One of the most surprising developments in the recent American political debate has been the bipartisan consensus against free trade. Just a decade ago, Democrats and Republicans generally championed free trade as part of their support for the neoliberal order—unimpeded movement of goods and capital. But with the 2024 presidential election, both Republican Donald Trump and Democrat Kamala Harris are leaning hard on protectionism. Former President Trump’s campaign in particular is pushing tariffs that would have been hard to imagine coming from a Republican presidential candidate just a decade ago. This new “post-neoliberal moment” – as it has been called – can seem confusing. But it obeys the economic policies – and what political parties believe – since the founding of the American nation and offers clues to the divided present. Back in the late 18th century, founding father Alexander Hamilton helped implement a set of policies designed to encourage US industry and promote economic growth and innovation. This agreement, which laid the foundations for what became known as the “American System”, emerged in part as a counterweight to British notions of free trade. And the American System quickly developed as accepted economic policy as a young America developed its industrial power. 
Hamilton’s economic nationalism
In the early years of the American republic, the US had no trade policy at all. When the US formally achieved independence in 1783 with the signing of the Treaty of Paris, the Articles of Confederation—the nation’s first constitution—greatly limited the federal government’s powers, including its ability to regulate foreign trade. These restrictions reflected the reality of 13 very different states that were more united against the British – and their trade controls – than in supporting a common vision of economic development.
Economic conditions in this loosely knit nation soon worsened. A deepening financial crisis, mounting debt, inflation, cheap British goods and an accelerating path to bankruptcy soon appeared.
Such changing conditions prompted calls for a new national economic policy. This economic pressure was a major factor that led to the drafting of the US Constitution, ratified in 1789. The Constitution gave the federal government the ability to regulate trade with foreign countries and, for the first time, to collect taxes. Both were privileges once held exclusively by the sovereign American states.
The “Second American Revolution”
An empowered US Congress made the passage of a national tariff law one of its first tasks. When it was ratified in 1789, a national import tax replaced the customs duties previously imposed by the states.
Perhaps indicating the magnitude of this change, proponents called it the “Second American Revolution,” which became law on July 4, 1789. In fact, it helped create a new understanding of the American political and economic system, with a much stronger role for the state in financial matters. Tariffs were imposed on 30 goods, including hemp and textiles.
Perhaps heralding the trade policy of a future era, the Tariff Act also imposed 12.5% tariffs on goods imported from China and India! The main “architect” of this new industrial policy was Hamilton, who published his seminal work on economic policy, Report on Manufactures, in 1791. Hamilton’s ideas were based on transforming a predominantly agricultural nation with a partially developed and diversified industrial economy.
Although often overlooked, Hamilton’s Manufacturing Report also contained a grander vision—it sought to encourage the growth of American innovation as a form of economic policy and advocated the release of “the genius of the people” so that “the wealth of a nation may increase”.
To promote this spirit of national enterprise, Hamilton encouraged
- the promotion of technological progress,
- research funding,
- attracting immigrants,
- the support of a new financial system and
- implementing a patent system to promote inventions;
Such policies were in many ways an extension of the earlier policy enshrined in Section 8 of the Constitution.
Tariffs and the discontents they cause
As the use of tariffs continued in the decades following Hamilton’s plan, policymakers became increasingly protective of the domestic economy in an effort to more directly promote American industry. They imposed tariffs to protect growing American industries from foreign competition, primarily from the United Kingdom.
In the early 19th century, this growing protectionist movement coalesced around the powerful Kentucky legislator Henry Clay into the Whig Party. Clay, who first mentioned the American System by name, and his allies were instrumental in raising average national tariff rates to 20% in 1816.
When the financial crisis occurred during the “Panic” of 1819, there followed a collapse in cotton prices, a tightening of credit, widespread foreclosures, and rising unemployment. In response, Clay and his allies raised the tariff again, to 50% in 1828. The growing use of tariffs caused a backlash from some in the farming and slaveholding classes, who opposed Northern rule and a strong federal government. A prominent Southern politician at the time referred to the 1828 legislation as “tariff-trash.” Indeed, opposition to elements of the American System was one of the main policy goals of early Democratic politicians such as Andrew Jackson, and controversies over the system foreshadowed later battles that led to the Civil War. As the Industrial Revolution took root in American society in the decades that followed, tariffs remained a cornerstone of US economic policy. By the late 1850s, tariffs had become incorporated into the policy of the fledgling Republican Party and an important element of Abraham Lincoln’s economic platform. Towards the end of the 19th century, an ideologically mobile Democratic Party, increasingly supported by a strong agrarian populist movement, continued to strongly oppose the tariff system, arguing that it benefited powerful industrialists at the expense of the working class, while offering little to deal with the financial crisis. 
Dismantling the American System – and why it matters today
Between 1861 and 1933, tariffs were a standard tool of US economic policy. During this period, tariffs on taxable goods often averaged 40% to 50%, especially in the late 19th and early 20th centuries.
US policymakers did not seriously challenge tariffs as part of industrial policy until the onset of the Great Depression in the 1930s. After World War II, the US moved decisively away from tariffs as a means of pursuing industrial policy.
The Smoot-Hawley Tariff Act was widely blamed for deepening the Great Depression and contributing to the international wars of the 1930s and 1940s, effectively ending the protectionist era of US industrial history.
The establishment of the Federal Reserve in 1913 provided policymakers with a new tool—monetary policy—to deal with economic depression.
The Keynesian revolution provided yet another policy response that governments had to consider in times of economic crisis: spending as a fiscal stimulus to create jobs and income.
Finally, as postwar American policy embraced open global trade, American economic policy pursued more direct mechanisms to promote national innovation and entrepreneurship—essentially dismantling the policy that once depended on voluntarist trade intervention. With the removal of tariffs, one of the great periods of American economic growth and innovation followed.
In 2024, Republican policy has, in many ways, returned to its roots, offering tariffs as a core economic strategy.
Likewise, Democratic politics, with its skepticism about concentrated corporate power in the financial system combined with a renewed focus on financial support for small businesses and entrepreneurship, echoes its own previous generation.
As Americans head to the polls, it’s worth asking how current economic proposals with deep roots in the American system might help shape economic policy in the future.
