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The American Protectionist Economy of The Past and The Protectionist Economy of The Future

For almost the last 80 years the United States has had a free trade and global economy. Meaning countries do trade with very little restrictions on their economies such as no tariffs and government subsides.  This has led to globalization, outsourcing of American jobs, dependence on foreign countries, less regulations and unions, suppression of wages, the destruction of smaller producer everywhere, mass immigration of both legal and illegal migration to America and brain drains in developing countries. In other words, free trade has had serve negative effects on the working class and has led to corporations to globally expanded meaning they have more power over economies, governments, and the average person.

Despite the myth of America always being a free trade or even free market economy. The American economy was not always a free trade economy but rather was a protectionist economy that protected local industries and jobs throughout most of its existence. In fact, part of the reason why the American revolution was fought was because America did not want to rely on Britain for manufacturing and not be allowed to industrialize. In this article I will go over a brief history of protectionism in America, why it was adopted then abandon, and how we may return to a protectionist economy and how to avoid from making same mistakes.

History of Protectionism

As mentioned earlier the American Revolution was not just fought over unfair taxation but Britain also had enacted laws to prevent America from industrializing such as a ban on high value manufacturing in hopes to keep America an agrarian colony that produced raw materials for British industrialist to then sell those products to America. Basically, to keep America dependent on British industries. Many of the founding father such as George Washington believed the only way to be truly independent was also to be economically independent. The second law to be passed under Washington presidency was the Tariff Act of 1789 which put a 5 percent tariff or tax on all imported goods in hopes of encouraging the consumer to buy domestic goods.

While Washington enacted the first protectionist laws the real architecture of American Protectionism was none other than the first Secretary of the Treasury Alexander Hamilton a Founding Father and leader of the Federalist Party. Hamilton like Washington believed the only way for America to be truly independent was by having a protectionist economy that promoted industries at home. Along with having a manufactured based economy was the only way for America to compete with rival powers. Hamilton was not just a supporter for tariffs but even outright bans on imported goods and bans on export of raw materials that could be used for American manufactures. Hamilton also supported government subsidies for industries, key innovations, exporters, and inventions at home. These ideas would be favored by many American manufacturers and by Hamilton’s very own conservative Federalist Party which many founding fathers were members like John Adams (second president of America), John Jay, Rufus King, and John Marshall.

The federalist party largely represent the interest of the rising American industrial capitalist class that was largely located in the American North. However not all the founding fathers wanted tariffs or wanted a society dominated by manufactures rather wanted to keep America an agrarian economy. These interests were represented by the Democratic Republicans led by Thomas Jefferson, James Madison, and James Monroe which represented the slave plantation owners and other large farmers that were largely in the American South. The reason why plantation owners were against the tariffs was because they were producers of raw materials like cotton, and food that they sold to foreign countries like Great Britain. The tariff would raise the cost of living in the south and cut into the profits of the plantation owners due tariff on Britain.

While the Federalist would only have one of their party members John Adams elected as president and would lose out to Jefferson Democratic Republicans. The Democratic Republican president James Madison (with Jefferson support)  would have to raise tariffs by 25 percent due to the war of 1812 that disrupted trade,  along with the government need for more revenue to fund the war and anti-British sentiments.    By 1816 the tariff had been raisin to 35 percent then to 40 percent by 1820. While support for tariffs remained high at this time the agrarian plantation class would oppose it again later in the late 1820s for many similar reasons as originally and seeing it as largely benefited the industrial capitalist who were growing rapidly at this time. Swallowing up the small family farmers and small manufactures which gave rise to big cities and monopolies in the North with industrialist having strong influence in the northern governments, that went against agrarian interest. While at the same time the protectionist economy did protected/ created American jobs, national security, independence and created new technologies and inventions at home just like Hamilton wanted.

The conflict between the industrialist protectionist North and slave plantation free traders South would continue all the way up to civil war. With the South prior to the war have some successes in overturning protectionist policies in their favor with the North conceding on some of the issues. However, this did not ease tensions and in 1861 Civil War broke out between the industrial North and the Agrarian South partially over the issue of Free Trade. Abraham Lincoln the president of America at the time was a strong protectionist. In fact, protectionism was his number 2 issue after anti-slavery. The South led by Jefferson Davis made free trade there second major issue after pro slavery with free trade being mandated in the Confederacy constitution. As everyone knows the Industrial North ended up winning the civil war in 1865 and Lincoln not only ended slavery but left a strong protectionist legacy amongst presidents all the way up to 1945.  

