Here’s a letter to a new correspondent.
Mr. K__:
Thanks for your email.
You write:
What’s wrong with the story of America’s economy growing because of tariffs? I was taught that it produced the great advance in the 1800s and never heard any different until my brother recommended your blog.
You’re hardly the only person to have been taught this fable, but it is, in fact, a fable.
First, the historical evidence from 19th-century America contradicts this protectionist account. See the work, among others, of Dartmouth economist Douglas Irwin as well as that of Phil Magness. The impressive growth of the U.S. economy in the 19th century was real, but it occurred despite, rather than because of, protective tariffs. Indeed, on page 284 of Clashing Over Commerce, his 2017 magisterial history of U.S. trade policy, Irwin argues that
import duties may have detracted from US economic performance…. [T]ariffs 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.
Second, this protectionist thesis is at odds with historical evidence more generally, which shows that the freer is trade, the faster is economic growth. If protectionism fuels economic growth, India would have boomed under the protectionism imposed on it by the Nehru government, and Cuba would have boomed under the protectionism imposed on it by the U.S. government.
Third, protectionism is the theory that to subtract is to add – that less creates more – that people’s access to goods and services is increased by restricting people’s access to goods and services. If greater abundance really is produced by artificially restricting our access to goods and services, why should the government restrict our access only to goods and services that happen to be supplied from outside of our political borders?
Were the protectionist fable of 19th-century America true, the U.S. government ill-served Americans by not thinking and acting with sufficient boldness. In addition to restricting Americans’ access to imports, Washington should have ordered each state to restrict its citizens’ trade with citizens of other states. The national government ought also to have imposed punitive taxes on any and all innovations that improved economic productivity: After all, when, say, Carnegie Steel increased through innovation the amount of steel its factories produced in a week, the resulting lower price of steel affected other American steel producers – and American aluminum producers – in exactly the same way as would an increase in steel imports.
Unless you believe that America’s economy would have boomed even better had the government obstructed Americans from accessing not only imports, but also the additional goods and services that flowed forth from rising domestic economic productivity, you should reject the idea that America’s economic growth was fueled by protectionism.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
