From Exports to Imports: How Corporate America Changed Its Views on Trade in the 1970s

REVIEW ESSAY
Made in China:
When US-China Interests Converged to Transform Global Trade
by Elizabeth O’Brien Ingleson
Harvard University Press, 2024, 352 pages

In today’s debates over trade policy, commentators pay great atten­tion to the role that the 1990s played in America’s deindustrialization. This is not without reason. The 1990s saw three massive developments that solidified America’s new unilateral free trade policy: the establishment of the World Trade Organization, the start of the North American Free Trade Agreement, and the near finalization of China’s permanent most-favored nation status.

It is impossible to understand the 1990s political landscape that produced these changes, however, without appreciating the smaller yet pivotal transformations that occurred in the 1970s. Throughout the decade, continued changes to U.S. trade law, geopolitical developments in East Asia, and novel shipping technology combined to change the incentive structure that American businesses faced. This began a fundamental alteration in how these companies saw international trade. Slowly, American firms that once viewed trade as a way to expand the market for their American-made products began to view trade as a means to restructure their own production processes: exchanging a focus on foreign sales for a focus on foreign workers. The Chinese market, which began opening at this time, quickly became the testing ground for this new corporate strategy.

London School of Economics professor Elizabeth O’Brien Ingleson’s new book, Made in China: When US-China Interests Converged to Transform Global Trade, provides helpful insights into the changes that occurred during this decisive decade. Through extensive archival re­search, she recounts how various U.S. policy choices during the 1970s helped open the door to globalization, how Chinese government poli­cies sought to exploit that opening for China’s own economic development, and how U.S. businesses facing this new global incentive structure began to rethink their supply chains. Despite the book’s at times incomplete narrative about U.S. economic policy decisions, Ingleson nonetheless provides important historical details about changes in both Chinese economic policy and U.S. business strategy that unfolded over the decade.

Opening the Door for Globalization

American policymakers in the 1970s struggled to adjust the country to a world of renewed economic competition. By the late 1960s, the Euro­pean and Japanese economies were growing rapidly, having recovered from the devastation of World War II. American producers quickly found themselves facing increased competition from companies in allied nations and looked to the U.S. government for assistance.

Ingleson’s book extensively details how decisions made in this environment ended up promoting globalization. It all began, in her telling, unintentionally when President Nixon ended the Bretton Woods system in 1971. By the early 1970s, the Bretton Woods system, estab­lished in 1944, had grown to create enormous financial instability for the United States. Foreign currencies were valued in relation to the U.S. dollar, which in turn had its value pegged to gold at a fixed rate of $35 per ounce. As foreign economies expanded and the global price of gold rose, the dollar’s value increased, and countries sought to accumulate dollar reserves for eventual conversion to gold. Over time, the situation became increasingly untenable, as dollar-holding countries grew to recognize that the United States could never allow them to convert all their dollars in exchange for U.S. gold.

This situation led to periodic runs on the dollar’s value and widespread speculation in international financial markets, which expected an eventual dollar depreciation.¹ It also drove America to experience its first trade deficit since 1893, thanks to the demand for overvalued U.S. dollars.² By revoking the dollar’s convertibility to gold, President Nixon eliminated dollar instability and temporarily rebalanced U.S. trade.

Ingleson never argues this decision was a mistake (a difficult argu­ment to make). Instead, she focuses on the unintentional impacts of leaving Bretton Woods behind. In her telling, by leaving Bretton Woods and accepting free-floating exchange rates, Nixon inadvertently facilitat­ed the globalization of major financial institutions, which became neces­sary to manage the complexity of these floating rates. These institutions, in turn, “eased the process of moving capital abroad.”³ For corporations seeking to offshore production, this more robust global finance system helped them “invest in manufacturing facilities wherever labor was cheapest.”⁴

The trade-deficit shocks of the early 1970s led Congress to revisit America’s trade law regime. Since the 1930s, Congress increasingly delegated authority to the president both to pursue trade liberalization and to raise tariffs to protect domestic producers. In 1974, Congress passed a new trade law that sought to ensure both that the president had adequate authority to promote U.S. economic interests and that he adopted trade policies in line with congressional priorities. Ingleson presents a stark account of this 1974 bill as an intentional attempt to “curb protectionist demands” by “dilut[ing] Congress’s ability to pro­tect American workers” and handing authority off to the president.⁵ Internationalists in Congress passed this bill, she argues, because they believed that the executive branch would “uphold a globalist outlook” and be less beholden to local protectionist interests.⁶

Unfortunately, Ingleson’s account of the bill’s intentions is imprecise. To be sure, some aspects of the 1974 law aimed to promote trade liberalization. Under the act’s new Generalized System of Preference (GSP) program, for instance, Congress authorized the president to grant nonreciprocal duty-free market access to non-Communist, non-Cartel (i.e., non-OPEC) developing countries. Similarly, Title I of the act re­authorized the president’s power to negotiate new trade agreements abroad (though this authority long predated the 1974 bill).