However, as a consequence of the abolition of slave plantation owner class allowed for industrial Capitalism in the North to expand to the American South. Quickly taking a part many of the small farms in the region in the last few decades of the 19th century. Centralizing wealth and power into fewer hands with the wealthy becoming more detached from the average person and their interest. This is seen by the poor working standards, low wages, price gouging, import of cheap foreign labor, bloody suppression of worker strikes, with holding of bank loans to small producers and widespread fake products. Not to mention major monopoly such as the Rockefellers that controlled entire industries such as oil. While some of this was minimized due to reforms and trust busts that started widely under Theodore Roosevelt in the early 1900s and did have some support from some major capitalist such as J.P Morgan. However, many of the large-scale corporation would remain and did not entirely stop the divide between the supper rich and everyone else. 

As the 20th century began the protectionist and isolationist policies of the US began to break down. With the United States playing a bigger role in world affairs and with a capitalist class who wanted to expand their markets pass Americas borders in their pursuit of more profit. This can be seen by the presidency of Woodrow Wilson and his ideas such as Wilsonianism a form of liberal internationalism that became popular in elite intellectual and capitalist circles after the first world war and would later morph into modern Neo Conservatism and Neo Liberalism. It can also be seen in the rise of international corporation from within America such as United Fruit Company that dominated many parts of Latin America such as Colombia or Guatemala. Another example the  Ford Motor company which did business in the anti-capitalist Soviet Union being partially responsible for modernizing the country and helping to make a rival for the American Capitalist order (which Ford Motor is a part of) and later for that Soviet Union to use the poor conditions in Latin America created by United Fruit company and other corporations to foster communist revolutions all throughout the continent that could of lead to the American capitalist own downfall, born out of their own greed. However, we are jumping ahead of ourselves as American government was still supporting protectionist policies and went back to isolation after Wilson left office.  And in 1922 tariffs were raised again to 50 percent with the Fordney-McCumber Tariff Act.  Another tariff was passed in 1930 called the Smoot-Hawley Tariff Act of 1930 raised tariff up to 60 percent. Being the last major American tariff of the 20th century.

When America entered World War 2 after the attack on Pearl Harbor in December of 1941. America became involved with world affairs again and this time did not go back into isolation or protectionism. With the economies of Europe and East Asia being destroyed due to the war, made America into a world power. Which gave the American capitalist class a reason to expand into new markets in western Europe and parts of east Asia to not only to make more profit but also to counter act the Soviet Union which was also a rising power that threaten America newfound power and influence on the world stage.

In October of 1947 the General Agreement on Tariffs and Trade was signed by the United States and other countries which promoted international trade and elimination of tariffs and other trade barriers. Tariffs were largely reduced in America along with other government regulation. The reason why so many major American capitalist wanted to go global was because they would have more markets to make profit, more resources and have a cheaper work force and resources outside the US.  US influence and control in Western Europe only strengthened with the Marshall Plan which helped to rebuild Europe and the formation of military alliance known as NATO also strengthen the US influence in Europe. The Rockefeller foundation would also start to advocate for more trade relations with China in hopes of expanding their own market.  In 1979 American government in hopes of splitting the communist bloc and making cheaper goods signed a trade agreement with China which began the outsourcing of jobs and US dependence on China on certain industries such as medicine, machinery, electricity, and textiles. America would also start to rely on other countries like Saudi Arabia for other industries like oil. In 1984 under President Ronald Reagan the predecessor to NAFTA the Canada US trade agreement was signed with Canada. Furthering America free trade policy and with Reagan economics further deregulation as a whole giving corporations more and more power. 

When the Soviet Union fell in late 1991 allowed American influence and international capitalism to expand eastward to Russia and other former Soviet states. For a time, exploiting Russia and the others for their natural resources until 1999 with Vladimir Putin coming to power nationalizing oil industry but still Europe and America still relied heavily on Russian oil and natural gas.

 In 1994 NAFTA was signed between America, Mexico, and Canada which caused mass outsourcing of American jobs to Mexico. The World Trade Organization came into existence which replaced the General agreement on tariff and trade. America would continue a free trade policy all the way up to Donald Trump in 2016. Who started to put tariffs on China in hopes of bring industries back to America. In 2020 many more problems in Free trade were revealed with the Covid 19 pandemic that shut down many countries causing shortages that still last to this date. Then the Russia Ukraine War started in February 2022 of this year causing more shortages especially of oil and natural gas.  Which gets us to the current crisis.

