Trump’s Protectionist Economic Plan Is Nothing New

The founding fathers advocated taxing imports to protect American manufacturers. Will it work in a modern economy?

A statue of Alexander Hamilton, the first Secretary of the Treasury, stands in front of the Treasury Department in Washington. (Evan Vucci / AP)

In a way, President-elect Donald Trump sees the world the way America’s Founding Fathers did. Like Thomas Jefferson and James Madison, Trump wants to protect American manufacturers by taxing products made overseas and sold in the United States. Alexander Hamilton, the country’s first treasury secretary, wrote to Congress in 1791 in his Report on Manufactures, that “by enhancing the charges on foreign articles, they enable the national manufacturers to undersell all their foreign competitors.” Trump, taking a similar view, said he would slap a 45 percent tariff on imports from China, and a 35 percent tariff on all products that American companies make abroad and try to sell here. “Please be forewarned before making a very expensive mistake!” Trump tweeted last month at American companies considering relocating their factories abroad.

As Trump makes his final picks for positions that will shape the country’s trade policies, it’s clear that he hopes to return the United States to its protectionist past. But the thing is, of course, that the American economy today is far different from Hamilton’s America, which was engaged in a trade war with Britain. Back then, the United States was trying to free itself from a colonial economic relationship with the British monarchy, in which British industries wanted to exploit America’s raw materials, untaxed. The Founding Fathers wanted to encourage their own emerging manufacturing industry, and raising import tariffs provided a way to finance the new government. So the new Congress approved Hamilton’s recommendation to raise taxes on all manufactured steel, iron, and textile imports. The American economy was still small enough that it could grow by focusing inward. The American economy today is a global one, and U.S. companies have had to expand production—and their consumer base—across the world to keep growing.

Trump’s pick for U.S. Trade Representative, Robert Lighthizer, would likely carry out Trump’s protectionist agenda, specifically in negotiating trade deals with Mexico and China. Lighthizer, a trade attorney who was a deputy trade representative under President Ronald Reagan, has made a career out of protecting American steel manufacturers from countries accused of dumping steel into U.S. markets. Though it’s not explicitly illegal for countries to underprice exports, the United States can impose tariffs on foreign companies that are doing so. As an private attorney representing U.S. steel manufacturers, Lighthizer negotiated agreements with foreign steelmakers, such as Japan and South Korea, to restrict their exports or face anti-dumping tariffs. Lighthizer has repeatedly accused China of unfair trade practices, and it’s likely that he will take an aggressive stance toward international trade and imports.

Trump’s choice of economist Peter Navarro to take the new role of trade advisor also reflects a shift toward protectionism. Navarro, a professor at the University of California, Irvine, has attacked China and accused it of waging an economic war against the United States by subsidizing exports, while putting up barriers for American companies that try to do business there.

Claude Barfield, a researcher at the American Enterprise Institute, a conservative think tank in Washington, D.C., is wary that the Trump administration will start trade wars that would ultimately harm the American economy. He says that Trump and Trump’s team share a misguided view that a country that imports more products than it exports is uncompetitive. “That’s just complete nonsense,” says Barfield. “We ran a trade deficit for the last 40 years, at a time when the economy was growing tremendously.” Raising tariffs on imported goods, such as shoes and clothes made in China, will drastically increase prices for American consumers, he adds. And the countries that Trump singles out will more than likely retaliate with higher tariffs on American imports, therefore limiting the market for American companies. “This is a lose-lose scenario,” says Barfield, who is a former consultant to the office of the U.S trade representative.

While Trump’s views of trade resemble those from 200 years ago, even Alexander Hamilton cautioned against raising tariffs so high that they would eliminate healthy foreign competition. His idea was to encourage domestic industry, not protect it, argues Douglas Irwin, an economist at Dartmouth College. Hamilton pushed Congress to increase tariffs on foreign steel, textile and iron manufactures to about 10 percent, far below the 45 percent tax Trump suggested he would add to all products from China. Irwin says Hamilton was skeptical about excessive tariffs “because they sheltered inefficient and efficient producers alike, led to higher prices for consumers, and gave rise to smuggling.” In the Federalist Papers, Hamilton also warned that high taxes on imports would lead to domestic monopolies. So while Trump shares the protectionist economic view of some Founding Fathers, his proposals are even more extreme.