A statue of Alexander Hamilton outside the US Department of Treasury building in Washington DC (Chip Somodevilla/Getty Images)

The riotous return of the mercantilists

Trump’s tariffs mantra has changed the zeitgeist – but to a habit nations have long held.

Ved Shinde

10 January 20254 min read

The undercurrent of Donald Trump’s worldview has deep historical roots. It plays like a retro film on a loop.

Consider Alexander Hamilton. As America’s first Treasury secretary, Hamilton was a self-educated thinker influenced by two figures across the Atlantic – Jean-Baptiste Colbert, a 17th century French finance minister, and Robert Walpole, Britain’s Prime Minister in the early 18th century. Now what do all these gentlemen have in common? An unapologetic weak spot for tariffs on foreign goods, enthusiasm for providing subsidies to domestic industries and a manufacturing mania. Back then, mercantilism was a seductive word. Soaked in the sweet syrup of commerce.

In Hamilton’s bygone days, poems like “Rule Britannia!” captured the then-geopolitical zeitgeist. The British navy ruled the seas and its merchants thirsted for markets to penetrate and foul to hunt. Nabobs of the British East India Company were racing to Asia in search of riches. As Horace Walpole put it in 1783, “No man ever went to the East Indies with good intentions.” Hamilton could not stand the pre-eminence of British industries. He imagined the United States not as a servile resource-exporting colony of Britain but as an industrial rival. He did not want the US to become another India or Ireland for London. In this pursuit, Hamilton advocated protection for American infant industries and import substitution.

In his sweeping Land of Promise, originally published in 2012, Michael Lind captures the debate between the Hamiltonian and Jeffersonian schools of American politics. Hamiltonians believed that the federal government ought to play a role in fostering domestic industrial manufacturing. Their ways and means included tariffs, subsidies and even turning a blind eye to outright theft of British and European intellectual property and technology by American firms. Followers of Thomas Jefferson, by contrast, envisioned a folk community of yeomen committed to farming. To Jeffersonians, virtue and independence lay in the hard work of agrarian cultivation. Manufacturing meant a multitude of sins.

One of the major causes of the American Civil War also lay in the debate between Hamiltonians in the industrial northeast and Jeffersonians of the southern plantations. Factory owners in Pennsylvania sought economic independence from the British Empire by building their own industries. Planters in the south vehemently opposed this. Their interests lay in supplying cheap cotton to British mills in return for being a market for factory-made goods from Manchester and Lancashire. As a contemporary economist Henry C. Carey wrote in 1867, “Slavery did not make the rebellion. British free trade gave us sectionalism, and promoted the growth of slavery, and thus led to rebellion.”

The flag of Hamiltonian tariff protection was carried forward by Abraham Lincoln, who began the process of making the United States the most protected home market in the world. The American “Tariff Raj” continued onward till the early 20th century. Even the Wharton Business School of Pennsylvania, the reigning business school in the United States, was founded in 1881 to promote wanton protectionism. It was roughly from the mid-19th century to the end of the World Wars that the US became an industrial superpower.

This dose of history illuminates contemporary geopolitical trends. Take China for example. Beijing’s rise as a manufacturing behemoth was possible thanks to the model set by erstwhile great powers. First, allow domestic private industry to find its feet behind tariff walls and generous state subsidies. Let domestic competition kick in to sharpen efficiency, and gradually open up to the world when the internal market saturates. Then chant the mantra of free trade to sell in foreign markets for economic salvation.

Under Trump’s first rigmarole from 2017, Washington set the economic zeitgeist of our times. Terms such as tariffs, industrial manufacturing, and government subsidies for industries reappeared in the political lexicon. Free trade and comparative advantage became hushed whispers. Such was the domestic mood that the Biden team constantly emphasised their “foreign policy for the middle class.” The two economic measures that defined the Biden era were the Inflation Reduction Act and the Chips and Science Act – meant to provide more than US$400 billion in federal support to the semiconductor ecosystem and green industries. Shades of erstwhile Hamiltonians? You bet. Look at the deal between Japan’s Nippon Steel and US Steel falling apart.

With Trump’s re-entry on the grand stage, he has pushed American mercantilism into a higher sphere. Scholars have argued that Trump’s worldview was shaped in the 1980s. He resented the moving out of American manufacturing to German and Japanese industries. The idea that Washington should accommodate Berlin and Tokyo – after the Second World War – by allowing them to prosper behind an American security order was repulsive to Trump. No wonder the disruption he now threatens. Back in the day, Trump complained that Japan had “systematically sucked the blood out of America”.

Coming to the present, Elon Musk’s bonhomie as Trump’s “First Friend” symbolises the synergy between the political and business classes in the United States. In Hamilton’s time, steam engines and weaving looms were prized possessions. Now it is AI, electric vehicles, space, semiconductors, quantum, and other emerging technologies. Faces change, the landscape remains the same.

About the author

Ved Shinde

Ved Shinde is an incoming doctoral candidate at the University of Cambridge. He has previously been associated with the Asia Society Policy Institute and the American Enterprise Institute.

Topics

United States Trade & investment Economy