Historical aspects of U.S. trade policy.

• Author: Irwin, Douglas A.

While international trade and trade policy continue to be as controversial as ever, the United States has been committed for more than half a century to maintaining an open market. It was not always that way. For most of U.S. history, the United States imposed fairly substantial barriers to imports in an effort to protect domestic producers from foreign competition.

For the past several years, I have been investigating the historical aspects of U.S. trade policy as part of the NBER's research on international trade and the development of the American economy. The purpose of this research has been to study the economic effects of past trade policies on the U.S. economy and understand the political and economic forces that have shaped those policies. (1)

Early American Trade Policy

To say much about the stance of a country's trade policy requires, at a minimum, data on the average tariff level. Unfortunately, standard U.S. trade statistics only started calculating average tariff figures from 1821. To fill the gap in the historical data, I gathered information from early government documents to calculate the average tariff on total and dutiable imports for the period from 1790 to 1820. (2) These figures reveal that tariffs started out at relatively low levels, about 15 percent in the 1790s, but rose thereafter to generate additional revenue and help finance the War of 1812. Because re-exports were a significant component of U.S. foreign trade at this time, my study suggests that it is important to adjust for drawbacks (rebated tariff revenue on re-exported goods) to determine the true level of the tariff.

One of the classic, early statements on U.S. trade policy is Alexander Hamilton's Report on Manufactures in 1791. This report called for government support of manufacturing through subsidies and import tariffs, but it is commonly believed that the report was never implemented. Although Hamilton's proposals for bounties (subsidies) failed to receive support, my research has shown that Congress adopted virtually every tariff recommendation put forward in the report by early 1792. (3) These tariffs were not highly protectionist duties, because Hamilton feared discouraging imports, the critical tax base on which he planned to fund the public debt. Indeed, because his policy toward manufacturing was one of limited encouragement and not protection, Hamilton was not as much of a protectionist as he is often made out to be. Hamilton's moderate tariff policies found support among merchants and traders, the backbone of the Federalist Party. But disappointed domestic manufacturers shifted their political allegiance to the Republican Party, led by Thomas Jefferson and James Madison, both of whom were willing to consider much more draconian trade policies aimed at Britain.

Indeed, as president, Jefferson was responsible for one of the most unusual policy experiments in the history of U.S. trade policy. At his request, Congress imposed a nearly complete embargo on international commerce from December 1807 to March 1809. The Jeffersonian trade embargo provides a rare opportunity (or natural experiment) to observe the effects of a nearly complete (albeit short-lived) elimination of international trade. Economists usually describe the gains from international trade by comparing welfare at a free-trade equilibrium with welfare at an autarky equilibrium. In practice, such a comparison is almost never feasible because the autarky equilibrium is almost never observed, except in unique cases such as this one. By mid-1808, the United States was about as close to being fully shut off from international commerce as it has ever been during peacetime.

Monthly price data allow us to observe the dramatic impact of the embargo: the export-weighted average of the prices of raw cotton, flour, tobacco, and rice, which...