The Founders Believed in a National Economic Strategy
Decades of free trade have knocked us back to the economic situation of the founding—so we should return to the Founders' economic strategy.
Our doctrinaire dedication to free trade has been sapping our power for 30 years as we single-mindedly pursued trade for wealth creation. 2020 stripped naked the emaciated figure of American industry, revealing the depth of our dependence on foreign manufactures for everything from face masks, respirators, ventilators, to pharmaceuticals.
Driving this weakness was an underlying condition in our body politic: American statesmen unserious about and unschooled in the arts of power. If we value America’s peace, and thus the power necessary to uphold it, we must practice the first principle of foreign policy, which is to bring our commitments and capabilities into balance.
Edmund Burke described political society as a contract between the dead, living, and those yet to be born. But American society has settled for a contract exchanging production for consumption, long-term prospects for near-term profits, and commonwealth for private wealth. Call this the “Economist View” of the national interest, which prioritizes wealth and consumer interests. For those who take the Economist View, this emphasis on wealth as the purpose of political economy creates ambivalence about the statesman. The essence of the Economist View is that, excepting immediate national defense, statesmen do not bring a unique perspective to political economy that justifies raising costs to consumers.
This has starved us of an older, richer account of political community that subordinates economics to politics. It also fails to appreciate higher realities of statecraft and one of America’s oldest strategies for political economy in the national interest. Call this richer account the “Statesman View,” which prioritizes national power for safety and independence and seeks through politics to balance domestic interests that are in conflict. The essence of the Statesman View of the national interest is that there is a statesman at the helm of government building up the body politic for the good of the whole people. His statecraft forges national unity from sectional difference, reconciles private interests for the public good, and protects against political disruptions from foreign trade. Economics and politics are not divorced in the Statesman View because political economy is the union of a people’s economic means and political ends.
Many people think America always held to the Economist View and free trade in this debate. In fact, America has adapted trade to the national interest, and protectionism was the first and eventually dominant strategy of building economic power and independence. Reversing course on global free trade is thus not a betrayal of permanent American principle. The agenda before American statesmen of the next 30 years is to apply a grand strategy of rebuilding our power to secure our peace. Getting our history right is important to liberate ourselves from convictions about free trade that otherwise inhibit creative economic statecraft in the face of our current geopolitical challenge.
Treasury Secretary Alexander Hamilton in his 1791 Report on the Subject of Manufactures took the Statesman View of trade in the national interest. The Report is emphatic that the deepest job of a statesman is to protect the safety and independence of the whole body politic:
Not only the wealth; but the independence and security of a Country, appear to be materially connected with the prosperity of manufactures. Every nation, with a view to those great objects, ought to endeavour to possess within itself all the essentials of national supply. These comprise the means of Subsistence, habitation, clothing, and defence.
The Washington Administration and Federalist Party adopted Hamilton’s protectionism, eventually defending the cause of economic nationalism through the “American System,” a protectionist program opposed to the so-called British System of free trade. Thomas Jefferson’s Democratic-Republicans and then Andrew Jackson’s Democrats championed free trade, however, as the cause of Southern planters, farmers, and landed gentry reliant on British markets for cotton, tobacco, and textiles.
The American System was a grand strategy of nation-building pursued through the 1820s-1840s. By the 1840s, America’s success at achieving economic independence attracted the praise of German-born Friedrich List, who pointed to the American System as a demonstration of the maxim of statecraft that power makes wealth. The Republican Party completed the American System by making protectionism the national policy for over 50 years and birthing the industrial Northeast, which became the core of America’s manufacturing might and the GOP’s political bastion well into the 20th century.
America in its Western leadership from 1946-1991 liberalized trade for reasons of high politics, but it never lost sight of trade’s power effect nor became doctrinaire about globalization. World War Two taught America the ways of economic warfare, and our postwar economic statecraft continued to extend or deny trade based on a friend-enemy distinction. In the early Cold War, freer trade fortified the Western Alliance through a liberal international order that aimed to outcompete the Soviet bloc, serving a double pronged strategy that fused geopolitics and economics into geoeconomics. With one arm we were opening the veins of our industrial bloodstream to friends while trying to choke economic life from our enemies with the other. For example, America from 1947-1951 dispersed 2 percent of its gross national product annually to European allies and later tolerated their discrimination against our agricultural and manufactured exports.
