One Thing Donald Trump Is Actually Right About When It Comes to America's Economic Problems
Last week's sixth Republican debate featured the usual lies, misstatements and misrepresentations on subjects ranging from basic science to the imaginary plot by the Supreme Court to confiscate your guns. But we actually heard the truth on one subject, and believe it or not, it came from Donald Trump: The United States needs to enact tariffs to protect our jobs and our economy.
During an exchange with his Republican rivals, Donald Trump said, “You can't deal with China without [a] tariff. They do it to us. We don't do it. It's not fair trade.” Even the right-wing moderators quickly tried to dispute the Donald, but on this one point, he happens to be exactly right.
Our businesses will never compete with state-backed businesses in other countries if we don't impose a tariff on the products that they ship to our shores. Our workers will never stand a chance against the slave-wage laborers in developing nations. That's exactly why our founding fathers implemented tariffs at the birth of our nation, and those tariffs helped American manufacturers become the envy of the world for the next two centuries.
In fact, our founders believed so strongly that American manufacturers were vital to the success of our young nation, that our first President, George Washington, refused to be inaugurated in a suit that wasn't made by American workers.
On April 14, 1789, George Washington was out walking through the fields at Mount Vernon, his home in Virginia, when Charles Thomson, the secretary of the Continental Congress, showed up on horseback. Thomson had a letter for Washington from the president pro tempore of the new, constitutionally created United States Senate, telling Washington that he’d just been elected president and the inauguration was set for April 30 in the nation’s capital, New York City.
This created two problems for Washington.
The first was saying goodbye to his 82-year-old mother, which the 57-year-old Washington did that night. She gave him her blessing and told him it was the last time he’d see her alive, as she was gravely ill. Indeed, she died before he returned from New York.
The second problem was finding a suit of clothes made in America. For that he sent a courier to his old friend and fellow general from the American Revolutionary War, Henry Knox.
Washington couldn’t find a suit made in America because in the years prior to the American Revolution, the British East India Company (whose tea was thrown into Boston Harbor by outraged colonists after the Tea Act of 1773 gave the world’s largest transnational corporation a giant tax break) controlled the manufacture and the transportation of a whole range of goods, including fine clothing. Cotton and wool could be grown and sheared in the colonies, but it had to be sent to England to be turned into clothes.
This was a routine policy for England, and it is why until India achieved its independence in 1947 Mahatma Gandhi (who was assassinated a year later) sat with his spinning wheel for his lectures and spun daily in his own home. It was, like his Salt March, a protest against the colonial practices of England and an entreaty to his fellow Indians to make their own clothes to gain independence from British companies and institutions.
Fortunately for George Washington, an American clothing company had been established on April 28, 1783, in Hartford, Connecticut, by a man named Daniel Hinsdale, and it produced high-quality woolen and cotton clothing as well as items made from imported silk. It was to Hinsdale’s company that Knox turned, and he helped Washington get—in time for his inauguration two weeks later—a nice, but not excessively elegant, brown American-made suit. (He wore British black later for the celebrations and the most famous painting.)
When Washington became president in 1789, most of America’s personal and industrial products of any significance were manufactured in England or in its colonies. Washington asked his first Treasury secretary, Alexander Hamilton, what could be done about that, and Hamilton came up with an 11-point plan to foster American manufacturing, which he presented to Congress in 1791.
By 1793 most of its points had either been made into law by Congress or formulated into policy by either President Washington or the various states, which put the country on a path of developing its industrial base and generating the largest source of federal revenue for more than 100 years.
First among his 11-points were the “duties on foreign articles"—aka tariffs—which he said should be imposed to protect American manufacturers. Hamilton's decision to list duties as the first point in his plan makes clear his views on their importance. Without tariffs to protect American goods and services, Hamilton's vision would not have been such a success.
His strategic proposals built the greatest industrial powerhouse the world had ever seen and, after more than 200 successful years, were abandoned only during the administrations of Ronald Reagan, George H. W. Bush, and Bill Clinton (and remain abandoned to this day). And, the Trans Pacific Partnership will be the final nail in the coffin of Alexander Hamilton's plan.
Donald Trump may be wrong on just about everything, but he's absolutely right about tariffs. Whether that's because of his incredible business sense or simple a proverbial stopped clock, I'll let you decide.
