[Congressional Record Volume 162, Number 57 (Thursday, April 14, 2016)]
[Senate]
[Pages S2094-S2096]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
HOW TRADE MADE AMERICA GREAT
Mr. ALEXANDER. Madam President, it was while a Yale undergraduate
that Fred Smith received a C-plus for his paper outlining a plan to buy
large airplanes that would carry packages overnight. This plan a few
years later became Federal Express, now FedEx, a global courier
delivery services company with nearly $50 billion in revenues and more
than 340,000 employees. FedEx has become a leading worldwide economic
indicator all by itself and one of our country's great success stories.
Mr. Smith not only founded the company, but today still is CEO and
Chairman.
Fred Smith's address should be required reading on all college
campuses, as well as for all others who may have forgotten the
remarkable contribution trade has made to prosperity not only for our
country, but for hundreds of millions worldwide. There is no doubt that
globalization and technology have improved living conditions in our
country, but they have also bred uncertainty and sometimes fear. For
many Americans, the cheaper goods we buy from overseas and the salaries
we make from selling goods overseas come with dislocations that make it
harder for Americans to find jobs and provide for their families.
Added to that are actions by some of our trading partners--Japan in
the 1980s and China more recently--that abuse the trade relationship
and turn free trade into unfair trade. Nevertheless, before we turn our
backs on or significantly change our national policy of encouraging
freer trade with other countries, we would be wise to read Mr. Smith's
account of the benefits of trade to the average American family during
the last 50 years--and also to be reminded of the devastation that
restrictions on trade caused during the 1930s when those restrictions
helped lead to the Great Depression.
I ask unanimous consent to have printed in the Record an article by
Fred Smith from the Wall Street Journal.
There being no objection, the material was ordered to be printed in
the Record, as follows:
[From the Wall Street Journal, Mar. 25, 2016]
How Trade Made America Great
(By Frederick W. Smith)
During our years at Yale, the world was a different place.
Foreign travel was exotic, expensive and rare among the
population as a whole. While some young Americans had been
abroad, by far most Americans had not--and those who did go
abroad most likely traveled by sea rather than air. In the
early 1960s, flying over the oceans was mainly for the
affluent.
Long-distance telephone calls were expensive, international
calls prohibitively so. From furniture to TVs and appliances,
and especially automobiles, American brands dominated
consumer spending in this country. We had just a glimpse of
the world to come with the proliferating iconic Volkswagen
Beetles and the amazingly small Sony portable transistor
radios.
These imported products in the U.S. represented a global
political vision that pre-dated World War II. In the early
1930s, President Roosevelt and Secretary of State Cordell
Hull believed in liberalized trade as a path to world peace
and cooperation. With strong administration support, Congress
in 1934 passed the Trade Agreement Act, which allowed Hull to
negotiate reciprocal trade treaties with numerous countries,
lowering tariffs and stimulating trade.
This liberalization reversed the epitome of U.S.
protectionism, the disastrous Smoot-Hawley Tariff Act of
1930, which contributed to a staggering 66% decline in world
trade between 1929 and 1934. Integral to Hull's vision was
the 1947 General Agreement on Trade and Tariffs (GATT), which
was signed by 23 countries and committed the U.S. to steadily
liberalizing world trade. A central pillar of American
postwar policy was enticing producers from around the world
with access to the giant U.S. market.
The devastation of Europe and Japan and the emergence of
Cold War adversaries provided even greater impetus to the
opening of American markets, under the protection of the U.S.
Navy and the umbrella of various global alliances like NATO.
In April 1966 Malcolm McLean launched his first international
Sea-Land container operation between New York and Rotterdam.
McLean's shipping-container revolution cut the cost of
seaborne trade by a factor of 50 versus loose-cargo
stevedoring.
That same month, Juan Trippe (Yale '21) at Pan Am ordered
25 revolutionary jumbo 747 widebody Boeing airplanes equipped
with equally leading-edge Pratt & Whitney high-bypass
fanjets. When the passenger version of the 747 entered
service in 1969, it was two-and-a-half times bigger than the
Boeing 707 that had pioneered jet travel. The jumbo jet cut
overseas travel costs by 70%.
[[Page S2095]]
The 747's hump allowed a freighter version to load cargo
through a nose door under the cockpit and into the cavernous
fuselage. Because of the cargo-carrying 747F, costs for
trans-Pacific airfreight were dramatically reduced, a major
factor in the extraordinary GDP growth of the Asian ``tiger''
economies of Hong Kong, Taiwan, Singapore and Japan beginning
in the 1970s. Electronics and other high-tech/high-value-
added goods from these emerging markets could be distributed
and sold in the U.S. and Europe in a few days--an amazing
development.
