Among the most destructive of the many zombie-like myths that continue to haunt the ideological and political landscape is the one that insists that because the U.S. government did not in the 19th century follow a policy of free trade, and because the American economy in the 19th century did grow very impressively, Uncle Sam’s tariffs are therefore responsible for – or at least helped to promote – this impressive economic growth.
Dartmouth economist Doug Irwin has done the definitive research on this specific question and finds the assertion indeed to be a myth. Here’s a version of Doug’s pioneering paper, from 2000, on the matter. And here’s the abstract of Doug’s paper:
Were high import tariffs somehow related to the strong U.S. economic growth during the late nineteenth century? This paper examines this frequently mentioned but controversial question and investigates the channels by which tariffs could have promoted growth during this period. The paper shows that: (i) late nineteenth century growth hinged more on population expansion and capital accumulation than on productivity growth; (ii) tariffs may have discouraged capital accumulation by raising the price of imported capital goods; (iii) productivity growth was most rapid in non-traded sectors (such as utilities and services) whose performance was not directly related to the tariff.
Surprising no one, the woefully economically ignorant Steve Bannon is among the many people who today trumpet the myth that tariffs promote economic growth. Fortunately, Doug has a superb op-ed in today’s Wall Street Journal warning people to dismiss such economic misinformation that spills from the mouths and keyboards of Bannon and other economic nationalists. Some slices:
Mr. Bannon’s simple story is historically and economically off base. As Treasury secretary, Alexander Hamilton wanted moderate tariffs, not protectionist duties. In his day, tariffs accounted for nearly all federal revenue. He wanted to keep imports flowing so he could finance the federal government’s Revolutionary War debt and secure the young nation’s credit. President Polk, far from being a protectionist, was a small-government Democrat. He slashed tariffs dramatically in 1846.
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Economic nationalists always conveniently skip the story of the 1930 Smoot-Hawley tariff, probably because it doesn’t fit their narrative. Smoot-Hawley—passed by Republicans and signed by a Republican president—didn’t cause the Great Depression, but the trade wars it inspired certainly damaged the world economy and backfired badly against the United States.
More important, America didn’t boom during the 19th century because it was a closed economy. The U.S. industrialized rapidly between 1833 and 1860, when tariffs were being cut. While tariffs were high after the Civil War, the U.S. was open to foreign capital inflows. It was also open to the best industrial technology from Britain and Germany, and—importantly given Mr. Bannon’s assertion that the U.S. had control of its borders back then—to massive immigration. The textile mills and steel furnaces of the late 19th century were largely staffed by foreign-born workers. As in our own era, many native-born Americans weren’t interested in doing tedious and grinding jobs at low wages.
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Economic nationalists say their protectionist program will ignite an economic boom. In fact their poor understanding of history will damage the American economy and leave the country weaker.
(By the way, in November Doug’s long-awaited book on U.S. trade-policy history – Clashing over Commerce – will be published by the University of Chicago Press. I strongly recommend that you do as I’ve done and pre-order it here.)
Doug wisely mentions, in his op-ed, 19th-century America’s policy of largely open immigration. On this very point see this important paper by Cecil Bohanon and T. Norman Van Cott.