For those who would like to know more about our history, and for the Republican Presidential candidates who continue to deify the founding fathers as often as they misquote them, here is Hamilton's 11-point plan on American Manufacturing.
Alexander Hamilton’s 11-point Plan for “American Manufactures”
A full view having now been taken of the inducements to the promotion of manufactures in the United States, accompanied with an examination of the principal objections which are commonly urged in opposition, it is proper, in the next place, to consider the means by which it may be effected.…
In order to a better judgment of the means proper to be resorted to by the United States, it will be of use to advert to those which have been employed with success in other countries. The principal of these are—
I. Protecting duties—or duties on those foreign articles which are the rivals of the domestic ones intended to be encouraged.
Duties of this nature evidently amount to a virtual bounty on the domestic fabrics, since by enhancing the charges on foreign articles, they enable the national manufacturers to undersell all their foreign competitors.…[I]t has the additional recommendation of being a resource of revenue. Indeed, all the duties imposed on imported articles, though with an exclusive view to revenue, have the effect in contemplation; and, except where they fill on raw materials, wear a beneficent aspect towards the manufacturers of the country.
II. Prohibitions of rival articles, or duties equivalent to prohibitions.
This is another and an efficacious mean of encouraging national manufactures;…Of duties equivalent to prohibitions, there are examples in the laws of the United States…but they are not numerous.…[I]t might almost be said, by the principles of distributive justice; certainly by the duty of endeavoring to secure to their own citizens a reciprocity of advantages.
III. Prohibitions of the exportation of the materials of manufactures.
The desire of securing a cheap and plentiful supply for the national workmen, and, where the article is either peculiar to the country, or of peculiar quality there, the jealousy of enabling foreign workmen to rival those of the nation with its own materials, are the leading motives to this species of regulation.…It is seen at once, that its immediate operation is to abridge the demand and keep down the price of the produce of some other branch of industry, generally speaking, of agriculture, to the prejudice of those who carry it on; and though if it be really essential to the prosperity of any very important national manufacture, it may happen that those who are injured in the first instance, may be eventually indemnified, by the superior steadiness of an extensive domestic market depending on that prosperity: yet in a matter, in which there is so much room for nice and difficult combinations, in which such opposite considerations combat each other, prudence seems to dictate, that the expedient in question ought to be indulged with a sparing hand.
IV. Pecuniary bounties.
This has been found one of the most efficacious means of encouraging manufactures, and it is in some views the best; though it has not yet been practised upon by the government of the United States, (unless the allowance on the exportion of dried and pickled fish and salted meat, could be considered as a bounty,) and though it is less favoured by public opinion than some other modes, its advantages are these:
It is a species of encouragement more positive and direct than any other, and for that very reason, has a more immediate tendency to stimulate and uphold new enterprises, increasing the chances of profit, and diminishing the risks of loss, in the first attempts.
It avoids the inconvenience of a temporary augmentation of price, which is incident to some other modes, or it produces it to a less degree; either by making no addition to the charges on the rival foreign article, as in the case of protecting duties, or by making a smaller addition. The first happens when the fund for the bounty is derived from a different object (which may or may not increase the price of some other article, according to the nature of that object); the second when the fund is derived from the same or a similar object of foreign manufacture. One per cent. duty on the foreign article converted into a bounty on the domestic, will have an equal effect with a duty of two per cent. exclusive of such bounty; and the price of the foreign commodity is liable to be raised, in the one case, in the proportion of one per cent; in the other, in that of two per cent. Indeed, the bounty, when drawn from another source, is calculated to promote a reduction of price; because, without laying any new charge on the foreign article, it serves to introduce a competition with it, and to increase the total quantity of the article in the market.
Bounties have not, like high protecting duties, a tendency to produce scarcity.…
4. Bounties are sometimes not only the best, but the only proper expedient, for uniting the encouragement of a new object.…
The true way to conciliate these two interests, is to lay a duty on foreign manufactures, of the material, the growth of which is desired to be encouraged, and to apply the produce of that duty by way of bounty, either upon the production of the material itself, or upon its manufacture at home, or upon both.…
[P]ecuniary bounties are in most cases indispensable to the introduction of a new branch.…Bounties are especially essential, in regard to articles, upon which those foreigners who have been accustomed to supply a country, are in the practice of granting them.
