Healthy State, Worried Workers:
North Carolina in the World Economy
Edward Gresser
The U.S. government abandoned its high-tariff policy in 1934, after the first presidential election
of Franklin Roosevelt. Roosevelt launched the modern American effort to negotiate lower trade
barriers, in the belief that the tariff retaliations of the early 1930s had deepened the Depression
and made it harder to escape. After the Second World War, his innovation became a multilateral
effort, known as the GATT and now as the WTO. Most of the world’s major governments have
viewed liberalization as a way to promote growth and strengthen political stability; and as time
passes their policy efforts have been joined by powerful new technological forces. If it is possible
to summarize decades of complex political, policy and technical changes, trade policy has been
one of four factors creating the modern ‘globalized’ world:
- Trade negotiations: Barriers to trade are much lower. Twelve multilateral trade agreements
since the Second World War have reduced tariffs - on average - by about 90% among rich
countries, and a lesser figure in developing regions. They have also eliminated some
less-known sorts of trade barriers such as import licensing, quotas and voluntary restraint
agreements, and also reached agreements on topics such as technical standards to make
trade easier and cheaper.
- End of the Cold War: More countries are participating in trade. Experiments with closed
economies ended in Latin America and much of developing Asia during the 1980s; China,
Vietnam, Russia and other Cold War rivals reintegrated themselves into world trade and
investment between the 1980s and 1990s. Altogether, the WTO system has grown from 23
countries to 151.
- Logistical advances : Trade is cheaper faster than at any time in the past. The largest factor
here was the adoption of container shipping in the 1970s and 1980s has radically cut the time
and cost of transporting goods. This process is continuing and perhaps even accelerating as
container ships grow larger, and air cargo evolves into a way of supplying factories with
just-in-time inputs from computer chips, to bolts of specialized fabric and chemical dyes.
- Internet and Global Telecommunications Network: Communications are cheaper and better.
Most recently the global telecom network and Internet have created a worldwide venue for media,
financial services, back-office work such as bookkeeping and customer service, and so on.
Thus the U.S. economy has become ‘globalized.’ At the time of Cannon Mills’ foundation,
merchandise imports measured about 5% of US GDP. In 1950, around the historic low point -
i.e., before Depression-era trade barriers had come down, before European and Japanese
recovery, and after the exit of China from the world economy - the figure was 3% of GDP. The
imports were most often natural resource products or agricultural goods not grown in the United
States: coffee, tropical fruits, metal ores, wool, wood and so on. Two generations later, our
import-to-GDP ratio is about 17% - the highest levels at least since Hamilton’s era, and perhaps
the highest ever.
Consequences, Good and ill
None of these processes are complete. Trade agreements, for example, have abolished tariffs
and other import barriers for many industries - semiconductors, toys, furniture, computers, coffee
and others. But they have touched some other industries, among them the textile industry, only
lightly.
Aided by three generations of trade-sensitive Carolina Senators and Representatives, textile and
clothing factories won exemptions from most of the tariff cuts made between the 1950s and
1990s. The products made in the Cannon Mills, for example, still carry tariffs seven to fifteen
times the average rates: 9.1% for terry-cloth towels, 11.9% and 20.9% for cotton bedsheets and
pillowcases, and so forth. These are slightly below the rates of Aldrich’s era but not drastically
different, and far above the rates typical today for most other manufactured products, when the
average US tariff is about 1.4%. American clothing tariffs are even higher, rising to 19% for
T-shirts and 32% for acrylic or polyester sweaters.