The bulk of the new authority in the 1974 bill, however, aimed to restrict rather than expand foreign trade. Section 301 of the act, for in­stance, gave the president authority to retaliate against foreign countries which imposed “unjustifiable” or “unreasonable” restrictions against U.S. commerce.⁷ Section 122 authorized the president to take interim emergency measures to raise tariffs to combat growing trade deficits.⁸

Perhaps these provisions were designed to pass off responsibility for raising tariffs to a president that Congress knew would not act, but that explanation does not rationalize why other parts of the 1974 bill amend­ed existing laws to make it easier for domestic industries to receive protection. Sections 321 and 331, for instance, strengthened U.S. anti-dumping and countervailing duty laws, which gave domestic producers a legal right to tariff protection. Section 201, meanwhile, reformed existing authorities to make it significantly easier for domestic producers to petition the president for safeguard tariffs in response to a sudden influx of imports.⁹ If the goal was to weaken domestic industry’s political power, why make it easier for domestic producers to force the president to publicly choose whether to raise tariffs?

Indeed, the congressional record confirms that Congress actually saw the 1974 bill as checking the executive’s general unwillingness to take domestic concerns seriously. The Senate Finance Committee report on the bill, for instance, begins by bemoaning how “[t]hroughout most of the postwar era, U.S. trade policy has been the orphan of U.S. foreign policy.” It goes on to frame the bill as a response to Congress’s view that “the United States can no longer afford to stand by and expose its mar­kets, while other nations shelter their economies.”¹⁰ This hardly sounds like a Congress that intended to sideline domestic interest groups.

Ingleson’s reductive account of the 1974 bill distracts from the real lesson of this episode: by further solidifying the president’s power over trade policy, Congress unintentionally facilitated globalization. Creating new pathways to gain protection from the executive branch, in practice, allowed executive officials to point industries and protectionist members of Congress down those legal routes as the proper means of garnering trade protection. This dynamic did not fully eliminate domestic groups’ ability to agitate for congressional action, but in practice, it made building the requisite congressional support for protectionist legislation more difficult and empowered an executive branch bureaucracy prone to prioritizing foreign policy needs.

Ingleson’s account of domestic workers’ 1977 effort to obtain safe­guard tariffs against imported Chinese gloves perfectly illustrates this dynamic. Between 1972 and 1977, the foreign share of the U.S. glove market rose from 5 percent to 20 percent, spurring domestic producers to begin preparing a safeguard petition under the 1974 Trade Act. At the time, diplomats in the Carter administration were negotiating increased diplomatic ties with China. When they received word of the petition, officials from the State Department quickly demanded domestic firms halt these plans.¹¹ When American glove makers persisted, the Carter administration went through back channels to warn the Chinese govern­ment about the incoming petition and advise them on ways to “hold off on the number of gloves they sold to the United States” to weaken American workers’ legal case for protection.¹² The plan worked. The petition failed at the International Trade Commission, and Chinese glove makers—free of the threat of tariffs—restarted exports to the United States.¹³

China’s Trade-Oriented Development Policy Is Born

Meanwhile, Chinese policymakers spent the 1970s focused on developing new strategies to advance the growth of the Chinese economy. As Ingleson explains, in the aftermath of the Cultural Revolution, top Chinese leaders including Mao Zedong began to question the wisdom of a fully self-reliant economic policy. Until that point, Chinese leaders “saw little need for foreign trade at all” and instead focused on internal economic development with occasional (though by the 1960s limited) Soviet assistance.¹⁴ The continued failures of Mao’s self-reliance pro­grams, however, allowed more pragmatic members of the Communist Party to slowly advance a new, trade-oriented development program. These pragmatists, Ingleson notes, “pushed for increased trade” under a program whereby China would “import large-scale infrastructure items like fertilizer factories using cash generated by the increased sales of exports.”¹⁵ Since China would use its own export revenue to finance these import purchases rather than taking out foreign loans, the pragma­tists argued this was a refined form of Maoist self-reliance.¹⁶