Later, the U.S. reduced trade barriers on manufactures and extended preferential treatment to exports from less developed countries. Liberalization with developing countries on less than reciprocal terms served our national interest because the Third World was, after Europe, the main theater of U.S.-Soviet influence competition in the 1960s-70s. Meanwhile, administrations from Truman to Nixon fought rearguard battles with domestic and European business interests over liberalizing East-West trade. President Nixon finally conceded to a liberalized U.S. embargo, but he linked it to Soviet commitments on strategic arms limitations as part of détente and in 1971 also lifted import controls on China to drive further the Sino-Soviet split.
Ironically, the American economic strategy of rebuilding allies and opening our home market to their exports succeeded so well that West Germany and Japan by the 1970s were outcompeting American industry. Foreign trade’s penetration into the U.S. economy, eased by low tariffs, produced new winners and losers in the South, West, and Northeast due to uneven patterns of economic integration with the world. The Cold War economy had industrialized Western and Southern states for the first time and built communities with stable military-industrial jobs. New constituencies formed there from booming aerospace, electronics, agribusiness, construction, oil, and real estate industries that were export competitive in the 1960s-70s, which predisposed the West and South to free trade.
These disruptions realigned America’s political geography and reversed Republican positions on trade and the national interest. By the 1970s, the Northeast’s decline unglued the old Northern-Southern Democratic alliance and created an opening for a new Western-Southern Republican coalition that in the 1980s emerged triumphant. Democrats became a Northeastern party voicing that aging region’s protectionist instincts while Republicans became a Southern and Western party whose new bastions profited from free trade. As the party of Ronald Reagan championed liberalization more uniformly, Republican leaders espoused the Economist View of wealth and consumers as the objects of trade and the national interest. This completed a revolution in Republican statecraft on political economy, which for a century had been guided by the Statesman View of governing for the public good by way of balancing interests. President Dwight Eisenhower’s farewell speech in 1961 may be the last time a GOP president set forth the Statesman View explicitly.
Out of the Reagan Revolution came an array of conservative movement groups and libertarians united by doctrinaire belief in the laissez-faire gospel of wealth and consumption, sporting neckties patterned with miniature busts of Adam Smith. The history of America’s rise to industrial power through Hamiltonian, Whig, and Republican protectionism was rewritten with a Jeffersonian, free-trading gloss and justified by vehement gestures at the bad old Smoot-Hawley Tariff. By the 1980s, free trade became unbending doctrine for the Republican Party. From the 1990s to the mid-2010s, a bipartisan Washington consensus favored regional free trade agreements, globalized finance, and the rise of foreign direct investment and intrafirm trade by multinational corporations.
So, what is the legacy of all this liberalization? Free traders emphasize consumer savings from reduced tariffs and economic efficiencies from globalized supply chains that hone specialization in a country’s alleged comparative advantage. However, at possibly the zenith year of free trade and globalization in 2001, Princeton economist Robert Gilpin noted estimates that trade barriers lowered since the 1960s put an additional $1,000 annually into the pockets of American consumers! But what of the opportunity cost? If the American consumer pocketed only $1,000 a year in exchange for the Northeast’s deindustrialization since the 1970s, the offshoring of American industry in the 1990s-2000s, and our dangerous dependence on Chinese manufactures and supply chains in 2020, I submit we need a return of statecraft for political economy in the national interest.
We now have a badly eroded defense industrial and technological base that is causing the Defense Department to ring the alarm. For example, the Commandant of the Marine Corps in 2020 warned that Chinese shipyards could outpace the U.S. in replacing naval losses during a war. Tim Cook said that Apple manufactures iPads and iPhones in China because of the skilled talent there for advanced and precision tooling, whereas “In the U.S., you could have a meeting of tooling engineers and I’m not sure you could fill a room. In China, you could fill multiple football fields.”