During the 1970s and 1980s, while container ships and
planes became increasingly efficient with each successive
model, newly developed fiber-optic cables (patented in 1966)
began running underseas, connecting the world at the speed of
light, lowering voice and data-communication costs by orders
of magnitude. Financial markets became globally integrated
and transactions multiplied at an astounding rate.
The U.S. opened its markets to former World War II foes,
and Germany and Japan as a result became economic titans.
Successive administrations mostly ignored Japan's overt
mercantilism and growing trade surplus, given the need for
American military bases throughout the country. Eventually
exchange rates and domestic political pressure pushed
Japanese car makers to set up production plants in the U.S.,
mostly in the South. Electronics manufacturers such as
Panasonic, Sony and Hitachi became world-wide giants on the
back of exports from Japan to America and then almost
everywhere as global trade steadily expanded.
Parallel to the technological progress of transportation
and telecommunications was a remarkable series of
congressional actions and GATT agreements that substantially
liberalized transport and trade regulations. During the
Carter administration, inspired by extensive academic
research and the example of ultra-low-fare intrastate
airlines in Texas and California compared with high-cost
national carriers, many Republican and Democratic lawmakers
alike pushed for federal economic deregulation of
transportation. The Republican mantra was ``free market'';
Democrats sought ``consumer benefit'' by lowering the price
of travel and goods for the masses.
As a result, legislation was enacted for air cargo (1977),
passenger air services (1978), interstate truck and rail
transportation (1980), and the federal pre-emption of
intrastate trucking in 1994. Both the Civil Aeronautics Board
(CAB) and the Interstate Commerce Commission (ICC), the air
and surface economic regulators, were abolished, in 1985 and
1995 respectively.
In the 10 years following the Staggers Act of 1980 that
substantially deregulated railroads, the perennially loss-
making rail industry was able to halve the rates charged to
customers while restoring financial stability. Surface-
transport deregulation also spawned an entire new industry of
flexible truckload common carriers to meet the needs of
emerging ``big box'' distribution and retailing models such
as Wal-Mart and Target. Revolutionary production systems,
based on just-in-time supply and fast-cycle manufacturing,
were made possible only because of the deregulation of
trucking.
From 1977 to 1994, a century's worth of heavy regulation of
transportation rates, routes and services that had begun with
the railroads was cast aside, with profound effects on the
U.S. economy. By the beginning of the 21st century, overall
logistics costs were reduced from 16% of GDP during the 1970s
to under 9%, thereby making possible substantial increases in
government social spending resulting from the Medicare and
Medicaid legislation in the 1960s.
On the global-trade front, the GATT framework of 1947 had
been ``temporary,'' as Congress refused to approve the
International Trade Organization envisioned by the
participants at the 1944 Bretton Woods Conference that
established the World Bank and the International Monetary
Fund. Even so, under GATT there were seven successive
negotiating ``rounds'' and agreements until the World Trade
Organization (WTO), a modernized International Trade
Organization, was finally established in Geneva in 1994.
The GATT/WTO did not cover sea trade, given the
traditionally liberal rules regarding shipping except within
national regulated waters. Thus unimpeded, containership
lines of many registrations proliferated, facilitating the
astonishing growth in maritime business and the development
of megaports in Asia, Europe and the U.S.
International aviation was likewise a separate regime, but
as agreed by 54 nations at the Chicago convention of 1944,
international flying was for decades tightly controlled by
governments through a labyrinth of bilateral treaties (4,000
at present) that limited competition and regulated rates and
services.
Beginning in 1992, however, the U.S. and the Netherlands
enacted the first of many Open Skies agreements, which have
grown now to 117, including a multilateral treaty with 28
European countries. Passenger airlines opened scores of new
routes. New air-cargo and door-to-door express services were
also initiated.
Together, these regulatory changes and transport
innovations made possible the fantastic growth of travel and
trade, which grew two-and-a-half times the rate of world GDP
for a quarter-century.
From less than $50 billion in total trade in 1966, the U.S.
now imports and exports over $4 trillion annually in goods
and services. Container ships have grown from carrying a few
hundred boxes on each trip to the new Triple-E behemoths that
transport over 18,000 containers called TEUs, or 20-foot-
equivalent units. The cost is 1/500th of the shipping rates
per pound of the early 1960s. The profusion of agricultural
products from the ``Green Revolution'' pioneered by Norman
Borlaug, combined with ever more efficient shipping, has
resulted in massive amounts of grain traded around the world,
something unimaginable to farmers 50 years ago. American
railroads were integral to the growth in the nation's
maritime trade by moving containers from Pacific ports to the
mega markets in the East.
