My Weekly Reader 7 January 2021.

            The Enlightenment had a good year in 1776.  The year witnessed the publication of “The Declaration of Independence,” Edward Gibbon’s History of the Decline and Fall of the Roman Empire, and Adam Smith’s The Wealth of Nations.  Smith attacked the prevailing “mercantilist” economic policies of the time, arguing that tariffs serve only politically-connected special interests at the expense of the larger community. 

            Broadly, for much of their history, Americans rejected free-trade as the best engine of prosperity.[1]  While James Madison advocated a ‘very free system of commerce” in the early days of the Republic, Alexander Hamilton preferred a mercantilist/protectionist line.  Tariff policy veered toward the Hamiltonian line once industrialization began, to the great distress of Southern cotton exporters.  After the Civil War, high tariffs became an article of faith among Republicans.  It is by no means clear that tariffs actually contributed much to American economic development in the “Gilded Age.”  Abundant natural resources combined with a scarcity of labor that put a premium on technological innovation probably did much more than tariffs.  Still, they didn’t hurt.  High tariffs as a protection against “unfair” foreign competition became a totem.[2] 

            Making a totem out of high tariffs came back to bite Republicans when passage of the Smoot-Hawley Tariff Act (1930) coincided with the plunge into the Great Depression.  Even though the Federal Reserve’s tight money policy during the 1920s played a far larger role, the high tariffs and falling trade explanation was ready to hand.[3] 

After the Great Depression drove many countries toward high tariff walls and autarky, after the Second World War wrecked most world economies, Republicans and Democrats converged on a new orthodoxy of free trade.  The United States played the leading role in designing the new world order of the Bretton Woods System.[4]  Americans continued this drive through the 1990s, with successive “rounds” of multilateral tariff reductions and the North American Free Trade Agreement (NAFTA). 

Some of the economic and social dislocations of recent decades loosened the post-war consensus.  Republicans still clung to free trade as tightly as they once clung to high tariffs, while Democrats lost the enthusiasm for free trade that inspired them from Franklin D. Roosevelt through John F. Kennedy.  More recently, populist uprisings in both parties have disrupted the march toward a still more integrated world economy.  Senator Bernie Sanders attacked free trade in general and the Trans-Pacific Partnership (TPP) in particular during his run for the Democratic presidential nomination in 2016.  Rival Hillary Clinton soon moved from being a leading proponent of the TPP to having her doubts to opposing it.  Donald Trump seized the Republican nomination in part by dint of his scalding criticism of NAFTA and Chinese trade practices. 

Will policy now snap back to normal under Joe Biden or are we at the dawn of a new era of managed trade?  The ability to formulate policies that help those displaced may hold the key.         


[1] Douglas A. Irwin, Clashing Over Commerce: A History of US Trade Policy (2017).  Reviewed by George Melloan, WSJ, 29 November 2017. 

[2] Tax cuts as the solution to every problem has become a similar totem for Republicans since the Reagan presidency. 

[3] See: https://en.wikipedia.org/wiki/Availability_heuristic 

[4] The General Agreement on Tariffs and Trade (GATT), the World Bank and the International Monetary Fund (IMF), the Marshall Plan and support for European integration all were vital early contributions. 

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