Don’t Trade on Me

The second most awkward fact for proponents of free trade is that the advent of globalization has coincided with trends the opposite of those promised. Globalization was supposed to unleash growth, but growth has slowed. Productivity gains, sure to accelerate, have stalled. Many jobs were lost, but the better ones never materialized. And nations destined to liberalize have instead retrenched in autocracy.

Still, the argument goes, free trade’s track record is strong. How else did America become so wealthy? Compare our prosperity to the economic floundering of Argentina, or North Korea, or insert your own dispositive example here. Which brings us to the most awkward fact: America grew wealthy not from free trade, but behind some of the world’s most imposing protectionist barriers. In fact, the principal tradition of free trade one finds in American history was born in the Confederate South.

The American Revolution was fought to establish economic and political independence in the new world. As Pat Buchanan aptly put it in his book, The Great Betrayal, “the Founding Fathers had created something new in history, the world’s largest free trade zone… for the benefit of Americans alone.” They protected the borders of that domestic free market with a tariff wall, both to raise revenue and protect infant industries. The first bill signed by President George Washington in 1789, sponsored by James Madison, levied duties on foreign ships transporting goods into the nation.

Having put a system of tariffs in place, Washington’s energetic Secretary of the Treasury, the father of American capitalism, Alexander Hamilton, fought for the federal assumption of states’ wartime debts, the creation of a national bank, and robust economic support and protection for domestic industry. “In a community situated like that of the United States, the public purse must supply the deficiency of private resource,” he concluded in his 1791 Report on the Subject of Manufactures. “In what can it be so useful as in prompting and improving the efforts of industry?” That report’s political economy formed the foundation of what would become known as the American School of Economics, and the broader program of tariffs, internal improvements (the term for infrastructure investment), and a national bank formed the foundation of the American System.

While Hamilton initially faced staunch opposition from Thomas Jefferson, the luminaries of the founding era—from Washington and John Adams to Jefferson and Madison—eventually reconciled themselves to his view. Jefferson wrote to Benjamin Austin in 1816:

To be independant for the comforts of life we must fabricate them ourselves. We must now place the manufacturer by the side of the agriculturist. … Shall we make our own comforts, or go without them, at the will of a foreign nation? He therefore who is now against domestic manufacture must be for reducing us either to dependance on that foreign nation, or to be clothed in skins, and to live like wild beasts in dens and caverns. I am not one of these. Experience has taught me that manufactures are now as necessary to our independance as to our comfort.

In an 1819 letter to William Richmond, John Adams reflected:

I am old enough to remember the war of 1745, and its end; the war of 1755, and its close; the war of 1775, and its termination, the war of 1812, and its pacification. Every one of these wars has been followed by a general distress[,] Embarrassments on Commerce[,] destruction of manufactures… The British Merchants and Manufactures, immediately after the Peace disgorged upon us all their Stores of Merchandise and Manufactures [not] only without profit but at a Certain loss for a time—with the express purpose of Annihilating all our Manufacturer’s, and ruining all our Manufactories[.] The Cheapness of these Articles allures us into extravagance and Luxury’s, involves us in debt—exhausts our resources—and at length produces Universal complaint.

The hard lessons of history and great power competition showed that England wanted nothing more than to smother America’s infant industries in the cradle and keep the new nation dependent on her mother country forever. If America followed the course of free trade, Adams reasoned, her future would be marked by industrial annihilation, economic ruin, consumer extravagance, and debt.

Jefferson echoed the same themes, concluding his letter to Austin with a prophetic and tragic warning about ideologues who would use free-trade absolutism as a “stalking horse to cover their disloyal propensities to keep us in eternal vassalage to a foreign & unfriendly people.” So it was in the Antebellum South.

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After the Nullification Crisis of 1832–33, the founders’ consensus on trade lay in tatters as the South took up the interrelated causes of free trade, slavery, and secession with missionary zeal. Former proponents of the American System like John C. Calhoun reversed their political economy and set out in search of new moral and economic arguments to justify the peculiar way of life maintained by Southern oligarchs, summarized well by Louis T. Wigfall, a United States and then Confederate Senator from Texas:

We are peculiar people, sir! … We are an agricultural people; we are a primitive but civilized people; we have no cities—we don’t want them. We have no literature—we don’t need any yet… We have no commercial marine—no navy—we don’t want them… Your ships carry our produce, and you can protect your own vessels. We want no manufactures: we desire no trading, no mechanical or manufacturing classes. As long as we have our rice, our sugar, our tobacco, and our cotton, we can command wealth to purchase all we want from those nations with which we are in amity, and to lay up money besides.

Great Britain was intent on keeping the United States within the colonial system of British free trade whereby outlying provinces provided raw materials to the mother country in exchange for high-value-added goods. Over 90% of Britain’s cotton imports came from America, material that was essential for maintaining Britain’s dominance as the world’s largest textile exporter. The British also benefited immensely from their monopoly on selling manufactured goods back across the Atlantic. In the years prior to the Civil War, Britain sought to keep America dependent as a second-rate, agricultural power and stunt its industrial and military development, while ensuring the longevity of the British Empire.

During this period, British liberals developed a theology of free trade to justify their nation’s policy. Under the leadership of men like Richard Cobden and publications like The Economist, British free trade—far more radical than anything envisioned by Adam Smith—became the credo for a utopian globalism. In an 1846 speech, Cobden articulated the new orthodoxy:

I believe that the physical gain will be the smallest gain to humanity from the success of this principle. I look farther, I see in the Free Trade principle that which shall act on the moral world as the principle of gravitation in the universe—drawing men together, thrusting aside the antagonism of race, and creed, and language, and uniting us in the bonds of eternal peace.

