Here’s the third in my series on Curtis Ellis’s effort to defend protectionism.
Editor, American Greatness
When he argues that American economic growth in the 19th century was fueled by restrictions on imports, Curtis Ellis (in “An American System for America Prosperity,” March 18) confuses correlation with causation. The U.S. economy did indeed grow impressively during many of the years when Henry Clay’s protectionist “American System” – a ‘system’ highly praised by Ellis – was in place. But this fact is insufficient evidence that protection promotes growth.
First, despite its protectionism, the U.S. economy throughout the 19th century was largely free of government intervention – including, readers of American Greatness will be interested to learn, being free of restrictions on immigration. As noted by Dartmouth economist Douglas Irwin in his monumental history of U.S. trade policy, “the United States had an unusual policy mix: while it blocked the importation of some foreign goods, it offered virtually unimpeded entry to people, capital, and ideas into the country from abroad. In this sense, the United States was a very open economy in the nineteenth century.”*
It’s hardly surprising that, when left free, a people as entrepreneurial as Americans innovate and do commerce in ways that propel standards of living upward. And because America is a large country in both geography and population, the drag on economic growth created by obstacles to foreign trade was swamped and masked (although not eliminated) by the dynamism and enormous growth that was powered by that era’s economic freedom on the domestic front.
Common sense and economic theory tell us that the people of a nation cannot grow prosperous as a result of their government artificially restricting their access to goods and services. And sure enough, careful studies find that 19th-century U.S. economic growth was not fueled by protectionism. In his classic 1888 The Tariff History of the United States, economist Frank Taussig reached this conclusion:
In the main, the changes in duties have had much less effect on the protected industries than is generally supposed. Their growth has been steady and continuous, and seems to have been little stimulated by the high duties of 1842, and little checked by the more moderate duties of 1846 and 1857. Probably the duties of the last-mentioned years, while on their face protective duties, did not have in any important degree the effect of stimulating industries that could not have maintained themselves under freedom of trade….
We often hear it said that any considerable reduction from the scale of duties in the present tariff … would bring about the disappearance of manufacturing industries, or at least a disastrous check to their development. But the experience of the period before 1860 shows that predictions of this sort have little warrant…. In general, the extent to which mechanical branches of production have been brought into existence and maintained by the protective system is greatly exaggerated by its advocates; and even the character and direction of their development have been influenced less than, on grounds of general reasoning, might have been expected.**
What about later in the 19th century? After carefully reviewing the evidence, Doug Irwin concluded that there are
reasons to believe that import duties may have detracted from US economic performance. As already noted, tariffs on capital goods made investment spending more costly and less efficient. The high cost of basic iron and steel hampered the development of downstream industries, such as tinplate, and raised the cost of construction and transportation projects. In addition, protection tended to encourage the survival of smaller, less efficient firms in a given industry rather than larger, more efficient enterprises, thereby reducing an industry’s average productivity ….
In sum, it is difficult to make the case that high import tariffs were an important factor driving late nineteenth-century US economic growth.***
Taussig’s and Irwin’s conclusions square with Nobel-laureate economic historian Douglass North’s finding that “on balance, it is doubtful if the tariff promoted American industrialization much more rapidly than would have occurred in its absence, and it is even more doubtful that it resulted in any net addition to national income over this period.”****
None of the above is news to any informed economist. Yet nor will these facts persuade economic nationalists, whether left or right, of the folly of trying to enrich a nation by restricting trade; their minds are closed. But open-minded people must not be gulled by faulty historical tales into supporting protectionism.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
* Douglas A. Irwin, Clashing Over Commerce: A History of US Trade Policy (Chicago: University of Chicago Press, 2017), page 279.
** Frank William Taussig, The Tariff History of the United States (New York: G.P. Putnam’s Sons, 1888), pages 153-154.
*** Douglas A. Irwin, Clashing Over Commerce: A History of US Trade Policy (Chicago: University of Chicago Press, 2017), page 284.
**** Douglass C. North, “The United States in the International Economy, 1790-1950,” in American Economic History, Seymour Harris, ed. (New York: McGraw-Hill, 1960), page 199.