories

that had been producing those goods for US consumers. How did this change the way the government and politicians view free trade? Well, it didn't change politicians' ideas at first. What it did was to create a new reality on the ground in America's industrial heartland. People saw their communities hollowed out, the loss of good jobs that paid high wages

to folks who didn't have a college degree, and the breakdown in families, and the fraying of the social fabric, and the kind of general social malaise that emerged as a consequence of losing all of those jobs. Folks then wanted something different, and politicians responded to those demands. Donald Trump had a set of arguments in place that trade was bad for America and bad for American workers and therefore a bunch of folks for whom that message

resonated because they'd lived it. We also started to hear the national security argument for tariffs that in order to counter the rise of China and be prepared in case there was some kind of conflict, the US needed to protect some of its own industries. Trump ended up putting substantial tariffs on China during his term. And perhaps surprisingly, when Biden came into office, he kept those tariffs around. So president Biden recognized that the political reality had changed.

Here's the kind of bizarre thing about this is that, you know, as you talked about in the earlier episode, Republicans were anti-trade in the 1800s, then somewhere along in the 20th century became strongly pro-trade. It was the Democrats who tended to be more anti-trade. Then things flipped right around the time that Donald Trump gets elected president and Democrats briefly found themselves as the pro free trade group countering the anti free trade Republicans.

And they realized we're not gonna win this battle politically so we're just gonna jump on board. So big picture for our summer school students. What is the lesson we can take from the on and off love affair the United States had with free trade? I think the big picture thing is that when a region loses its key industries, it often works out that adjusting to that sort of traumatic change can be a generational process. And that means it could take 25 years to fully work itself out. We then, as a society, want to be focused on,

how do we make it not generational? So it'd be nice if our politicians were talking about how we help people adjust and create new lives, rather than scoring political points with tariffs that just haven't been shown to work to deal with this specific and very important problem. Professor, we always like to recap the key concepts in summer school because believe it or not, there is an online test at the end of the semester.

And if the students pass, they're going to get a Planet Money diploma, which I should say, since you're a professor, this is not a real diploma in any way. Just so you know, I'm guessing some folks have put it on their resumes. We find students take liberties with their educational accomplishments

to a remarkably humorous degree. Do not put a summer school degree on your Harvard application people, but you can put it on your Instagram or Facebook. Okay, vocabulary words. Protectionism and tariffs. Go. Protectionism has become one of these terms of art that lots of people are talking about today. What it literally means is raising trade barriers against imports from other countries. Tariffs, taxes on imports are a prime form of protectionism in how trade policy is utilized in modern economies. I will add to that a big concept that will serve everyone well if they study economics, concentrated benefits

and diffuse costs. So tariffs can provide a huge benefit to just a few manufacturers protected by the tariff. That's a concentrated benefit, but millions of people might have to pay just a little bit more for their products because of that tariff. That's diffuse costs.

Gordon Hanson, professor at the Harvard Kennedy School, thank you so much for your lecture today. Thank you Robert. It's really been my pleasure. Oh, the places we've traveled to so far in our summer school time machine. If you're joining the class late, we have, well, we have the entire history of the world waiting for you at npr.org SummerSchool. Too much? You could also take your knowledge in smaller bites Intellectual tapas if you will. On our TikTok channel, the video crew is taking one concept from each show and making it sing and

dance and sparkle. Are you not entertained? We'll be back next Wednesday with another history lesson showing you how China and East Asia went from poverty to technological leaders in less than 50 years. I'll just note that trade helped that happen. Audrey Dilling produces Planet Money Summer School, Devin Miller is our project manager, Sofia Shukina fact-checked this episode, and Alex Goldmark is our editor and executive producer. Our engineer today is James Willens. I'm Robert Smith. This is NPR.

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