As American Compass’s Wells King has observed, the political economists of the American School “rebutted the arguments of these ‘British School’ advocates for free trade … and outlined policies to protect America’s interests from what they deemed to be hostile British policy.” In 1851, Henry Carey, leader of the American School and chief economic advisor to Abraham Lincoln, warned that the purpose of British free trade policy was to “secur[e for] the people of England the … monopoly of machinery” and proposed support for infant industries to “break down this monopoly.”

But British ideology was a soothing balm to the Southern conscience. Leaders in the South were eager to trade not only their cotton, but also the independence secured by America’s founders for cheap foreign manufactured goods. Moreover, they depended on a steady—and affordable—supply of food and clothing from the agricultural Midwest for their slaves, which they feared might disappear if the North were to fully embrace the American System, creating manufactories and stimulating demand for food and clothing that would price the South out of the market and break the economic viability of slavery. “Why is it,” Carey asked in an 1869 letter, “that British free trade doctrines are so universally popular among men who believe in the divine origin of slavery… among foreign agents… and among the dangerous classes throughout the Union?”

The South’s ideological commitment on these issues is most obvious in its bizarrely explicit repudiation of the American System in its constitution. As historian Michael Lind has noted in his book, Land of Promise, the Confederate Constitution of 1861 generally mirrored the U.S. Constitution but made notable insertions. Its Article I, Section 8, Clause 1 authorizes Congress to “to lay and collect taxes” and so forth, as in the American original. But the drafters inserted specific provisions that “no bounties [subsidies] shall be granted from the Treasury; nor shall any duties or taxes on importations from foreign nations be laid to promote or foster any branch of industry.” Likewise, Clause 3 copies the U.S. Constitution’s same clause authorizing Congress “to regulate commerce with foreign nations” but rather stridently adds that “neither this, nor any other clause contained in the Constitution, shall ever be construed to delegate the power to Congress to appropriate money for any internal improvement intended to facilitate commerce.”

In a real sense, the Confederacy was America’s first experiment with a free-trade maximalist regime—and it was a spectacular failure. The fatal flaws in its political economy extended beyond the moral abomination of chattel slavery to a foolish refusal to invest in its own productive capacity. The South’s GDP looked impressive on paper—cotton, rice, sugar, tobacco—but it had no ability to harness its entrepreneurial energies for military conflict. Indeed, alongside the tariff- and subsidy-specific prohibitions, its constitution also departed from ours by omitting reference to “perfect union,” “common defence,” and “general welfare” from the preamble. It was thus both constitutionally and economically incapable of securing the common good of its citizens—and able to maintain itself only with the help of a hostile foreign power. Fortunately, this made it no match for a nation that had spent decades developing its industry and finance.

Abraham Lincoln had always been an old-fashioned tariff man. When on the stump for the Whig congressman Henry Clay, his beau-ideal of a statesman and the leading proponent of the American System, Lincoln proclaimed: “Give us a protective tariff and we will have the greatest nation on earth.”

Lincoln’s Republican Party lived up to his promise. As both Buchanan and Lind show in their histories of the period, the Whig Party’s and then the GOP’s embrace of the American System helped the United States to smash the economic foundations of the British imperium and slaveholding Confederacy and established the United States as the world’s great industrial power, ushering in nearly half a century of innovation, prosperity, and Republican rule. Economic growth soared to over 4% annually during this period between the Civil War and World War I as Americans rallied behind the banner of “Protection to Home Industry.” The program was so successful that industrialist Joseph Wharton founded what would come to be called Wharton School of business at the University of Pennsylvania in 1881 to promote the political economy of the American School, which he believed was responsible for America’s freedom, greatness, and prosperity.

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While the United States has assumed the position of established power that Great Britain once held, and now faces its own challenge from a rising China, it is the former power and the modern challenger that in some respects have most in common. Like Great Britain in the 19th century, China espouses the language of free trade and free markets in official propaganda while profiting from ruthless industrial sabotage: currency manipulation, dumping, and a dependence on slave labor. Now, as then, merchants in the American elite would put their own financial interests over the national interests and conduct business as usual with a foreign adversary and buttress its economic system. Proponents of cheap labor and foreign goods have always existed, for reasons of both self-interest and ideology. But the American tradition established by great statesman like Hamilton, Clay, and Lincoln demonstrates the superiority of the American System and provides a blueprint for today.

We cannot return to the halcyon days of mid-20th-century manufacturing or the 50–60% tariff schedules of the Industrial Revolution, but we can learn the lessons of history and apply the principles of the American School to our own circumstances—after all, unlike other, more idealistic schools of economic thought, the American System was forged prudentially through experience and can be tailored to fit our unique challenges. “In so complicated a science as political economy,” Jefferson wrote to Austin, “no one axiom can be laid down as wise and expedient for all times and circumstances.”

A constitutional government, limited but strong, has a role in pursuing bold projects in nuclear energy, secure wireless communications, semiconductors, biotechnology, and more to guarantee our independence from the Chinese Communist Party for essential supplies and our global economic and technological leadership. These projects will also strengthen our middle class, which has been gutted by decades of deindustrialization and is now experiencing real wage declines as the American economy struggles with inflation.

Past performance is no guarantee of future success, as the saying goes. But any look back along the path that our nation has travelled must conclude that the American System has served us well, and that those times when we have strayed from it have been for the worst reasons and delivered the worst results. It is the free traders whose forbearers lost the argument badly, and rightly. In defense of their current position, they will need something new.

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This essay was adapted from a speech that Burtka delivered at the National Conservatism Conference in Miami, FL, on September 11, 2022.