In 1796, the first U.S. President George Washington gave an impassioned farewell address. It summed up what he hoped would be U.S. foreign policy as regards both economics and wars. “The great rule of conduct for us in regard to foreign nations,” he said, “is in extending our commercial relations, to have with them as little political connection as possible.”
Thomas Jefferson agreed. He favored peace and free trade, not protectionism and war. So did most of the Founding generation. They learned from Adam Smith the core lesson of economics: expanding the division of labor is a major driver of wealth creation. It doesn’t matter if this happens domestically or internationally: the benefits are the same.
Therefore, they believed, the United States ought to have free trade at home and abroad, with as few interventions as possible. But in so doing, we need to avoid political entanglements that compromise U.S. sovereignty and lead to corruption.
That’s sometimes a difficult balance to keep in real life but the ideal is a great one. We never needed NAFTA to have free trade with Canada and Mexico, and we did not need the World Trade Organization (WTO) to enable trade with the world. A George Washington-style policy would simply enable the freedom to trade at home and abroad, with no quid pro quos or trade pacts necessary at all. Trading was seen as a right, an essential feature of the pursuit of happiness.
To be sure, Alexander Hamilton was an outlier. He was far friendlier to the idea of what was later called industrial policy. He also favored a central bank and debt finance. He wanted tariffs to build the industrial sector and provide revenue. The Jeffersonians and Hamiltonians have argued with each other since those earlier days. And we are having that argument again today.
To be sure, the United States has always vacillated on the issue of free trade. The Civil War itself pitted an industrialized North against an agricultural South that wanted to preserve two incompatible institutions: free trade and slavery. The North wanted something inconsistent too; no slavery but massive intervention to prop up its industrial sector at the expense of consumers and producers. The Northern triumph meant industrial tariffs and the deployment of the war machine in the Spanish-American War, practices that led to the eventual creation of a central bank and the unnecessary escalation of the Great War.
Free trade returned following the war and prevailed until the disastrous Smoot-Hawley tariffs passed by Congress in 1930, which entrenched the economic depression and fueled conflicts. During the Second World War, a new conviction developed among leading statesmen and industrial leaders: following the war, Americans would put a priority on free trade with progressively lower tariffs. The first system was called the General Agreement of Tariffs and Trade (GATT) and it deserves a lot of the credit for the incredible economic growth the U.S. experienced between 1950 and 1965.
A feature of this period was a dramatic change in the locus of decision-making over trade policy. The U.S. Constitution places it firmly in the hands of Congress. But legislation changed that for the duration to be at the discretion of the U.S. executive. The idea here was that the president could be relied upon to pursue the public interest rather than using trade to benefit localized industrial interests. That system worked for decades or seemed to.
After the economic disasters of the 1970s, Reagan came to power with a party united in the cause of free trade, the commitment to which helped win the Cold War. When Eastern Europe, Russia, and finally China embraced enterprise over communist planning and isolation, it appeared for a time that a new birth of peace and free trade was at hand. The trade part of that policy fared well but the peace part did not, as the United States embarked on wild foreign adventures in the Middle East and eventually provoked grizzly attacks on American soil, thus kicking off more wars, interventions, debt, and central control.
It was during this period that vast numbers of Americans began to have fundamental doubts about the regime under which we live. And this opened up opportunities for rebels within and outside the mainline of the two parties to offer radical alternatives. The consensus for free trade began to fall apart.
As a result, there has been a dramatic change in the Republican Party in the 21st century, away from the Reaganite/Jeffersonian defense of free trade and toward protectionism, tariffs, and even the notion of complete autarky.
This constitutes a reaction to the obvious corruptions of globalism in which distant bureaucrats and private companies accumulate power and exercise it over the American population. It also reflects the trauma of the dramatic change in the U.S. industrial base from the 1980s onward. Many people are looking back with regret on the very idea of free trade, particularly that which involved China but also with the entire world.
Trump of course drove a lot of this shift or perhaps he just tapped into a sensibility that was always there. Once he got his bearings after becoming president, he turned heavily to the issue of trade. He broke the precedent of 70 years of U.S. policy. His newly imposed tariffs were not designed for industrial planning nor revenue as such but for a purpose never before cited: purely to balance out the dollar value of trade flows of imports and exports. The tool he used was tariffs against whole classes of goods targeted against entire countries.
The result was truly radical by any standard. It did not rebuild the industrial base or change policies abroad but it did dramatically destabilize expectations concerning what kind of partner the United States would be. Tariffs on imported goods from many countries, not just China, went from an average of 4 percent to 14 percent practically overnight. When you consider how huge this is, and how many industrial interests at home and abroad were affected, you can begin to understand the panic that took place within the establishment.
These tariffs profoundly affected the U.S. relationship with the rest of the world, drawing down the net contribution of imports to U.S. economic life and reducing the percentage of overall GDP attributable to international trade relations. The United States was no longer a reliable trading partner.
Biden has not fully repealed many of Trump’s tariffs—they do earn money for the U.S. government at the expense of Americans and Biden likes that—but the same effort has been made to normalize trade relations to keep the United States from being entirely isolated as trade pacts form all over the world. And now we see efforts from China to restart trade talks on the way toward clawing back the status quo ante.
Is this a good idea? To my mind, the answer is yes, and I’ll tell you why. Every intervention in free trade, every tariff, is ultimately paid by American consumers and businesses. No matter how many times protectionists say that foreign countries are paying the price, it simply is not true.
Interventions in free trade are a form of taxation of Americans, and that’s true whether it is tariffs, quotas, or any other form of barrier. In my view, Trump wasted vast political capital on his tariff policies that he could have otherwise used to tame the Deep State right here at home. Instead of more liberty, the result was nothing but another burden on U.S. business.
To be sure, I have many friends who profoundly disagree with me on this point, particularly as regards China. Why should the United States restart robust trade with a communist regime that seems dead-set on regional domination and subversion of U.S. law?
My response is simply that a trade war will make matters even worse, not better, since there are few if any examples from history in which trade sanctions and barriers prompt internal reforms. They only feed further conflict. That’s the historical record, one very obviously playing itself out in U.S.-Russia relations today.
But what about the U.S. industrial base and jobs? Are we just going to let them continue to slip away until the United States is nothing but a service-based economy ruled by stay-at-home Zoomers and consumers? There are ways to prevent that. The most important is this: we need dramatic tax cuts, deregulation, and a clearing out of the administrative state that lives like a parasite off the productivity of the American people.
I submit to you that if the United States reestablished a genuine free market at home, no country in the world would be able to compete with the productive power we could generate. Make the whole country an enterprise zone! In particular, the war on fossil fuels and small business must end. The corporatist system currently in place cannot compete on a world stage but a genuine free market like what the Founders envisioned would and could.
So yes, you can count me as one of the last of the remaining disciples of George Washington, Adam Smith, Frédéric Bastiat, Milton Friedman, and Ronald Reagan on this point. Government produces nothing; it only saps the energy of the people. That’s true whether it is intervening in the domestic or international operation of American enterprise. I’m at peace with free trade and I think you should be too.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.