Can Trump’s Nationalist Trade Policy Really Make America Great Again?

Can Trump’s Nationalist Trade Policy Really Make America Great Again?

© Jim Urquhart / Reuters

Presumptive GOP presidential nominee Donald Trump continues to dominate the national psyche.

Just over the past week, the likes of physicist Stephen Hawking and President Obama have attacked the billionaire-turned-politician. The former can grasp the mysteries of the universe but can't understand The Donald's appeal to millions of Americans. The latter was reduced to a stuttering mess trying to deliver veiled attacks against Trump.

Much has been said about Trump's ideas on immigration, the wall and taxes. But as much as any of those, the core of Trump's platform is his trade policy, which could be labeled nationalist or protectionist depending on your political bent. Trump has argued that the threat of steep import tariffs and the calling out of currency manipulation will level the playing field with the likes of China and Japan and lessen America's trade deficit (which was $37.4 billion in April).

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To many, this is a shocking rebuttal of the post-war rise of globalization. And many have recalled the painful impact of the Smoot-Hawley tariffs of the Great Depression. But this narrow view misses America's long history with protectionism, the positive impact tariffs had on its rise to power and the fact that no less than Alexander Hamilton pushed protectionism as a way to elevate the United States over its foreign rivals.

Let’s briefly look at that history. The very first major act passed by the United States under its present constitution was the Tariff of 1789, followed by the Tariffs of 1790 and 1792, designed by Hamilton to protect the new country's "infant industries" and fund the federal government. His core argument, outlined in his 1790 Report on Manufactures, was that enterprise needed subsidies or tariffs to grow sufficiently to achieve economies of scale necessary to compete with foreign competitors.

This policy started with Hamilton and was carried forward and expanded in the years following the Civil War. This was a period of rapid industrial development in the United States, rebuilding the country after a years of fighting and elevating it to superpower status both economically and militarily.

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Among the most aggressive proponents of tariffs were Republican Presidents Lincoln and McKinley. Lincoln sternly opposed free trade and leaned on tariffs to raise money for his efforts against the Confederates. McKinley was elected on a high tariff/protectionist platform in response to the economic weakness of the 1890s, which was marked by low inflation, falling profits, high unemployment and labor unrest.

McKinley, like Hamilton before him, believed that protectionism was necessary for the success of the United States and to secure its role as a global leader. In 1892, he told an audience in Boston:

"Protection is but the law of nature, the law of self-preservation, of self-development, of securing the highest and best destiny of the race of man."

With America's economy rebounding, McKinley spoke of easing tariffs with select countries based on reciprocity agreements — echoed by Trump's "fair trade" ideas — before an anarchist assassinated him in 1901.

It was only after World War II, when factories across Asia and Europe were decimated and the foreign threat to America's factories had faded, that Americans indulged in the promise of free trade by supporting the General Agreement on Tariffs and Trade (GATT) — the predecessor of the World Trade Organization (WTO).

This mimicked the Britain's adoption of free trade in the mid-1800s, something that President Grant commented on at the time:

"For centuries England has relied on protection, has carried it to extremes and has obtained satisfactory results from it. There is no doubt that it is to this system that it owes its present strength. After two centuries, England has found it convenient to adopt free trade because it thinks that protection can no longer offer it anything. Very well then, Gentlemen, my knowledge of our country leads me to believe that within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free trade."

Britain, after watching in horror as it lost its industrial preeminence to the United States, re-introduced tariffs in the 1930s. But it was too late.

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Now let’s come back to the present day. There have been advantages to open trade. Americans have benefited from cheap imported goods, increased competition and lower credit costs. But our manufacturing base has been hollowed out as Europe and Asia rebuilt their manufacturing bases by the 1970s. More recently, China's rise over the last 20 years, enabled by using its own version of Hamilton's ideas (including state-owned enterprises, currency manipulation, loan subsidies and trade barriers), has accelerated the trend.

Trump's rise indicates the pendulum of political support is swinging back toward nationalism and tariffs.

Put simply: We traded jobs and economic security for HDTVs, toys and low-cost mortgages. With our homes so full of stuff that self-storage units are a booming business, we want our mid-skill manufacturing jobs back.

Trump's appeal is that he clamors for a return to our nationalist past, something I've discussed before — a position also embraced by some of America's greatest leaders, despite criticisms that Trump doesn't know what he's talking about.

To put it simply to Mr. Hawking: It's the economy, stupid.