The Current Crisis: Karl Marx and Oswald Spengler The Predictors of Doom of Western Capitalism Through Free Trade

The crisis of free trade that has been building for almost 80 years and has accelerated in the last 2 years can be understand by looking into two intellectuals on the issue of free trade.  The founder of communism Karl Marx and one of key figures of the German Conservative Revolution Oswald Spengler. Marx approaches the issue through a class analysis while Spengler approaches the issue from a geopolitical or civilization analysis.

Marx unlike Spengler was a supporter of free trade not because he was a capitalist but because he believed that through free trade the world would be brought closer together and class divides would widen. In one of Marx article titled “On Free Trade” Marx states this on the issue.

“But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade.”

If we look Mexico for example, we see that after NAFTA was signed many of small farms ended up going bankrupt due to government subsidies and tariff being cut. Along with not being able to compete with the corporations that moved into Mexico. This caused mass immigration to the United States which caused more competition in the American labor market and help to erode the traditional makeup of the United States. At the same time NAFTA created conflict inside the southern Mexico state of Chiapas. Which is home to many small indigenous farmers. An anarchist insurgent group called the Zapatista Army of National Liberation released a declaration of defiance against NAFTA which they saw as pushing them into more poverty. An Uprising would soon break out after signing of NAFTA. The conflict would last for 12 days until treaty was signed allowing Zapatista to have their own autonomous zone.

This was not first-time conflict t6hat had broken out over poverty, free trade and antagonism of foreign corporations’ control over the economy. In fact, as was stated earlier it was part of reason United States declared independence from Britain. There of course more modern example to like In Cuba in the 1959 which led to the rise of Communism in country. In Colombia in 1964 an insurgency broke out for many of the same reason with the conflict still going on to this very day. Of course, it’s not just leftist who are opposing free trade and globalization. In Russia in 1990s after the fall of Soviet Union many right-wing conservatives, nationalist, and monarchist banded to together with communist in defiance against the Neo Liberal Yeltsin government that brought Russia into poverty with its Neo Liberal Shock therapy economics.  In the United States Right Wing Populism has come to the stage with Donald Trump becoming president with similar trends taking place in Western Europe. Trump by no means an anti-capitalist was against free trade and problems it caused like mass immigration, outsourcing, and dependence on foreign countries most notably China.  The rise of right-wing populism in America in 2015 also came with strong anti-elite sentiments with strong antagonism of prominent supports of globalism like George Soros and Hillary Clinton. While Marx was correct that with free trade would create more antagonism with the ruling capitalist. However, he was wrong to believe that it would solely be a class conflict as many of these movements even the left-wing ones embrace forms of Nationalism or localism (in case of the Zapatistas) and sought the liberation of their countries from foreign influences. Some of the left-wing ones even embraced religion and social conservatism like the Sandinista in Nicaragua which Marx would see as backwards. Not to mention many of the left-wing uprising happened in agrarian countries or regions like Chiapas, Colombia, and Nicaragua. Not in industrial countries where Marx predicted.

Marx also did not take into account other classes that could become prominent with free trade. This class being the Drug Cartels or what I like to call the Narco Aristocrats. With the opening of borders, outsourcing of jobs and some places poverty that was created by free trade gave drug cartels a chance to also become international. With Cartels being able to get more recruits and buyers due to the depression that free trade caused in some regions like Mexico or Rural Colombia in terms of recruits or Rust Belt or Appalachia in terms of buyers. Many of these cartel’s pull billions of dollars on drug trafficking alone. The money the cartels have allows them to form armies that do fight off the Mexican and Colombian militaries. And if the current crisis within international capitalism gets worse then we can only expect the cartels to only grow and possibly take control of entire countries.

While class conflict may have grown in the Americas due to free trade. In the East however with America and Europe having many of their industries and imports being based from countries like China, India, Russia, and Saudi Arabia. Western free trade has given rise to these Eastern countries to become superpowers like in the case of China and Russia and Regional power who also have major effects on the world economy nevertheless like Saudi Arabia. This of course is more in line with Oswald Spengler view of the destruction of Western capitalism than it is with Karl Marx. In Man and Technics Spengler warned that western technological capitalism was not only destroying everything that was natural but was also moving many industries to East Asian countries for profit and that this would eventually give these East Asian countries the economic power to rival the West. This is especially true for China which has the second largest economy in world partially due to Chinese state intervention and the outsourcing of western industries to China.

The importance of China and other eastern countries economy can be seen from the last two years alone. With China shutting down for Covid which caused masses trade distributions and shortages in America and the world. To Russia oil and natural gas being sanctioned by western countries due to the war in Ukraine which has caused a shortage of fossil fuels and the price of energy to increase. Not to mention made inflation worse for many western countries. All this was also accelerated when Saudi Arabia and OPEC announced that they would decrease oil production by 2 million barrels causing more problems for western economies.

