When Tariffs and Cannons Go Hand in Hand
Tariffs, Trade Wars, and Territorial Ambitions: What the Return of Protectionism Reveals About America’s Place in the World
Donald Trump’s economic policy is puzzling almost everyone, starting with most economic analysts. Educated in the logic of free trade as a universal guarantee of prosperity, many cannot understand why the United States is moving away from a consensus built since World War II. However, what appears to be a rupture is, in fact, a return to an old American economic tradition.
As early as 1789, George Washington and his Secretary of the Treasury, Alexander Hamilton, advocated for an industrial model protected by high tariffs. In contrast to the republican tradition of Thomas Jefferson and James Madison—who believed that civic virtue could only thrive in small agrarian communities—Hamilton supported a strong government capable of promoting national industry. The problem was that the United States had been a colony of the British Empire, which meant that its fledgling industry was weak and highly vulnerable. Any industrial development seemed doomed to fail. British industry enjoyed much higher productivity levels, allowing it to flood the market with manufactured goods far cheaper than those produced in the U.S. To overcome these difficulties, Hamilton devised a system that, in reality, mimicked what the British had done during the early stages of their own development a century earlier.
The cornerstone of Hamilton's system was the establishment of very high tariffs, which raised the cost of foreign goods and protected the nascent American industry from competition. Hamilton died in 1804, the victim of injuries sustained in a duel with the then vice-President of the country. Nevertheless, by 1816, his economic system remained firmly in place, and tariffs represented 35% of the value of imported goods.
The United States had some advantages that Latin American countries—who, after World War II and inspired by the ideas of Raúl Prebisch, launched import substitution industrialization projects—did not enjoy. In the 19th century, the U.S. was a vast country with enormously fertile lands—violently taken from Native peoples—and had abundant supplies of wood, coal, iron, and other raw materials that it didn’t need to import. By the mid-19th century, Hamilton’s system had built an industrial economy already rivalling Britain.
At the end of that century, a figure often quoted by Donald Trump appeared in the U.S. presidency: William McKinley. In Spain, this name is associated with the loss of the colonies of Puerto Rico, Cuba, and the Philippines since he used the Cuban independence process as an excuse to continue expanding the American empire. In any case, the Republican politician defended the protection of national industry by imposing even higher tariffs. In his view, this combination of expansionist foreign policy and domestic protectionism was a way to defend the American working class, industry, and political sovereignty. Sound familiar?
Indeed, Donald Trump continues the historical path I have just briefly outlined. The U.S. president is not an irrational being nor a crazed man who has lost his compass, as he is often portrayed by both progressive and conservative analysts in Europe. Trump has a plan for his country that combines a sharpening of imperialism with a trade war against the world. The question is: Will it work?
Mainstream economists say no and insist that tariffs are always harmful to the economy. That’s what we hear in media discussions, where there are hardly any economists, let alone experts in International Economics. In reality, history shows that this conclusion is not necessarily true. Tariffs raise the price of domestic goods, but they can also have other effects depending on the specific characteristics of the economies involved. The economic development cases of Britain and the United States show that tariffs can also be growth instruments. The same goes for China, which, like other Asian countries, has grown over recent decades by combining state-led industrial policy with a highly protectionist trade system. However, tariffs can also be disastrous, as the result ultimately depends on how tariffs are designed and what their resources are used for.
The expression of the United States’ trade problems is its current account. It has a large deficit, meaning its citizens buy far more goods and services from abroad than its companies sell to the rest of the world. The gap is financed by capital inflows, which are reflected in the financial account of the balance of payments. With such a large imbalance, any other economy would have plunged into a serious balance of payments crisis. Luckily for the U.S., it has the backing of the world’s most powerful military—with an imperialist orientation—and the world’s reference currency, the dollar, both processes closely linked. For now, at least, everyone still wants dollars.
However, according to Donald Trump, the problem is that the rest of the world doesn’t want to buy American products. Other analysts who are more nuanced but heading in the same direction—like Michael Pettis—suggest that the issue is that wages in countries like China and Germany are too low. Following the path of Hamilton and McKinley, Trump wants to correct trade imbalances by making imports more expensive and developing domestic industry, even at the cost of short-term burdens for consumers in the form of selective inflation. This is the basis for most criticisms coming from more conventional perspectives.
But could it be that both perspectives are wrong because they’re incomplete? As economist Michael Roberts has explained, the real problem is the rate of profit and productivity of the U.S. economy. What lies behind the imbalances in the balance of payments are the different productive structures of countries and the changes currently taking place in the international division of labour—as I explained the other day.
Capital finds it more profitable to invest elsewhere than in the United States, taking advantage of cheap labour and better technological and material resources in economies like China. The Asian giant has cheap access to the raw materials needed for its massive companies based on increasing returns to scale. At the same time, other countries must import these materials at higher prices and use them in much smaller-scale production facilities. The wood, coal, and land Americans had cheap access to in the 19th century are today the minerals that China now extracts—almost monopolistically—from all over the world.
In geopolitical terms, Roberts believes we are witnessing the expression of the decline of the United States, much like what happened to Britain at the end of the 19th century. I agree, although nothing is written about what may happen next. The great danger is that Donald Trump knows—or at least senses—that both historical development processes he draws inspiration from—Hamilton to McKinley—once required the appropriation of cheap nature through the use of violence, via colonialism against Indigenous peoples and imperialism against the rest of the world. Trump now looks to Greenland, Canada, and Mexico just as past U.S. leaders eyed Indigenous fertile lands, Peruvian and Chilean fertilizers, Spanish sugar, and Eastern oil with greed. Once again, what’s at stake is each country's place in the new international division of labour amid an ecological crisis.
In this battleground of trade disputes, declining empires, and dwindling resources, tariffs are not merely economic tools; they are strategic pieces in a war for control over labour, technology, and the remaining nature. The United States—Trump or no Trump—is facing the historical limit of a model that only worked when it could freely plunder land, minerals, and life. Today, trying to revive that past through new forms of economic and military coercion challenges the global order and the biophysical foundations underpinning any economy. The question is not whether its strategy will work but how much it will cost others—and the planet—to attempt this new imperial restoration.