Clashing Over Commerce: A History of US Trade Policy (Markets and Governments in Economic History)

by Douglas A. Irwin

Dallas noted that the government had regarded the establishment of domestic manufactures as important ever since Hamilton’s Report on Manufactures in 1790, but policy measures to achieve that objective had never really been undertaken. The country was almost wholly cut off from foreign supplies of weapons and munitions of war, clothing, and other goods during the war, and Dallas pointed out that “from these circumstances of suffering and mortification have sprung . . . the means of future safety and independence” with the emergence of domestic producers of such goods. With the resumption of trade, Dallas concluded, “the preservation of the manufactures . . . becomes a consideration of general policy, to be resolved, by a recollection of past embarrassments, by the certainty of an increased difficulty of reinstating, upon any emergency, the manufactures which shall be allowed to perish and pass away, and by a just sense of the influence of domestic manufactures upon the wealth, power, and independence of the Government.”

We are likely going to see a lot more emphasis of this national security as a reason for protectionism with covid

The Tariff of 1816 was the first “protectionist” tariff of the United States in the sense that it was mainly designed to provide assistance to domestic manufacturers facing foreign competition. Given Madison’s opposition to Hamilton’s Report on Manufactures in the 1790s, it is ironic that his administration helped institutionalize government support for manufacturing by imposing high duties on imports.12 However, the federal government never had a conscious policy of starting “infant industries.” Rather, those industries emerged as a by-product of the trade interruptions and then pressured Congress to protect them from foreign competition. The direction of causality is important: Congress did not deliberately create the infant industries through policy measures; the industries emerged and then compelled Congress to enact higher tariffs for their benefit. In other words, Congress was not farsighted in shaping the future path of the economy but simply reacted to the political pressures that it faced.

The Lowell compromise was politically savvy in that it proposed a tariff structure that balanced the interest of southern cotton exporters and New England textile manufactures facing foreign competition. The tariff was designed to be high enough to keep out inexpensive Indian fabrics that did not use American cotton but competed with domestic producers, but not so high as to keep out higher-priced, higher-quality British goods that used American cotton, something southern export interests would have found objectionable.

Although the recession originated in the nation’s troubled financial sector, manufacturers blamed foreign competition for the weak economy.21 Yet higher duties were proposed as a potential remedy because the government had no other policy instruments with which to address the slump. The government did not have a discretionary monetary policy, and there was no fiscal policy, because federal spending was a tiny part of the overall economy. Therefore, producers facing competition from imports had no alternative but to demand that the only available policy tool, import tariffs, be raised to cushion them from the sharp economic downturn.

It is most desirable that there should be both a home and a foreign market. But with respect to their relative superiority, I cannot entertain a doubt. The home market is first in order, and paramount in importance. The object of the bill under consideration is to create this home market and lay the foundations of a genuine American policy. It is opposed; and it is incumbent upon the partisans of the foreign policy (terms which I shall use without any invidious intent) to demonstrate that the foreign market is an adequate vent for the surplus produce of our labor.34