Throughout American history, trade policy in the United States has oscillated between periods of protectionism and free trade. Protectionism is a form of economic policy that involves reducing international trade through the imposition of tariffs and other barriers to imported goods in order to support domestic production. Tariffs, the most widely known form of such a policy, are taxes on imported goods that a government imposes on consumers within the country to increase their price. Thus, consumption shifts more towards domestic goods, boosting these internal industries. Subsidies are another commonly used protectionist policy where governments provide financial support to domestic industries in order to help them compete against foreign imports by lowering production costs or prices. Free trade lies on the other end of the spectrum of trade policy, allowing for unrestricted exchange between countries. A country may choose to alter its policy for a number of reasons such as protecting domestic jobs, improving the competitiveness of strategic industries such as electronics or manufacturing or in retaliation to another country’s proposed actions. The U.S. has become increasingly protectionist under the last two presidents, Donald Trump and Joe Biden, with tariffs being imposed on a wide variety of goods and on almost all countries. More protectionist policies have also been introduced such as sanctions, prohibiting American companies from trading with foreign firms, as well as the Build America, Buy America Act which mandates that all of the iron, steel, manufactured products, and construction materials used in infrastructure projects are domestically produced. As the global economy continues to evolve, the United States faces ongoing decisions about whether to embrace further protectionist measures as it had upon its founding or to revert to a more open trade framework as it previously had post-WW2, balancing the interests of domestic industries with international partnerships and competition.

History of U.S. Protectionism

Current U.S. trade policies bear some resemblance to those enacted before World War II. One prominent trade policy from that era was the 1930 Tariff Act, often referred to as the Smoot-Hawley Tariff Act. This law imposed some of the steepest tariffs in American history, covering more than 20,000 products. However, it sparked retaliatory measures from nations like Canada and Britain, who implemented their own tariffs and formed exclusive trade agreements. As a result, U.S. imports and exports plummeted by 67%, which is believed to have exacerbated the Great Depression.  Similar retaliatory responses came from countries such as India and China following the recent U.S. tariff hikes.

Although protectionism in the cases above appears to have detrimental economic impacts, it is important to realise that America’s protectionist period from the nineteenth to early twentieth century is what allowed it to become an economic superpower. During this period, American industry thrived, and its economic performance surpassed that of the rest of the world. Albert Eckes Jr, chairman of the United States International Trade Commission under President Reagan, notes that from 1871 to 1913, the average U.S. tariff on dutiable imports did not fall below 38% which allowed for Gross National Product (GNP) to grow by 4.3% per year, twice that of Britain which meanwhile adopted a free trade policy.

Post-WW2 Free Trade era

What makes the recent shift back to protectionism particularly unexpected is that it unravels decades of global free trade and low tariffs, which had been encouraged by post-war developments. The U.S. was a leading advocate for this free trade movement, playing a key role in the establishment of the General Agreement on Tariffs and Trade (GATT). This later evolved into the World Trade Organization in 1995 which aimed to dramatically reduce tariffs and trade barriers whilst promoting fair trade on a mutually-beneficial basis. This push toward free trade persisted into late 20th century America, including the Canada-U.S. Free Trade Agreement in 1987 and the creation of the North American Free Trade Agreement (NAFTA). These efforts led to the removal or lowering of trade barriers between the U.S., Canada, and Mexico. Post-war trade liberalisation, also known as the Golden Age of Capitalism, had many economic benefits including higher income levels, more consumer choice and lower prices.

Causes of the return

In the past few years, since the start of the Trump administration, the U.S. has begun to develop increasingly protectionist policies in order to tackle some of the issues it is currently facing regarding international trade and domestic industry. One of the main reasons behind the shift was to protect and increase U.S. jobs. Following deindustrialisation in the 2000s, which mainly occurred in the Rust Belt states, around 5 million manufacturing jobs were lost. While automation and technological advances contributed to the decline, offshoring to countries with cheaper labour such as China also played a significant role. By raising tariffs and introducing barriers to trade, imports can be controlled whilst the revenue can be used to boost domestic industries.

Furthermore, the US has large trade deficits since they import much more than they export. In 2023, they were in a deficit of around $773 billion; the last time they had a trade surplus was in 1975. By increasing tariffs and boosting domestic production through various protectionist policies, this should decrease imports and increase exports as well as stimulate domestic consumer consumption. 

Another of the main drivers of the rise in protectionism is the US – China Trade War in which the US are trying to combat China’s partisan trade practices which seem to exclusively benefit their economy whilst harming other members of the World Trade Organisation (WTO) in a self-serving manner, as found by the United States Trade Representative’s (USTR) in their investigation. These practices include: “trade in illicit goods, use of forced labour, and theft of sensitive technologies”, according to the Government Accountability Office (GAO). The tariffs aim to put economic pressure on China by making their goods more expensive in the U.S. market, thus reducing demand and purchasing of these goods. This is intended to incentivise them to change their practices. The trade war with China has had many detrimental economic impacts on US industry

Tariff Hikes

In recent years, the most significant protectionist measures have come under three major tariff increases: the Section 201, Section 232, and Section 301 tariffs. The first, Section 201 tariffs, were implemented at the start of 2018, targeting imports of washing machines and solar cells. Under former President Trump, these tariffs raised $2.4 billion; under President Biden, they generated $1.2 billion. In March 2018, the Section 232 tariffs were introduced, imposing a 25% tariff on steel imports and a 10% tariff on aluminium imports. Although initially applied to all countries, Australia was granted an exemption later that year. The largest of these tariffs came under the Section 301 hikes, which began in July 2018. It was divided into four lists, each covering a wide range of products. These tariffs collected $75.9 billion during Trump’s presidency and $135.4 billion under that of Biden. However, despite the substantial revenue generated, the Tax Foundation forecasts that these tariffs will reduce U.S. long-term GDP by 0.2% and result in a loss of 142,000 full-time equivalent jobs.

Outlook

With President Biden having raised tariffs further and introduced other protectionist policies such as the CHIPS and Science Act which includes over $50 billion in subsidies, there are calls for concern regarding the economic outlook of the U.S. and whether it can support such measures with the increase in trade with other countries or with an increase in domestic production. The upcoming election also plays an important role in the future of US trade policy in the following years. Although it is likely for tariffs on China to remain in place, Kamala Harris has criticised Donald Trump’s proposal to increase tariffs if he were to be re-elected in November, referring to it as a “sales tax”.  Will U.S. protectionism continue, and if so at what costs?