It is not surprising that the US has had a history of protectionism.
The US has had a history of protectionism, and while Britain is a country that has been committed to free trade for most of its history, the US has not. The tariff wars of President Donald Trump are therefore playing out in a very different way on the other side. There is also no guarantee that the domestic opposition to tariffs will be powerful enough to stop him.
Britain’s economic and political landscape is still heavily influenced by a battle that occurred nearly 200 years back over the free-trade issue. After a bitter battle over Corn Laws that imposed high tariffs on import food in order to protect UK landowners led to the rise of the Liberal Party, the debate about the Corn Laws was settled. The policy of free-trade was also widely supported by workers and manufacturers.
The triumph of free-trade was a major factor in Britain’s dominance of the global economy during the nineteenth century. The British public is still very supportive of free trade.
Many American politicians of the nineteenth century, however, believed that US industries needed to be protected from their more efficient competitors. Alexander Hamilton was the first Treasury Secretary of America and one of the US Constitution’s authors. He introduced tariffs to the US in 1789. Hamilton claimed that the “baby industries” of America needed to be protected from foreign competition.
US manufacturers had already surpassed British competitors by the turn of the 20th century. However, protectionism remained the cornerstone of American economic policy. The growth of America’s large corporations was driven by the expansion of the US domestic market, not the exports abroad.
US import tariffs were among the highest on the planet between 1861-1933, averaging 50%. Nearly half of the government’s revenue comes from tariffs. After much resistance, federal income tax was only introduced in 1913.
Postwar Turn
The US began to promote free trade at the close of World War II. Even then, the political backing was not strong. The US Congress rejected in 1948, the International Trade Organization proposal that would have regulated the international trade. The Bretton Woods talks that led to the creation of the World Bank, the International Monetary Fund and the World Bank had included this proposal. It also gave the dollar a dominant role in global economics.
It was political necessity, not economic gains that led the US to endorse free trade. The cold war was in full force, and the US realized that it needed to support the economies of Europe and Japan to combat the communist appeal.
The political costs of more imports were low, as American industry was dominating the global economy. The potential for selling more American products abroad seemed promising.
This began to shift in the 1970s due to the rise of Japanese automakers. The US agreed with Japan to a cap of 1,68 million vehicles per year on the exports from Japan.
After the WTO
The US, however, was the main driver of trade liberalisation. Republicans and Democrats both endorsed globalisation and urged the expansion of economic deregulation and free trade globally.
The World Trade Organization was established in 1995 by President Bill Clinton. This was the year that trade negotiations were given full legal standing for the very first time. Clinton had planned to hold talks in Seattle, but the plan was cancelled in 1999 after trade unionists’ and environmentalists’ demonstrations caused Seattle to become paralysed.
In 2001, the next meeting took place in Doha (Qatar), where protests were not allowed. The aim was to start discussions to expand trade liberalisation into agriculture and services. However, the most significant result was China’s admission to WTO. This gave it access to US and European market.
China’s manufacturing industry had an enormous advantage over US competitors. China’s surplus in trade with the US increased (meaning that it sold to America more than it purchased from them), and US manufacturing jobs declined.
The economists may have argued that the overall benefits of lower-cost goods to US consumers outweighed costs for workers in certain industries. However, there was a political price to pay.
China has surpassed America as a global manufacturing leader.
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Trump was the one who recognized the chance this presented for the Republican Party to be the champion of the white working-class. They felt abandoned by Democrats. Trump’s high tariffs may not be successful in restoring US dominance of manufacturing and “reshoring”. It does not, however, mean that it’s unpopular with those in these heartlands. These are the swing states where Trump was elected in 2024.
The political winds are blowing in Biden’s direction. He is trying to keep the tariffs imposed by Trump on Chinese imports, and introduce subsidies for the manufacturing sector.
It is obvious that if tariff wars lead to a recession in the US it would have a negative impact on politics. The US, however, is less dependent than its rivals such as Japan and China on the international market.
Americans doubt the benefits of free trade. This issue does not rank high among US voters’ concerns, but there is a sharp divide between the two parties on whether Trump’s increased tariffs would benefit or hurt the US economy.
Democrats will likely focus on economic domestic issues, such as protecting social security or boosting income and jobs. The WTO is effectively ineffective, and it’s unlikely that we will return to an era of global trade agreements.
Britain is especially vulnerable, as it has one of the openest economies on the planet. The US would suffer a disproportionate economic and political cost if a trade conflict were to occur. This is something the President will understand.
