THE TTALK QUOTES
On Global Trade & Investment
Published  By:
The Global Business Dialogue, Inc.
Washington, DC   Tel: 202-559-9316
No. 24  of 2018
FRIDAY, APRIL 27, 2018

Click here for last Friday's quote from NAM'S Linda Dempsey.

TRADE: A LESSON IN LEVERAGE

"[N]othing but retaliation, reciprocal prohibitions, and imposts, and putting ourselves in a posture of defense will have any effect ... ."

John Adams
from London
Circa 1785
CONTEXT
It seems fitting, in this second half of April to begin this entry as Longfellow began his poem:

Listen, my children, and you shall hear,
Of the midnight ride of Paul Revere.
On the 18th of April in Seventy-Five:
Hardly a man is now alive
Who remembers that famous day and year.

That was the 18th of April and the ride or rides.  Then came the 19th of April and the action, the skirmishes at the sacred suburbs of Lexington and Concord, where, to quote from the Concord Hymn:

Here once the embattled farmer stood
And fired the shot hear round the world.

But let's move the story along a bit with these well-known dates:

July 4, 1776 - The Declaration of Independence.  We'll skip over the stirring words of the preamble, just this once, to focus on a single grievance.  The new states charged their former king "with cutting off our trade with all parts of the world."

October 19, 1781
- The surrender of Britain's General Cornwallis at Yorktown, effectively ending the conflict.  America had won its war for independence.  At that point the former 13 colonies were indeed "Free and Independent States."

September 3, 1783 - The Treaty of Paris formally ending the war between Great Britain and its former colonies in North America is signed.  Its effective date is May 12, 1784. 

A Commercial Irony.  Better, more unfettered trade may have been a goal of the 13 American colonies that sought independence from Great Britain in 1776, but the short-term result was anything but.  Great Britain-including the British West Indies-was their most important trading partner.  With the advent of the war, U.S. trade with Britain fell off a cliff, and the end of hostilities did little to turn that around.  Thus, the ironic challenge of the fledgling United States was to try to find a way back to trading relationships that at least approximated those they had enjoyed before the separation.  Pinning their hopes on commercial diplomacy, the Continental Congress sent John Adams to London and Thomas Jefferson to Paris, each charged with forging new trade agreements with their host governments. 

But there was a problem.  They had no leverage.  Congress could offer little and threaten less because, under the Articles of Confederation, the regulation of trade was in the hands of the states, not the federal government.  All of this is clearly and compellingly laid out at the start of Douglas Irwin's excellent book, Clashing Over Commerce: A History of US Trade Policy.  And indeed, as Irwin explains, the British were well aware of the cards they were holding.  A pamphlet published by Lord Sheffield in 1783 laid out the situation in frustratingly clear terms.  As Irwin summarized it:

Sheffield was right: the United States had a very weak bargaining position, because it already had an open market, and the government had no ability to close it.

And so Adams (and Jefferson) had a thankless if not impossible task.  Adams  expressed his frustration in a letter from London, a portion of which is today's featured quote.  Here is the full passage quoted by Irwin:
 
From JOHN ADAMS:  Patience, under all the unequal burthens they impose upon our commerce, will do us no good;  it will contribute in no degree to preserve the peace with this country.  On the contrary, nothing but retaliations, reciprocal prohibitions, and imposts, and putting ourselves in a posture of defense will have any effect. ...Confining our exports to our own ships, and laying on heavy duties on all foreign luxuries, and encouraging our own manufacturers, appear to me to be our only resource, although I am very sensible to the many difficulties along the way.
RELATED EVENT & COMMENT
Usually, when this space is used at all, it is used to advertise an upcoming program by the Global Business Dialogue.  In this case, however, the related event is one that has already transpired.  On Wednesday, April 25, GBD hosted an event on the topic...

Section 301 and the Future of U.S.-China Trade

The title link above will take you to the announcement for that program.  EVENT FOLLOW-UP is the page on the GBD website where we will be posting materials from that event over the course of the next few days.

***

To state the obvious, there is a world of difference between the newly minted country that hugged the eastern seaboard of North America in the 1780s and the world's largest economy of 2018.   The world has changed.  And trade has changed.  That said, the role of leverage in negotiations strikes us as something of a constant.  The challenge for the negotiator, any negotiator, is to understand the nature of the leverage he has - the value of the cards he is holding and how to play them.

ENJOY THE WEEKEND!
SOURCES & LINKS
Clashing Over Commerce by Douglas Irwin is where we found the comment from John Adams that is today's featured quote.  The link takes you to the page on the Amazon website that is devoted to this book. 

Paul Reveres Ride is a link to this famous poem by Henry Wadsworth Longfellow.

The Concord Hymn takes you to this poem of  commemoration by Ralph Waldon Emerson.

 The Declaration of Independence is a link to the text of this document.

Yorktown.  This is the Wikipedia entry for the Battle of Yorktown. 

Treaty of Paris is the Wikipedia entry for this treaty which codified the end of the American Revolutionary War.





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