From Edward III to Alexander Hamilton: history’s biggest protectionists

Guardian Web |

For steel and aluminium read wool. For trade rivalry between the US and China read the struggle between England and the Low Countries. For Donald Trump read Edward III. There is nothing new about the use of protectionism as a policy tool.

England in the 14th century was in a similar position to a poor developing country today. It produced a lot of a staple commodity – wool – which it exported across the Channel to be turned into cloth by Flemish weavers.

Edward wanted a slice of this lucrative business so he imposed controls on wool exports – thus depriving the Low Countries producers of the raw materials they needed – and imposed a complete ban on imports of cloth.

For good measure, Edward was the first monarch to see the propaganda benefits of a Buy English campaign. He and his courtiers wore only English cloth and the king insisted that his lord chancellor sit on a cushion made of English wool. Hence the woolsack, still used today.

This was merely the start of five centuries of protectionism that only ended in 1860 when – with Britain’s manufacturers dominating the world – tariffs were finally scrapped. In the intervening period, Henry VII and Elizabeth I took further steps to nurture the fledgling textile sector, the Navigation Acts were passed to ensure that colonies could only trade with Britain, and tariffs on imported manufactures were kept high. In 1820, half a century or more after the start of the Industrial Revolution, the average levy on imported manufactures was 45-55%, more than double the 20% imposed by France.

Protectionism worked for Britain. It put Flemish and Indian textile producers out of business and held back the growth of industry in the American colonies, which, as far as politicians in London were concerned, were there to provide the commodities that British factories would turn into finished goods. This approach was summed up by Pitt the Elder, who said in 1770 that the colonies should “not be permitted to manufacture so much as a horseshoe nail”. Six years later, Adam Smith came to pretty much the same conclusion in The Wealth of Nations, in which he said America should concentrate on growing agricultural products and leave manufacturing to the mother country.

Washington’s support for free trade started to wane when its industrial supremacy was threatened by Japan in the 1980s

Once free of British rule, the newly created United States took a rather different view. In 1791, the country’s first Treasury secretary, Alexander Hamilton, produced a report for Congress that made the case for supporting America’s “infant industries” from foreign competition.

Hamilton was not just the founder of US protectionism: he also proposed the first modern industrial strategy. Learning from Britain, he called for protective tariffs, bans on imports and curbs on exports of strategically important raw materials. But he also wanted patent protection for inventions, product regulation and investment in infrastructure.

In the last decade of the 18th century, the US was not ready for this radical blueprint. Tariffs were introduced but at too low a level to allow nascent American firms to compete internationally.

But over the next 100 years, protectionism was ratcheted up. In the second half of the 19th century, when America was industrialising rapidly, tariffs on manufactured imports stood at 40-50%, higher than anywhere else in the world.

The next phase of American protectionism came in 1930 when the Smoot-Hawley tariff triggered a domino effect across the developed world. When other countries found themselves frozen out of the US market by a 48% average industrial tariff, they responded in kind. The tit-for-tat protectionism did not cause the Great Depression, but it certainly deepened and lengthened it.

By the end of the second world war the US had achieved, like Britain a century before, global economic dominance. This necessitated a change of strategy in favour of liberalising global markets so that US producers could take advantage of being more efficient than those of rival countries.

But Washington’s support for free trade was contingent on the US remaining global top dog. It started to wane when its industrial supremacy was threatened by Japan in the 1980s. The even bigger threat posed by China has seen the country return to its protectionist roots.

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