Tariff Time: Free Trade Skepticism Deeply Rooted In US History

A strengthened American Congress made passing a national Tariff Act one of its first tasks. When it was ratified in 1789 , a national import tax replaced customs previously enacted by the states.

Perhaps indicating the magnitude of this change, supporters called it“the Second American Revolution,” passed as it was on July 4, 1789. In effect, it helped create a new conception of the American political and economic system, with a much stronger role for the state in economic matters.

Duties were levied on 30 commodities, including hemp and textiles. Perhaps foreshadowing trade policy of a future era, the Tariff Act also placed duties of 12.5% on goods imported from China and India.

The main architect of this new industrial policy was Hamilton, who released his seminal work on economic policy, Report on Manufactures , in 1791. Hamilton's ideas were based on transforming a predominantly agricultural nation into one defined, at least in part, by growing and diversified industry.

Though often overlooked, Hamilton's Report on Manufactures also contained a grander vision – it sought to encourage the development of American invention and ingenuity as a form of economic policy and argued for unlocking “the genius of the people” so that“the wealth of a nation may be promoted.”

To promote this spirit of national enterprise, Hamilton encouraged promoting technological progress, subsidizing research, attracting migrants, supporting a new financial system and implementing a patent system to promote invention. Such policies were in many ways an extension of previous policy enshrined in Section 8 of the Constitution.

As the use of tariffs continued in the decades following Hamilton's plan, policymakers turned increasingly protective in an attempt to more directly promote American industry. They enacted tariffs to insulate growing American industries from foreign competition, primarily from the UK.

By the early 19th century, this growing protectionist movement coalesced around the powerful Kentucky legislator Henry Clay and his Whig Party. Clay, who first referred to the American System by name , and his allies were instrumental in raising average national tariff rates to 20% in 1816.

When crisis appeared during the Panic of 1819 , a collapse in cotton prices, a tightening of credit, widespread foreclosures and rising unemployment followed. In response, Clay and his allies raised tariff rates again, to 50% in 1828 .

The increasing use of tariffs provoked a fierce response from some in the nation's agricultural and slave-owning class, who objected to perceived Northern dominance and a strong federal government. One prominent Southern critic at the time referred to the 1828 tariff as the“tariff of abominations .”

Indeed, opposition to elements of the American System was one of the chief policy goals of early Democratic politicians such as Andrew Jackson, and fights over the system presaged later sectional fights leading up to the Civil War.

As an industrial revolution took root in American society in the decades that followed, tariffs remained a cornerstone of US economic policy. By the late 1850s, tariffs had become integrated into the policy of the newly formed Republican Party and an important plank of Abraham Lincoln's economic platform.

Toward the end of the 19th century, a changing Democratic Party, supported increasingly by a strong agricultural populist movement, continued to largely oppose the tariff system , arguing it benefited powerful industrialists at the expense of the working class while offering little to counter economic crisis.

Between 1861 and 1933, tariffs were a standard tool of US economic policy. During this period, tariffs on dutiable goods often averaged 40% to 50%, especially in the late 19th and early 20th centuries. US policymakers didn't seriously question tariffs as a form of industrial policy until the deepening of the Great Depression in the 1930s.

Sign up for one of our free newsletters

• The Daily Report Start your day right with Asia Times' top stories
• AT Weekly Report A weekly roundup of Asia Times' most-read stories

Following World War II, the US decisively shifted away from tariffs. The Smoot-Hawley Tariff Act was widely blamed for deepening the Great Depression and contributing to the international conflicts of the 1930s and 1940s, effectively ending the protectionist era of U.S. industrial history.

The establishment of the Federal Reserve in 1913 provided policymakers with a novel tool – monetary policy – to deal with economic downturns. The Keynesian revolution provided still another policy response for governments to consider during periods of economic crisis: spending as fiscal stimulus to create jobs and income.

Finally, as postwar American policy embraced open global trade, American economic policy pursued more direct mechanisms to foster national innovation and entrepreneurship – effectively breaking up policy once dependent on activist trade intervention. With the elimination of tariffs, one of the great periods of American economic growth and innovation followed.

In 2024, the Republican platform has, in many ways, returned to its origins by offering tariffs as a key economic strategy. Likewise, the Democratic platform, with its skepticism of concentrated corporate power, coupled with a renewed focus on financial support for small businesses and entrepreneurship, echoes its own earlier generation.

As Americans head to the polls, it's worth asking how current economic proposals with deep roots in the American System of old might help shape economic policy in the future.

Erik Guzik is assistant clinical professor of management, University of Montana

This article is republished from The Conversation under a Creative Commons license. Read the original article .

Already have an account? Sign i Sign up here to comment on Asia Times stories OR

Thank you for registering!

An account was already registered with this email. Please check your inbox for an authentication link.