All of these factors have created a global trade market
that exceeds $15 trillion annually. Now, the Panama Canal is
being widened, which will permit, beginning later this year,
massive container ships to cross the Pacific and unload
directly into improved Gulf of Mexico and Atlantic Coast
ports, further reducing the cost of Asia-U.S. trade.
Handling the enormous increase in financial transactions
was made possible by a fantastic increase in computer-
processing power. The emergence of the Internet in 1994 has
allowed the ubiquitous offering of millions of products for
fast delivery from anywhere in the world to anyone with a
desktop computer . . . then a PC . . . then a tablet . . .
and now a smartphone. Languages are translated; products can
be instantly, visually displayed; and orders effortlessly
entered. The capabilities are unprecedented in the history of
commerce.
Three other factors central to the development of these
enormous global commercial systems have occurred since 1966:
The evolution of a vast world-wide oil market; the
integration of the economies of the U.S., Mexico and Canada
with the North American Free Trade Agreement (Nafta) of 1994;
and the emergence of China as a great commercial power.
The oil cartel known as the Organization of the Petroleum
Exporting Countries overplayed its hand in the 1970s when,
for economic and political reasons, OPEC embargoed shipments
to the U.S. Market forces finally sorted out oil supply and
demand in America after President Reagan in 1981 dismantled
the vestiges of government regulation in the industry. Oil
has hardly been immune to the vagaries of any commodities
market, but the U.S.--thanks to the technological
breakthrough of hydraulic fracturing--is the world's largest
producer of natural gas and is on track this decade to
surpass Saudi Arabia and Russia as the world's largest oil
producer.
True to the central tenet of FDR and Secretary of State
Hull that liberalizing trade is inherently beneficial, the
U.S. led the effort for China to join the WTO in 2000.
Beginning with the Nixon-to-China rapprochement, the
industrialization of America's Cold War enemy has lifted more
people--hundreds of millions--out of poverty, faster, than
ever in history. From the late 1980s and accelerating after
the WTO accession, efficient Chinese manufacturing,
especially technology-based goods, has rewarded Western
consumers with low-cost products that have substantially
improved standards of living. Americans and Europeans don't
need to be affluent to afford cellphones, digital TVs,
furniture and appliances.
China, however, has followed Japan's mercantilistic
practices, which have led to a $300 billion trade surplus
with the U.S., thanks to state support of Chinese industry
and restrictions on foreign competitors. These policies have
created a strong political backlash in the U.S., which made
the recent congressional renewal of Trade Promotion
Authority--which allows the president to negotiate trade
treaties and was for years a routine process--extremely
difficult.
Today, given low growth in most of the world, rising wages
in China and petroleum costs declining because of U.S.
fracking technology, the trajectory of the world's commerce
is somewhat uncertain.
Trade and global GDP are now growing roughly at parity.
Following the 2008 financial crisis, protectionism has shown
a troubling popularity in many countries, including the U.S.
Stringent new security regulations have also slowed goods
crossing many borders.
The Nafta pact has clearly been an economic success. Over
the past 20 years, U.S. trade with Mexico and Canada has
risen to $1.2 trillion in 2014, from $737 billion. While the
immigration issue often gets erroneously conflated with
Nafta, the economic numbers tell a clear story. Moreover,
some production is now moving back to North America from
Asia, given lower transport costs, faster delivery, the
increase in Chinese production expenses, easier customs
clearance, and the more balanced nature of Nafta trade
compared with the massive U.S. deficit with Asia--
particularly China and Japan.
Once again, in its own messy, unpredictable political
fashion, the U.S.--after a hiatus during the first Obama
administration--is pushing for further trade liberalization,
with initiatives such as the Trans-Pacific Partnership, the
Trans-Atlantic Trade and Investment Partnership, and the
Trade in Services Agreement. The WTO likewise continues to
push for a new Trade Facilitation Agreement dealing with
security and customs issues; the WTO Information Technology
Agreement; and a new overall world-wide trade agreement--the
so-called Doha Round negotiations. These efforts by many
nations under the WTO show continued commitment to further
global integration despite the well-publicized difficulties
in doing so.
[[Page S2096]]
More than three billion people are now connected to the
Internet. Billions more have aspirations for a better life
and are likely to come online as global consumers. The odds
are good, therefore, that today's remarkable transport
systems and technologies will continue to improve and
facilitate an even larger global economy as individual trade
is becoming almost ``frictionless.''
History shows that trade made easy, affordable and fast--
political obstacles notwithstanding--always begets more
trade, more jobs, more prosperity. From clipper ships to the
computer age, despite economic cycles, conflict and shifting
demographics, humans have demonstrated an innate desire to
travel and trade. Given this, the future is unlikely to
diverge from the arc of the past.
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