Tariffs Are Nothing New under the Sun: Trump's Tariffs versus Henry Clay's "American System"

Henry Clay, US Senate

Protective tariffs are almost always bad ideas, and yet the public almost always loves them. President Donald Trump’s “America First” campaign philosophy blamed some of America’s problems on international trade deals. He complained that the United States of America’s previous leaders adopted the Transpacific Partnership (NAFTA) and North American Free Trade Agreement because they were weak.

In 1824, Kentucky’s Henry Clay, Speaker of the House of Representatives, gave a three-day (!) speech in the House called "In Defense of the American System." Clay’s admirable goal was to stimulate American industry and commerce. The young nation needed some of the policies that his speech proposed: he wanted to see the federal government develop interstate commerce, especially by financing a canal and river network. He proposed a central bank, a National Bank, which a sovereign nation obviously needed. He didn’t know enough about economics to establish a national bank free from corruption, but that’s a story for another day.

Then, as now, the economic needs of the industrial and agricultural regions collided. Industry was exploding across the northern states, while the South’s agricultural economy largely used cheap slave labor. The South’s farmers thrived on exports, so a trade war would surely hurt them. Northerners believed that the protective tariff would shield their young industries from foreign competition.

Southerners loudly protested against tariffs, and Clay’s speech spent hours defending the tariff against Southerners' argument; for example, he said:

"The loss of the tonnage of Charleston, which has been dwelt on, does not proceed from the tariff; it never had a very large amount, and it has not been able to retain what it had, in consequence of the operation of the principle of free trade on its navigation. Its tonnage has gone to the more enterprising and adventurous tars of the Northern States."

Sometimes, Clay implied that anti-tariff people were just plain stupid:

"Practical men understand very well this state of the case, whether they do or do not comprehend the causes which produce it."

Other than his obvious misogyny (surely women could understand things just as well as men), Clay’s attitude sounds familiar today: he implied that Southerners were foolish, lazy, and unwise. Hillary Clinton made similar disparaging comments during her 2016 campaign, did she not? For example, she put many Trump supporters in a “basket of deplorables.” Clay was saying that more strength and vigor would overcome economic problems, denying that tariffs caused problems. That sounds very much like Donald Trump saying that the United States' trade deals were "weak."

Yet, unlike most political speakers today, Clay disgorged hundreds of facts and figures to support his ideas. Here is one particularly dense example:

"During the first term, commencing with 1817, and ending in the year of the passage of the tariff of 1824, the amount of the value of real estate was, the first year, $57,799,435, and, after various fluctuations in the intermediate period, it settled down at $52,019,730, exhibiting a decrease, in seven years, of $5,779,705. During the first year of 1825, after the passage of the tariff, it rose, and, gradually ascending throughout the whole of the latter period of seven years, it finally, in 1831, reached the astonishing height of $95,710,485!"

I see no reason to think that Clay understood his argument's implications, but, unlike 21^st-century politicians, he at least tried to prove his points. 

Nothing new under the sun! Clay made exhaustive arguments to support an incorrect position. He made fun of conservatives who disagreed with them, implying that they were sluggish, ill-informed and stupid. He pretended that the interests of one part of the country were the same as the interests of another part of the country. He met legitimate disagreements with a combination of factual argument and tasteful but real ridicule.

Still, Clay offered careful factual research and reasoned argument. He tried to show that the country's interests were the same nationwide. That is admirable, in a sense, even if it was probably untrue. To his credit, Clay, although a slaveowner himself, did complain about the institution of slavery, which his speech said would contributed to "aristocracy."

Although slavery was the Civil War’s main cause, southern opposition to tariffs contributed to the South’s feeling that Northerners did not understand their economic needs. In any case, the protective tariff was the United States government’s main revenue source until well into the 20^th century.

Donald Trump, WH portrait

We see a switch today, as a conservative president, Donald Trump, started a trade war that is already hurting the agricultural states that put him in the White House. Will farmers, who depend on exports today just as they did 200 years ago, continue to support him? Or will their economic interests force them to turn against Mr. Trump? Time will tell.

And, of course, the protective tariff continues to be popular, even though it is still almost always a bad idea. Tariff policy often seems boring, but causes lasting controversies.

In an upcoming post, we shall look at two of President William McKinley’s tariff speeches. Stay tuned!

Quotation for the day: conservative economist Greg Mankiw writes, "The tariffs just imposed by President Trump are, of course, terrible policy. Mr. Trump deserves the first line of blame for making decisions that no sensible economist would advocate."