The first experimentation with this new model of economic policy began with the 1973 “Report and Request for Increasing Equipment Imports and Expanding Economic Exchange,” also known as the “4-3 Program.”¹⁷ Under this plan, China successfully imported large-scale infrastructure to construct one hundred new, more advanced factories and hired American engineers to travel to China to set up the new factories.¹⁸ The new equipment and know-how benefited a variety of Chinese heavy industries, including fertilizer, coal, and steel producers.¹⁹

As Chinese government interest in these projects took off, Ingleson details how Chinese officials quickly ran into issues funding these foreign high-tech purchases without taking out foreign loans. To keep financing these purchases, China needed more export revenue. By late 1973, its more pragmatic officials turned to oil as a potential solution, in part motivated by the sky-high oil prices of the mid-1970s. These efforts failed, and by the end of 1974, China ran its biggest trade deficit “since the communist takeover in 1949.”²⁰

Chinese pragmatists then, according to Ingleson, turned to lower-end textiles as the means to boost Chinese exports. Increasingly, China’s expanding trade fairs focused on China’s textile producers, marketing Chinese production services to visiting U.S. firms, and Chinese trade delegations to the United States were led by Chinese textile exporters.²¹ This effort—unlike the oil strategy—achieved slow but persistent suc­cess, and by the end of 1975, cotton textile exports made up 17 percent of Chinese exports to the United States.²²

Alongside this focus on textiles exports, Chinese leaders began re­quiring U.S firms looking to sell goods into China to also buy imports from China. Ingleson shows how Chinese officials told major American company after major American company that if they wanted to sell to China, they needed to demonstrate commitment to China’s success by first buying goods from China.²³ American firms like General Motors, DuPont, RCA, and Coca-Cola obliged and began purchasing small amounts of Chinese goods, ranging from tea and carpets to low-end electronic components.²⁴

The temporary resurgence of Communist radicals after Mao’s death slowed but did not reverse this trade-oriented growth model. Once Deng Xiaoping and his cohort of reformers fully consolidated power in 1978, they doubled down on China’s trade-oriented development strate­gy. Over the ensuing decades, Chinese leaders continued encouraging U.S. firms to import products from China and developed new ways to convince American executives to export their advanced production methods and equipment to China.

Following Incentives

By the end of the 1970s, U.S. businesses were faced with an entirely new incentive structure. New container shipping technology made cross-ocean trade far less costly than ever before. The growing global finance system made moving money and investments across borders easy. The U.S. government was less likely to raise tariffs to keep out foreign goods. And the Chinese government was actively courting Western pur­chases of Chinese goods and promoting the allure of cheap Chinese labor.

Of course, businesses did not immediately realize the opportunities these shifting incentives provided. Early in the 1970s, as U.S.-China economic relations opened, American companies reacted by focusing on what they could sell to China. As Ingleson details, until the mid-1970s the National Council for U.S.-China Trade (ncuct), then the main forum for U.S. business exchanges with China, was widely viewed as “too export-oriented.” The most active, influential ncuct leaders came from companies like Kellogg and Westinghouse that were focused on selling equipment and machinery to China.²⁵ This made sense. For around a century, the most powerful companies in America were manu­facturers, who saw trade primarily as a means to expand export sales.

Chinese insistence on connecting exports to China with imports from China, however, forced export-oriented groups like ncuct to empower U.S. importers on its committees. Ingleson recounts how, in meeting after meeting, ncuct leaders were told that, as one Chinese official put it, “China adheres to the policy of balancing imports and exports” and any imbalance in trade “cannot be too big.”²⁶ To demonstrate good will to their Chinese counterparts, ncuct adjusted its inter­nal structure, setting up an importers committee and bringing new U.S. importing companies into the ncuct leadership fold.²⁷ Even that was not enough, and Chinese leaders soon realized that other civic groups in the United States, like the American Importers Association, would make for better partners than ncuct.²⁸

These U.S. retailers and textile importers at first were hesitant to heed Chinese officials’ calls to buy Chinese exports. As Ingleson details, early import orders from China were exceptionally small, as importers were unsure how reliable Chinese factories would prove or how U.S. textile workers would respond. In 1976, for instance, China’s top export to the United States—cotton shirts—was only worth $13.5 million.²⁹

By the late 1970s, however, importers became increasingly comfort­able with the Chinese market. Two main factors, in Ingleson’s telling, drove this change in attitude. First, by 1978, China greatly improved its ability to produce textiles through factory investments, making Chinese-made goods increasingly reliable.³⁰ Second, as Chinese imports increased, the U.S. government rejected multiple petitions by textile work­ers for trade protection, choosing to promote U.S.-China diplomatic ties over domestic economic interests.³¹ This assuaged U.S. importers’ fears that foreign textile supply sources would be disrupted by U.S. protectionism.

