From the New Deal Revolution to the New Washington Consensus

In this series on the history of US Trade Policy, we utilize a framework outlined by Douglas Irwin in his excellent history of US Trade Policy, Clashing Over Commerce, to step back through history and understand how we arrived at our current state. The previous installments, including the first installment, which outlines the three Rs framework, are linked below and available for free to all readers. This final installment on the modern era is available exclusively to Real Asset Handbook subscribers.

Installment 1: Missives on the History of US Trade

Installment 2: From Colonial Grievances to Modern Industrial Strategy

Installment 3: From Reconstruction to The Great Depression

The fourth installment in our series on American trade policy, building upon our examination of the Three R's framework and the Restriction Era 

The Great Depression's devastating impact on American commerce marked the end of nearly three-quarters of a century of high-tariff orthodoxy and ushered in the modern era of trade policy—what Douglas Irwin calls the Reciprocity Era. Yet the transformation from Herbert Hoover's protectionist legacy to today's complex web of multilateral agreements, industrial policy, and strategic competition was neither linear nor inevitable. The period from 1932 to the present encompasses some of the most dramatic reversals in American economic policy, from Cordell Hull's revolutionary reciprocal trade agreements to Ronald Reagan's managed trade compromises, from the triumph of globalization in the 1990s to the current bipartisan embrace of industrial policy and strategic competition with China.

For investors seeking to navigate today's policy landscape, this history reveals recurring patterns that transcend partisan rhetoric and ideological fashions. The same structural forces that drove policy during the New Deal—macroeconomic crisis, shifting regional coalitions, and external security threats—continue to shape trade policy today. Understanding how these forces interacted across nine decades provides crucial insights for capital allocation in an era when trade policy has once again become a primary tool of statecraft.

The Great Transformation: From Smoot-Hawley to Hull's Revolution

The collapse of Herbert Hoover's presidency and the Republican Party's credibility on economic policy created the political space for the most fundamental transformation in American trade policy since the Civil War. The Reciprocal Trade Agreements Act of 1934, shepherded through Congress by Secretary of State Cordell Hull, represented more than a tactical adjustment to the protectionist excesses of Smoot-Hawley—it constituted a complete inversion of the constitutional framework that had governed trade policy since 1789.

Where the Constitution had explicitly granted Congress the power to "regulate Commerce with foreign nations," Hull's legislation effectively transferred that authority to the executive branch, a delegation so unprecedented that Supreme Court precedent seemed to prohibit it. Yet the economic emergency of the Depression, combined with the manifest failure of congressional tariff-making as demonstrated by the Smoot-Hawley debacle, created the political consensus necessary for this constitutional revolution. The legislation passed with overwhelming Democratic support and established the institutional foundation for every subsequent trade agreement, from the Kennedy Round to USMCA.

The economic logic underlying Hull's approach reflected a sophisticated understanding of how protection had evolved since the Civil War. Unlike the Revenue Era's broad-based tariffs designed to maximize customs collections, the Restriction Era had created a patchwork of industry-specific protections that served narrow political interests rather than national economic objectives.[1] Hull's reciprocal approach promised to cut through this Gordian knot by linking domestic liberalization to foreign market access, thereby creating export constituencies to balance import-competing interests.

For contemporary investors, Hull's institutional innovation highlights the importance of understanding how policy-making processes shape outcomes, independent of partisan control. The delegation of trade authority to the executive branch has proven remarkably durable, surviving changes in party control and ideological fashion because it serves the institutional interests of both branches. Congress benefits by avoiding the political costs of making difficult trade-offs between competing interests, while the executive gains leverage in foreign policy and macroeconomic management. This institutional arrangement helps explain why trade policy often exhibits more continuity across administrations than campaign rhetoric might suggest.