While Britain has for the most part had a strong commitment to free trade, it’s a very different story in the US, which has a long history of protectionism. This means that President Donald Trump’s tariff wars are playing out very differently politically on his side of the Atlantic. And there is no certainty that domestic opposition will be strong enough to curb his enthusiasm for using tariffs as a weapon.
Britain’s political economy is still shaped by the battle over free trade that took place nearly 200 years ago. The bitter debate over the Corn Laws, which put high tariffs on imported food to protect UK landowners, led to a political triumph for the new Liberal party. It also led to wide support among working people and manufacturers for a policy of free trade.
Britain’s domination of the world economy in the 19th century owed much to the triumph of free trade. And the British public still largely backs free trade today.
In contrast, many American politicians in the 19th century believed that US industry needed protection from its more efficient rivals. It was Alexander Hamilton, one of the authors of the US constitution and America’s first treasury secretary, who introduced tariffs in 1789. Hamilton cited the need to protect America’s “infant industries” from foreign competition.
By the end of the 19th century, US manufacturers had surpassed their British rivals. Protectionism, however, remained a cornerstone of American international economic policy. It was the expanding US domestic market and not exports to foreign countries that was driving the growth of America’s giant corporations – which were closely allied with the ruling Republican party.
Between 1861 and 1933, US tariffs on foreign imports averaged 50% – among the highest in the world. Tariffs also contributed nearly half of all government revenues. Federal income taxes were only introduced, after much opposition, in 1913.
The postwar turn
It was at the end of the second world war that the US moved to embrace free trade. But even then, political support was weak. In 1948 the US Congress rejected the proposed International Trade Organization, which would have regulated international trade. This had been part of the Bretton Woods negotiations that set up the World Bank and International Monetary Fund, and gave the dollar the leading role in the global economy.
The determining factor in the US endorsement of free trade was not economic gain, but political necessity. With the cold war in full swing, the US understood the need to help Europe and Japan’s economies flourish in order to resist the appeal of communism.
With American industry – greatly expanded by war – dominating the world economy, the political cost of allowing more foreign imports was low. And the potential benefits of selling more American goods abroad looked promising.
But this began to change in the 1970s, driven by the success of Japanese car manufacturers. In 1981 the US negotiated with Japan’s carmakers a voluntary cap on exports to the US of 1.68 million cars per year.