Free Trade vs. Protectionism: The Tariff Debate in the United States

The debate between free trade and protectionism is one of the most enduring political and economic disputes in American history. Since tariffs generated 90 percent of the national income between 1790 and 1860, those who identified as free-traders did not want to completely remove the tariff. Rather, they supported tariffs for revenue only. Those who believed tariffs should produce even more revenue than the government needed to function — creating a surplus — were known as protectionists.

Why Protectionism?

High tariff walls, it was believed, would protect domestic industry from foreign manufacturers. These distant producers could hire laborers for a fraction of the cost that domestic manufactures could, allowing them to produce and sell similar products for a lower price. This did not sit well with American manufacturers who believed that Americans should only buy and sell their own products and restrict cheaply made foreign goods.

Like contemporary protectionists such as Donald Trump, they produced narratives of xenophobic binaries between “us” and the racialized “them,” pursuing tariffs that would not only keep American money within national borders, but also keep all things foreign out — both bodies and products.

Throughout the Gilded Age and the Progressive Era, American policymakers such as William McKinley continually argued that high tariff walls not only stimulated progress, “dignified and elevated labor,” but also protected infant industries, allowing them to mature into fully developed manufacturers.

“Of [all] the arguments in favor of protection,” economist Frank Taussig grumbled in The Tariff History of the United States, “none has been more frequently or more sincerely urged than that which is expressed in the phrase ‘protection to the young industries.’”

Free Trade vs Protectionism

While protectionists such as William McKinley argued that high tariff walls protected infant industries, allowing them to mature into fully developed manufacturers, they also meant higher production costs and thus higher prices for American consumers. By 1892, when Taussig published the first edition of his book, he believed that the United States had become a different nation with more advanced industries. While it was undeniable that the United States had become a more industrialized nation, Taussig had fashioned his own narrative of free trade — as the only rational economic policy — a position that was bolstered and legitimized by his scholarly reputation.

Despite an almost religious zeal to protect American industry from foreign competitors, the late economic historian Douglas C. North wrote that “It is doubtful if the tariff promoted American industrialization much more rapidly than would have occurred in its absence, and it is even more doubtful that it resulted in any net addition to the national income” during the Gilded Age and Progressive Era — the period high tariffs were most often used.

North reinforced the conventional story of protectionism as irrational, leaving free trade the only ‘rational’ economic policy — a narrative that overlooks the inequitable outcomes of free trade agreements and reinforces the idea that economic growth is good for everyone

What is Comparative Advantage?

Conventional wisdom holds that protectionists have overlooked the value of an economic concept known as comparative advantage. First introduced by the British political economist David Ricardo, comparative advantage involves producing goods more efficiently than other countries. Each nation has a unique distribution of land and resources which allow them to specialize in specific industries.

If the United States can produce aircrafts with one-fourth the labor that Japan does and produces ships with three-fourths the labor, for instance, then the United States would be more efficient by specializing in the industry that it has a comparative advantage in (aircrafts) and importing products that it has a comparative disadvantage in (ships).

Comparative advantage seems pretty reasonable if this is where the story ends. If everybody wins, why wouldn’t everyone support free trade policies? The only problem with this narrative is that it doesn’t reflect reality. Like most economic theory, the story of comparative advantage does not consider asymmetric power relations.

Just because we cannot accurately measure power dynamics does not mean they don’t exist. Instead of a linear movement from theory to policy, we have a diverse range of policymakers with conflicting sets of interests who claw their way into the best deal they can get for the people they directly represent and, if it’s convenient, the rest of the country.

The Geography of Interests

As economic historian Douglas Irwin points out in his recent book, Clashing Over Commerce: A History of US Trade Policy, the United States has always been divided by those who have opposing economic interests that are rooted in geography. Regions that are dominated by agriculture, for example, have traditionally supported low tariffs because they have an economic interest in doing so — they export a large proportion of their products.

Manufacturing regions, conversely, have a commercial interest in supporting high tariffs because they are threatened by foreign manufacturers. This geography of interests, Irwin writes, is reflected in Congressional voting patterns. Both protectionists and free-traders, moreover, have used the ideas of prominent scholars such as Adam Smith to legitimize their positions, as political theorist Glory Lui shows in a recent article.

Throughout the nineteenth century, Democratic free-traders were eager to display their knowledge of political economy in Congress, aiming to marshal Smith’s authority to legitimize free trade policies. Republicans were also guilty of using Smith, either by reading small portions of the Wealth of Nations that were removed from its broader context, or by attempting to delegitimize Smith altogether.

Marshaling a sense of nationalism, Republicans often called attention to the ‘American system of protection’, framing protectionism as an essential part of the American identity. By creating stories that involved Smith, they aimed to leverage his intellectual authority and image to support their regional economic interests.