As a result of these changes, by the time the United States and China penned their first modern trade deal in 1979, the United States was already importing over $1 billion a year from China across products like cotton shirts, gloves, corduroy, and velveteen. Companies like JCPenney, meanwhile, had begun accelerating new corporate strategies that aimed to increase the number of imported goods they sold in their stores.³² The stage was set for the decades of globalization to come.

Ingleson’s book leaves the reader off in the early 1980s, as U.S. textile outsourcing increased and the experimental outsourcing of the 1970s solidified into an entirely new business model. Throughout that decade, China’s new “special economic zones” incentivized U.S. textile manu­facturers to build their own factories in China where they could oversee quality control, and new American textile companies like Nike began increasing their reliance on Chinese-made goods. The American govern­ment, meanwhile, never acted to restrict these imports and instead spent the 1980s focused on restricting higher-end steel, semiconductor, and auto imports from Japan.

Ironically though, 1980s-era American textile outsourcing laid the groundwork for a new model of manufacturing that other, more high-value-add manufacturers would follow in the decades to come. In the late 1980s and early 1990s, as American advanced manufacturers faced increased competition from European, Japanese, and South Korean companies, they sought new ways to cut costs and improve their corpo­rate balance sheets. By this time, the U.S. textile industry’s established offshoring model provided an appealing example, and by the 1990s, the major American manufacturers that once sought to export to China began producing their products there. The era of globalization was in full swing.

End of an Era

Americans are just beginning to rethink the system of globalized production that the 1970s birthed. Republicans and Democrats alike increasingly view our dependence on foreign supply chains as a drag on national security, economic growth, and social stability. In recent years, this skepticism has produced a variety of new protectionist policies, including President Trump’s steel, aluminum, and China-wide tariffs and President Biden’s tax credits for domestic new energy technology production.

As this national economic U-turn continues to play out, there are a few lessons that Ingleson’s book and the past few decades of American trade policy can teach us. First, broad grants of trade policymaking authority to the executive branch produced inconsistent results. Some­times presidents took domestic producers’ needs into account, but more often than not, executive branch officials were willing to trade away access to the American market in the pursuit of abstract foreign policy ambitions like international peace and alliance building. This situation is a far cry from what the drafters of laws like the 1974 Trade Act expected. Rebalancing our trading relations will require a more assertive role for Congress and members of Congress committed to the cause of domestic manufacturing.³³

Second, selling out American market access rarely won us friends or produced converts to free market capitalism. Instead, American trading partners made grand, long-term promises that—as American administrations changed over—they rarely kept. China is a case in point for this dynamic. From the 1970s onwards, Chinese leaders played up the idea of Chinese economic and political reform, leading most American officials to believe that engagement with China would help the country become a “responsible stakeholder” in the international order.³⁴ That promise never came to fruition. Rather, for decades, Chinese leaders worked to advance Chinese industry up the global value chain while maintaining tight Communist control of domestic politics and strategic sectors. Today, Chinese companies lead the world across a host of high-tech products, and China actively subverts American interests across the globe. This hardly is the foreign policy victory that executive branch free traders sold to the public in the late twentieth century.

Finally, American businesses only consistently took our national interest into account when our government incentivized them to do so. Throughout the late twentieth century, the American government re­duced its interventions into global trade flows. American rhetoric at the time promised that free market forces would dictate outcomes in this new economic order. In reality, however, as American government activity waned, American companies faced a new incentive structure shaped and directed by foreign governments, which suppressed their labor costs, crafted lax environmental regulations, and offered robust financial subsi­dies. Companies took note and factories moved abroad—hollowing out key sectors of the American economy and communities across the American heartland.

Reversing that dynamic will require a more active American trade strategy. For lessons on how to design that kind of trade policy, Americans will need to look back to an era long before the 1970s of Ingleson’s book.

This article originally appeared in American Affairs Volume VIII, Number 2 (Summer 2024): 45–54.

Notes