China, Russia, and others have also made economic alliance like BRICS and SCO which is now competing with many western economies and economic unions. These economic unions like BRICS contributes ¼ of world GDP and 50 percent of world economic growth in the last 10 years. The eastern countries may have used western free trade to their advantage, but they always saw America and its allies as threat to their own ways of life and sovereignty. Only using the Western capitalist short sightedness for profit to their advantage. Now that China and Russia no longer needs America and the West. Russia now and sooner or later China will start to begin (or already begun in the case of Russia) military operations to claim territories that were once a part of their countries, that play geopolitical roles that could be used against China and Russia if they remain under American influence such as Ukraine and Taiwan. This of course in the case of Russia has already destroyed relations with the West and when China does move on Taiwan will do the same as well but as we seen in Russia this will probably hurt America and its allies more than it will hurt China.

The Return to American Protectionism

All the problems that free trade has caused which has hurt the American working class for decades is now finally hurting the capitalist class too. With some like Black Rock CEO Larry Fink stating that globalism has ended due to Russia Ukraine War.  However, amongst more dissident elements of capitalist like Donald Trump has already started to move America away from free trade by not only implementing tariff on China but also on European countries like the UK and France during Trumps presidency from 2017 to 2020. Even Joe Biden the current president of United States who is staunch liberal internationalist who has lifted many of these tariffs has had to sign the Chips acts which provides 280 billion dollars into funding research and manufacturing in the US of semiconductors something that is needed to make cars and computers for example.  This is not stopping the decline of the US however as America is still in economic downturn and internal conflict is becoming ever more inevitable due to partially from free trade. Not to mention America is nowhere near an autarkic or economic independences.

We cannot rely on the capitalist class or dark elves of this class like Moldbug call them to make America economically independent again as they will always try to expand internationally in pursuit of profit at the expense of the American people when it benefits them. Arguably many of these new protectionist policies are to desperately save Liberal globalism more than anything and these protectionist policies will be overturn if that is somehow achieve.

Hamilton protectionism had the goal of not only making America economically independent but also to be beneficial to American workers and capitalist alike. However as soon as it no longer served the capitalist interest, they abandon protectionism for free trade putting American jobs, sovereignty, and security at risk. America has resources to be economically independent and Hamilton protectionism does not need to be abandon but the more liberal elements need to be cast out of it. Important industries like fossil fuels and energy should be nationalize for national security reasons. The rest of the economy should be run by small business and coops that will be regulated by guilds where all members of a local economic sector like manufacturing for example will all be able to set prices, monitor trade, only allow local guild members to trade in a local area and would provide benefits to family if anything bad would happen to one of the members. Other concepts like family rights that base laws on how it benefits the American traditional family would be beneficial in protecting jobs and American interest. Only through the removal of the current capitalist class and being replaced by the workers can any of this be achieved.

                     Sources

America Was Founded as a Protectionist Nation

https://www.huffpost.com/entry/america-was-founded-as-a_b_713521

Free Trade Fallacy by Michael Lind

England’s medieval guilds

Medieval Guilds

On The Question of Free Trade by Karl Marx

https://cooperative-individualism.org/marx-karl_on-the-question-of-free-trade-1848.htm

Man, and Technics by Oswald Spengler

A lecture by Professor Michael Lind on Alexander Hamilton and Free Trade

24c. The South Carolina Nullification Controversy

https://www.ushistory.org/us/24c.asp#:~:text=In%201828%2C%20Congress%20passed%20a,cloth%20%E2%80%94%20mostly%20in%20the%20north.

Guild Socialism: A Plan for Economic Democracy by George Douglas Howard Cole

SAUDIS SOUGHT OIL PRODUCTION CUT SO DEEP IT SURPRISED EVEN RUSSIA by Ken Klippenstein

https://theintercept.com/2022/10/20/saudi-oil-production-cut/

BRICS as a Driver of Global Economic Growth and Development by Badar Alam Iqbal

https://journals.sagepub.com/doi/full/10.1177/09749101211067096#:~:text=The%20role%20and%20contribution%20of,(US%24%204%20trillion).

The Problems With NAFTA by Kimberly Amadeo

https://www.thebalancemoney.com/disadvantages-of-nafta-3306273

Protectionism in the Interwar Period

https://history.state.gov/milestones/1921-1936/protectionism

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