The continuance of bounties on manufactures long established, must almost always be of questionable policy; because a presumption would arise in every such case, that there were natural and inherent impediments to success But in new undertakings, they are as justifiable, as they are oftentimes necessary.…
These are of a nature allied to bounties, though distinguishable from them in some important features.
Bounties are applicable to the whole quantity of an article produced or manufactured, or exported, and involve a correspondent expense—Premiums serve to reward some particular excellence or superiority, some extraordinary exertion or skill, and are dispensed only in a small number of cases. But their effect is to stimulate general effort.…
VI. The exemption of the [raw] materials of manufactures from duty.
The policy of that exemption, as a general rule, particularly in reference to new establishments, is obvious.…Of a nature, bearing some affinity to that policy, is the regulation which exempts from duty the tools and implements, as well as the books, clothes, and household furniture of foreign artists, who come to reside in the United States; an advantage already secured to them by the laws of the Union, and which it is, in every view, proper to continue.
VII. Drawbacks of the duties which are imposed on the materials of manufactures.…
[S]uch drawbacks are familiar in countries which systematically pursue the business of manufactures; which furnishes an argument for the observance of a similar policy in the United States; and the idea has been adopted by the laws of the Union, in the instances of salt and molasses. It is believed that it will be found advantageous to extend it to some other articles.
VIII. The encouragement of new intentions and discoveries, at home, and of the introduction into the United States of such as may have been made in other countries; particularly, those which relate to machinery.
This is among the most useful and unexceptionable of the aids which can be given to manufactures. The usual means of that encouragement are pecuniary rewards, and, for a time, exclusive privileges. The first must be employed, according to the occasion, and the utility of the invention, or discovery. For the last, so far as respects “authors and inventors,” provision has been made by law.…
It is customary with manufacturing nations to prohibit, under severe penalties, the exportation of implements and machines, which they have either invented or improved.…As far as prohibitions tend to prevent foreign competitors from deriving the benefit of the improvements made at home, they tend to increase the advantages of those by whom they may have been introduced; and operate as an encouragement to exertion.
IX. Judicious regulations for the inspection of manufactured commodities.
This is not among the least important of the means by which the prosperity of manufactures may be promoted. It is, indeed, in many cases one of the most essential. Contributing to prevent frauds upon consumers at home, and exporters to foreign countries—to improve the quality and preserve the character of the national manufactures…
X. The facilitating of pecuniary remittances from place to place—[well-regulated banking]
Is a point of considerable moment to trade in general, and to manufactures in particular; by rendering more easy the purchase of raw materials and provisions, and the payment for manufactured supplies. A general circulation of bank paper, which is to be expected from the institution lately established, will be a most valuable mean to this end.
XI. The facilitating of the transportation of commodities. [transportation infrastructure]
Improvements favouring this object intimately concern all the domestic interests of a community; but they may without impropriety be mentioned as having an important relation to manufactures. There is perhaps scarcely any thing, which has been better calculated to assist the manufacturers of Great Britain, than the meliorations of the public roads of that kingdom, and the great progress which has been of late made in opening canals. Of the former, the United States stand much in need…
These examples, it is to be hoped, will stimulate the exertions of the government and citizens of every state. There can certainly be no object, more worthy of the cares of the local administrations; and it were to be wished, that there was no doubt of the power of the national government to lend its direct aid, on a comprehensive plan. This is one of those improvements, which could be prosecuted with more efficacy by the whole, than by any part or parts of the Union.…
The following remarks are sufficiently judicious and pertinent to deserve a literal quotation: “Good roads, canals, and navigable rivers, by diminishing the expense of carriage, put the remote parts of a country more nearly upon a level with those in the neighborhood of a town. They are upon that account, the greatest of all improvements.”…
It may confidently be affirmed, that there is scarcely any thing, which has been devised, better calculated to excite a general spirit of improvement, than the institutions of this nature. The are truly invaluable.
In countries where there is great private wealth, much may be effected by the voluntary contributions of patriotic individuals; but in a community situated like that of the United States, the public purse must supply the deficiency of private resource. In what can it be so useful as in prompting and improving the efforts of industry?
All which is humbly submitted.
Secretary of the Treasury
Portions of this article contain material that you can also find in my book, Rebooting the American Dream.