Tariffs: A Return to the American School of Economics?

Feb 03, 2025

In an era of global trade debates, an old economic tool is making waves on social media: tariffs. Once the cornerstone of American economic policy, these import taxes are sparking renewed interest. But what’s behind this resurgence, and why did tariffs play such a crucial role in U.S. history?
Before diving into the modern debate, let’s take a step back. I’m not here to argue for or against tariffs, but rather to explore their historical context and why they’re reappearing in today’s economic discussions.

The American Comeback: Tariffs and the Legacy of Economic Nationalism

If there's one thing Americans love, it's a good comeback story. Whether it's Rocky getting back in the ring or Michael Jordan returning to the Bulls, sometimes the old ways still have some fight left in them. Recently, on X (formerly Twitter), people have been revisiting tariffs as a potentially sensible strategy. The argument? Tariffs aren't just some random economic tool pulled from a dusty playbook. They're actually a return to what made the U.S. an industrial powerhouse in the first place: The American School of Economics.

What is the American School of Economics?

The American School isn't some Ivy League seminar where you learn how to invest in avocado toast startups. This was an actual economic philosophy dating back to George Washington and Alexander Hamilton. It had three main principles:

Protect domestic industry: Use tariffs on imports and subsidies for American producers to shield emerging sectors.
Invest in infrastructure: Federal funding for roads, canals, and schools to unify markets and keep the economy moving.
Create a national bank: Manage credit, stabilize currency, and spur development.

It was an unapologetically pro-America economic strategy, designed to ensure that the United States could stand on its own two feet rather than relying on foreign goods.

Hamilton: The Founding Father of Tariffs

Long before he became a Broadway superstar, Alexander Hamilton was making the case for tariffs. In 1791, at the request of President Washington, Hamilton wrote the Report on Manufactures, arguing that America needed its own industries to be truly independent.

Hamilton wrote:

"For the purpose of [economic] vent, a domestic market is greatly to be preferred… because it is… far more to be relied upon."

Hamilton's report advocated for tariffs not just to protect independence, but also to fund national debt and spur industrial growth.

Jefferson's Change of Heart

Thomas Jefferson and Alexander Hamilton were famously at odds on many issues, including economic policy. Jefferson initially opposed Hamilton's economic plan, preferring an agrarian economy over manufacturing. However, the War of 1812 and the failures of his embargo policy changed his perspective.

In 1816, Jefferson wrote to Benjamin Austin:

"We must now place the manufacturer by the side of the agriculturist."

This shift highlighted the newfound importance of economic independence and domestic manufacturing capability.

Henry Clay, Abraham Lincoln, and the Golden Age of Protectionism

Senator Henry Clay became the biggest cheerleader for what he called "The American System"—a full embrace of tariffs and domestic industry. In his famous 1824 tariff speech, Clay framed protectionism as a matter of national unity:

"The genuine American System... is the only means of preserving our prosperity and of landing us safely in the haven of our collective happiness."

Abraham Lincoln, following in Clay's footsteps, was also a staunch advocate of tariffs. He famously declared:

"Give us a protective tariff and we will have the greatest nation on earth."

And, for good measure:

"The abandonment of the protective policy... must produce want and ruin among our people."

Even Teddy Roosevelt chimed in later with:

"Thank God I am not a free trader."

Roosevelt saw tariffs as a moral policy to deter what he called "plutocracy".

The Fall of the American System and the Rise of "Free Trade"

For over a century, tariffs were a central part of U.S. economic policy. The Morrill Tariff of 1861 marked a peak in protectionist policies. However, things started to change in the mid-20th century.

The post-World War II Bretton Woods agreements (1944) and the General Agreement on Tariffs and Trade (GATT) in 1947 institutionalized trade liberalization. By the late 20th century, under both Republican and Democratic administrations, the U.S. started demolishing trade barriers under the banner of "free trade." The North American Free Trade Agreement (NAFTA) in 1994 further accelerated this trend.

The idea was that opening markets would lead to lower prices and greater prosperity. However, this shift also brought challenges:

Factory closures in certain sectors
Wage stagnation for some workers
An increasing trade deficit
Revenue losses for some local and state governments

Are Tariffs Making a Comeback?

With the decline of American manufacturing and the rise of foreign competition, tariffs are now being reexamined. And X (formerly Twitter) is buzzing with opinions.

One user quipped:

"Free trade is great until you realize your town's biggest employer is now a Dollar General."

Another pointed out:

"Tariffs are just the economic version of home-field advantage. Why would you willingly give that up?"

The Verdict: Are Tariffs Sensible?

Tariffs aren't a magic bullet, and not all of them are created equal. The debate over their effectiveness is complex and ongoing. However, the idea that strategic tariffs can strengthen domestic industry isn't some radical new theory—it played a significant role in how the U.S. became an economic superpower.

It's important to note that tariffs also had drawbacks historically, such as sectional tensions exemplified by the 1828 "Tariff of Abominations". Modern economists often argue that free trade brings overall benefits through increased efficiency and lower consumer prices.

While the debate continues, one thing is clear: Tariffs have a long and complex history in American economic policy. Understanding this history can provide valuable context for current discussions on trade and economic nationalism.

TLDR

The American School of Economics, championed by early leaders like Hamilton and Lincoln, used tariffs to protect and grow U.S. industries. This protectionist approach helped build America into an economic superpower. While the U.S. shifted towards free trade in the 20th century, some are now reconsidering tariffs as a tool for economic nationalism. The debate continues, with supporters arguing tariffs can strengthen domestic industries, while critics point to potential drawbacks and the benefits of free trade.

Sources:

Bils, M. (2004). "What Determines the Strength of a Country's Comparative Advantage?" Journal of Economic History, 64(2), 459-497.

Hamilton, A. (1791). Report on Manufactures. Retrieved from https://founders.archives.gov/documents/Hamilton/01-10-02-0001-0007

Peterson, M. D. (1970). Thomas Jefferson and the New Nation: A Biography. Oxford University Press.

Heidler, D. S., & Heidler, J. T. (2010). Henry Clay: The Essential American. Random House.

Lincoln, A. (1847). "Fragment on the Tariff". Retrieved from https://quod.lib.umich.edu/l/lincoln/lincoln1/1:458?rgn=div1;view=fulltext

Morris, E. (2001). Theodore Rex. Random House.

Taussig, F. W. (1931). The Tariff History of the United States. G.P. Putnam's Sons.

Irwin, D. A. (1995). "The GATT in Historical Perspective". American Economic Review, 85(2), 323-328.

Hufbauer, G. C., & Schott, J. J. (2005). NAFTA Revisited: Achievements and Challenges. Peterson Institute.

Freehling, W. W. (1965). Prelude to Civil War: The Nullification Controversy in South Carolina, 1816-1836. Harper & Row.

Krugman, P. R., Obstfeld, M., & Melitz, M. J. (2018). International Economics: Theory and Policy (11th ed.). Pearson.

X User Michelle Chen is a great resource on Tariffs. Follow her here. This X user is great as well here.

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