Regime IV. Lapse in Authority, 1967-1975
For a number of reasons, there was no delegation of trade authority between 1967 and 1975. In November 1967, Sen. Eugene McCarthy (D-Minn.) declared his primary challenge against Johnson, mostly on anti-Vietnam war grounds. What began as a quixotic campaign rapidly gained adherents, and by March 1968, McCarthy had come within seven points of beating Johnson in the New Hampshire Democratic primaries. A humiliated Johnson – who had won over 60 percent of the vote only four years earlier – then announced that he would not seek the presidential nomination, which effectively ended any major policy initiatives for the rest of his term.80
Rapid cultural and political changes were tearing the country apart. Government's effective management of the largest peacetime economic expansion in U.S. history had ironically provoked left and right resentment of civil servants. Liberals had led the United States into a foreign war they seemed unable to win. Landmark civil-rights achievements were followed by urban riots after the assassination of Martin Luther King, Jr. in April. Then Bobby Kennedy was assassinated in June, further shaking the nation and leading to the political fragmentation of the August Chicago Democratic Convention, which nominated Vice President Hubert Humphrey for the top of the ticket, despite his not having participated in any primaries.81
In the November elections, Eisenhower's vice president Richard Nixon beat Humphrey by less than one percent of the popular vote – 43.4 to 42.7 percent. While Nixon had assiduously courted Southern Democrats in an attempt to build a new "Republican Majority," Alabama Governor George Wallace's populist third-party candidacy captured many of those voters, yielding the latter man 13.5 percent of the popular vote. Wallace's message of Beltway cultural and economic sellout of working-class voters also attracted significant support from union members. (The AFL-CIO estimated that a third of its members supported the Alabaman.82) Due to electoral-college rules, however, Nixon was able to claim 301 electoral votes to Humphrey's 199 and Wallace's 46. If Wallace had gotten a few thousand more votes in North Carolina and Tennessee, and if Humphrey had done slightly better in New Jersey and Ohio, then the election would have been thrown to the Democratic-controlled House of Representatives to decide.83 Moreover, as political scientist Thomas Schaller documented, "Nixon became the first elected president in American history to enter the White House without his party capturing either chamber of Congress."84
For Nixon's first term, he was painfully aware of his narrow election victory and need to consolidate what he called the "Silent Majority." This involved courting Southerners and union members. He was not interested in economic matters, and saw his legacy as a partial cooptation of liberal domestic policy (through aides like Democrat Daniel Patrick Moynihan, who facilitated working relationships with the Democratic-controlled Congress), combined with executive-branch unilateralism in foreign affairs (through other aides, like Johnson administration consultant Henry Kissinger, who were wary of Congress).85
Despite paying lip service to "free-trade" orthodoxy, Nixon was mostly interested in politics. "What really matters in campaigns, wars, or in government is to concentrate on the big battles and win them," he told aides. "I do not want to be bothered with international monetary matters... and I will not need to see the reports on international monetary matters in the future."86 Throughout his 1968 run and first term, he pushed textile quotas in return for the electoral support of Sen. Strom Thurmond (R-S.C.), who Nixon put in charge of his anti-Wallace strategy.
On his maiden European trip as president in February 1969, Nixon told European heads of state that trade expansion was not on the agenda. "I pointed out the great pressures we are under here for quotas on imports," he told advisors. "And I told them this is not the time for new breakthroughs in trade procedures. There will not be a new Kennedy Round – that's not in the cards – it's time to digest what we already have on the plate."87
Like it or not, international trade matters began to demand Nixon's attention, as the post-war economic order rapidly unraveled. At the 1944 Bretton Woods Conference, nations agreed to convert each other's currencies at fixed exchange rates, thereby facilitating trade and international payments. But reserve shortages in Europe after the war led countries to use the U.S. dollar instead, which the U.S. government agreed to exchange for gold at a rate of $35 an ounce. A consequence of the de facto dollar-gold standard was an over-accumulation of dollar reserves abroad, which now exceeded the value of gold held by the United States at Fort Knox. By 1971, European speculators were beginning to demand more gold for dollars than the U.S. Treasury possessed. Simultaneously, the United States ran its first trade deficit since 1893.88
In the context of looming financial instability, Nixon's economic approach became even less orthodox. He appointed former Texas governor and Democrat John Connally as Treasury secretary in February 1971. Connally said: "My basic approach is that the foreigners are out to screw us. Our job is to screw them first."89 Nixon also appointed Pete Peterson as Assistant to the President for International Economic Affairs, but told aides beforehand that: "Trade is a two-way street... [if he's] a total free trader... he can't have the job."90 Neither Connally nor Peterson disappointed. Peterson maintained that: "our [trade] partners no longer need special crutches. In fact, as is sometimes the case, patients may be inclined to throw them at the doctor."91 Connally advocated for U.S. adoption of Japanese-style industrial policy. Within months, Nixon was channeling their message, telling Peterson in June 1971 that while previous administrations had used trade for foreign policy purposes, we "must use it as [an] instrument of our domestic policy, e.g. jobs."92
Nixon instructed his team to, in historian Rick Perlstein's words, "win the election by doing whatever he had to do to make the economy appear to boom in the run-up to the 1972 elections, no matter the longer-term consequences of the techniques it took to do it."93 Indeed, in August 1971, Nixon showed a willingness to upend completely the post-war economic order if it helped him win an election. After a presidential retreat at Camp David, Nixon proclaimed through executive order that he was abandoning the dollar-gold standard, and imposed an across-the-board import surcharge of 10 percent, along with other wage and price controls.94
The surcharge was designed to reduce imports by making them more expensive, and thus balance trade. In December 1971, Nixon phased out the relatively small surcharge, which only had a modest impact. However, the underlying political goal had been accomplished: Nixon had established his populist credentials. Polls showed that 75 percent of the public approved of his August 1971 "New Economic Policy."95 In the 1972 election, he won by almost exactly Johnson's 1964 margin – 60.7 percent of the popular vote. This translated to a whopping 520 out of 537 electoral votes. Despite Nixon's strong showing at the presidential level, however, Democrats still maintained their majorities in both chambers. This fact was extremely frustrating to his administration, which had to turn its attention on how to work with – or at least divide and confuse – the Democratic-labor coalition.