The truth is, almost all governments except the United States practice direct industrial policy for desired outcomes in strategic economic sectors. China practiced geoeconomics very well, to the surprise of naïve American elites. In exchange for access to its market, China for years extracted a pound of flesh from U.S. firms—requiring technology transfers, joint venture restrictions, and localized production—then cloned their business DNA and subsidized homegrown corporate replicants that grew strong enough to push the U.S. firms out of China.
This gives the lie to the liberal notion that the public good arises spontaneously from businessmen following self-interest. Important U.S. multinationals favor free trade most because of corporate interests abroad, but geoeconomic rivals can manipulate them to political advantage. For example, Google infamously refused to renew contracts with the Defense Department on artificial intelligence research while maintaining contracts on similar work with the Chinese government that the Chairman of the Joint Chiefs of Staff claimed in 2019 directly benefitted the Chinese military.
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The first step to rebuilding American power in 2020 and beyond is to affirm that statesmen, not economists and not businessmen, interpret the national interest. Statesmanship requires seeing the world in terms of power flows, much as economists see it in terms of money flows. These power flows, negative or positive depending on the balance of our commitments and capabilities, determine the solvency of our position in the world. Where does America have negative balances draining, and positive balances refilling, our reserves of power and prestige? Our statesmen must set about finding and fathoming these sinkholes and fountains of American power.
The next step to rebuilding American power is for our statesmen to keep one eye on our geopolitical position through sound foreign strategy, and the other eye on our general welfare through sound political economy. This entails integrating foreign and domestic policies that reinforce a consistent, overarching balance of national capabilities. The object of foreign affairs strategy should be plugging the sinkholes and channeling the fountains of our power through adjustments in our commitments and capabilities. But any foreign strategy must rest on a political coalition durable enough to provide statesmen a stable interpretation of the national interest.
Forming that coalition is the hard work of domestic statesmanship. In 2020 and probably beyond, America’s political geography is ripe for realignment. The question for domestic statesmanship is: how to weld a winning coalition for a new consensus on the national interest that frees statesmen to respond to our geopolitical challenge with a better grand strategy?
A logical approach from the Statesman View would be an effort of economic nationalism to build up the union of the body politic over its sectional divisions. The argument to press on free-trader skeptics is: if American industrial and manufacturing powers necessary to 21st century economic independence have been reduced to an infantile state, and we are dependent for national safety again on foreign manufactures, then the original reasoning for protecting infant industries applies again. In other words, the descriptive case Hamilton made in his 1791 Report could be updated for 2020, but his normative case stands well in principle now as then. The ends of this strategy would be protection of economic sectors vital to the national interest, for the purpose of reshoring and rebuilding productive powers for national safety and independence when the next emergency or war comes.
As the American peace that flowed from America’s victory in the Cold War erodes, a single-minded pursuit of wealth through trade takes on new dangers for the nation’s position. The global supply chains feeding domestic consumption begin to look more like the chains of foreign dependence. To expect any reversal in our country’s fortune, our statesmen must again become serious about, and schooled in, the arts of power. A political economy serving the national interest will disrupt and reform American statecraft. But for statesmen to do anything less is a failure of duty. The only alternatives are serving sectional interests (i.e., domestic factions), which is less than statesmanship, or foreign interests, which is betrayal.
This statesmanship is conservative in character, almost by definition. It is a task of national conservatism with a vision to the future. Preserving the means for next generations to become more safe, inventive, prosperous, and happy is the only justification for imposing on private interests in the name of a national interest. This national conservatism transcends liberal time conceptions, which span only the lives of those presently walking about. The interest in conserving the productive powers of future generations of citizens is a task beyond the lifetime of effort of any individual, voluntary association, or commercial venture. We may expect people to serve the welfare of their own children and their investments to pay off for the present generation. But only the nation is the proper vehicle for conserving the general welfare. Only the nation serves the society of strangers in our midst, our fellow citizens, who will outlast us when we are dead through their children yet to be born.
Nathan Hitchen is a graduate of the Institute of World Politics, Johns Hopkins SAIS, Rutgers University, and is an alumnus of the John Jay Institute. He serves on the board of directors for the Equal Rights Institute.