The USA: Historically Protectionist

America is the bastion of free trade. It is the heart of cowboy, buccaneering, capitalism. It is what the Right-wing love about America.

It may be what they like to love but it is wrong. That’s right, wrong.

The major part of American history is protectionist. What President Trump is doing now with his new trade war against China, and for that matter, almost every other country is a continuation of US policy since its very earliest years.

You will probably have heard of Adam Smith the Scottish economist, philosopher, author, moral philosopher, and a pioneer of political economy. You will probably also know Smith as the original exponent of free trade. Free trade is the opposite of protectionism.

During the Industrial Revolution, Britain embraced free trade and Smith’s laissez-faire economics, and via the British Empire, used its power to spread a broadly liberal economic model around the world. It was characterised by open markets and relatively barrier-free domestic and international trade.

But it was also colonial economics that suited Britain’s new industrially revolutionised economy. But we will come to that.

At Mount Rushmore, there are sculptures of the heads of four United States presidents. There are good arguments that all were protectionists, but we need to start with the Commander-in-Chief of the Continental Army during the American Revolutionary War, George Washington.

Smith died in 1790 and 1791 is the next important date. Alexander Hamilton served as the first US Secretary of the Treasury. You will know what Hamilton looks like. It is his portrait on the US $10 bill.

Hamilton was with Washington during the War. He recognised that there was very limited production capacity to manufacture weapons. The British were restricting growth and he feared that they would stay as the leading manufacturer and condemn the US to a bits and pieces producer.

Come 1791 this is what Hamilton said:

The superiority antecedently enjoyed by nations who have preoccupied and perfected a branch of industry ….

To be honest, he goes on a bit, but the outcome was he came up with a dozen or so measures which included, tariffs, export subsidies, and even modern ideas such as R&D tax credits and subsidies. These were all in his Report on Manufactures, submitted to Congress in 1791. That was the start of American protectionism.

This where we can start to take a long view of history. With the war finished American tariffs rose to 40% while the British were dumping manufactured goods into the US to deliberately asphyxiate American manufacturing.

By 1847 Lincoln, best known for fighting slavery also said: Give us a protective tariff, and we will have the greatest nation on earth.

As the century progressed Karl Marx favoured free trade because he believed in its damaging potential to capitalism. In January 1848 he delivered a speech at the Democratic Association of Brussels, titled On the Question of Free Trade.

It took until the 1960s and the cold war for the change in American policy as they attempt to tie in allies into its anti-Soviet stand. They encouraged open US trade, building an enormous deficit.  It was such a good policy that it led to the downfall of a Soviet empire.

But, now we go full circle.

The core of any Brexit success will come down to the ability to strike free trade agreements around the world at a time Trump has started a trade war with China and all his Western allies, reverting the US to type.

We’re doing things for this country that should have been done for many, many years,” the President said before signing a memorandum setting in motion the trade actions.

Is free trade an important issue in a world where there is so much blatant aggressive behaviour between nations? Should we care? Yes, and it most certainly is because countries that trade openly are likely to be both richer and less likely to fight.

And so, we get back to Adam Smith, the original 18th-century proponent of free trade.

There is a lot of research that confirms the benefits Smith suggested. I have chosen one of many from the internet (  because it is supported with studies. It makes the following assertions:

  • Trade boosts economic growth and reduces poverty.
  • Trade reduces unemployment.
  • Trade increases compliance with labour standards.
  • Trade reduces the likelihood of war.
  • Trade makes increases life expectancy and reduces infant mortality.

But let’s be just a little more parochial. According to contemporary reports, The White House expects the new taxes, which could reach up to 1,300 specific imports, will have a “minimal impact” on consumers.

There is no way to impose $50 billion in tariffs on Chinese imports without it having a negative impact on American consumers. Make no mistake, these tariffs may be aimed at China, but the bill will be charged to American consumers who will pay more at the checkout for the items they shop for every day,” said Hun Quach, vice president for international trade at the Retail Industry Leaders Association.

And for the investing class, this was a Reuters headline from March 22nd: Stocks tumble to worst day in six weeks after Trump tariff action

Again, it looks like I am out on a limb and disagree with President Trump.

Time will tell.