Reciprocal Trade Agreement Act (1934)

President Franklin Roosevelt signed the Reciprocal Tariff Act—more commonly known as the Reciprocal Trade Agreement Act (RTAA)—on June 12, 1934 [1]. It was an amendment to the Tariff Act of 1930. The new law gave FDR “the authority to adjust tariff rates [and] the power to negotiate bilateral trade agreements without receiving prior congressional approval” [2].

The first reason for the RTAA was to help America out of the Great Depression, which had severely cut into the volume of international trade.  In his message to Congress advocating for the law, FDR pointed out that the nation’s “exports in 1933 were but 52 percent of the 1929 volume, and 32 percent of the 1929 value” [3].

Restrictive tariffs thrown up by countries desperate to protect themselves—including the US Smoot-Hawley Tariff Act of 1930—had only made the problem worse, and Roosevelt wanted to lift the heavy hand of Congress off of trade policy. In the same message to Congress, the president said: “If American agricultural and industrial interests are to retain their deserved place in this [international] trade, the American Government must be in a position to bargain for that place with other Governments by rapid and decisive negotiation based upon a carefully considered program” [4].

Some felt that the RTAA was an unconstitutional grant of power to the executive branch and they worried that it would lead to lower tariffs that hurt American business due to cheaper imported goods. For example, Congressman Isaac Bacharach (R-NJ) stated: “Now, there is only one purpose behind the Reciprocal Tariff Act and that is to take away from Congress its constitutional authority to make tariff rates… These trade agreements can result in but one thing and that is a lowering of the tariff rates on foreign commodities” [5]. These concerns were probably overblown. As the Council on Foreign Relations notes, there were several restraints put on the executive branch’s trade and tariff powers, such as the requirement that the RTAA undergo review by Congress every three years [6].

An added benefit of reducing congressional control of trade policy was to create a more equal playing field for American companies to participate in foreign trade and competition. An article that appeared in several newspapers at the time took the idealistic view that: “The tariffs of the last 50 years have been enacted mainly as grants of special privilege to selected, favored industries, notably the industries furnishing the campaign funds and the political support of the individuals and parties enacting them. The tariff act now going into effect has been enacted, not to make money for favored individuals, but with a view to balancing the national economy” [7]. Still, it is likely that the RTAA was not free of business lobbying and created some winners and losers, as trade policy always does.

Looking back at the impact of the RTAA, the Office of the U.S. Trade Representative argues that, “Increased international trade boosted the growth-promotion aspects of the New Deal’s domestic programs, and the successful enactment of the RTAA resulted in the conclusion of 19 new trade agreements between 1934 and 1939, strong growth in U.S. exports, and the recovery of the American economy” [9]. That rosy view has been challenged by at least one scholar, who concluded that while the RTAA produced some benefits, other trade policies and behaviors limited its effectiveness at the time [8]. 

The legislative evolution of the RTAA and trade policy is complex, but “the tradition of the Reciprocal Trade Agreement Act continues in the form of [the] modern Trade Promotion Authority (TPA)” [10], a set of laws that provide congressional guidance to the executive branch for the purposes of trade [11]. Furthermore, trade policy has again become controversial. After a long period of lower tariffs and freer international exchange, higher tariffs and more protectionist trade policies have become popular again.

SOURCES

(1) The full text of the law can be found at “Reciprocal Tariff Act of 1934,” Federal Reserve Bank of St. Louis (accessed January 11, 2021).  (2) “The Reciprocal Trade Agreement Act of 1934,” U.S. House of Representatives, Office of the Historian (accessed January 11, 2021).  (3)“Message to Congress Requesting Authority Regarding Foreign Trade,” March 2, 1934, American Presidency Project, University of California Santa Barbara (accessed January 11, 2021).  (4)Ibid.  (5) “Bacharach States That Danger To Glass Industry Exists,” The Daily Journal (Vineland, New Jersey), November 6, 1934, pp. 1-2.  (6) “Who Decides? Congress and the Debate Over Trade Policy in 1934 and 1974,” Council on Foreign Relations, November 17, 1999 (accessed January 11, 2021). (7) See, e.g., “New Tariff Deal,” Dayton Daily News (Dayton, Ohio), June 14, 1934, p. 8.  (8) Claude Schwob, “Did the Reciprocal Trade Agreements Act of 1934 initiate a Revolution in the American Trade Policy?” Historical Social Research, Vol. 34, No. 4 (2009), pp. 377-389.  (9) “Eighty Years After the Reciprocal Trade Agreements Act,” Office of the United States Trade Representative, 2014 (accessed January 11, 2021).  (10) Ibid.  (11) “Trade Promotion Authority,” Office of the United States Trade Representative (accessed January 11, 2021).