The Intellectual Foundations of Protectionism

Foundation for Economic Freedom ^ | Tuesday, June 17, 2025 | Sergio Martínez

[E. Pluribus Unum]

The legacy of Alexander Hamilton and Friedrich List.

Two of the most influential voices against free trade in the late 18th and 19th centuries were American founding father Alexander Hamilton and German economist Friedrich List. Both championed a version of the “infant industry” argument, advocating temporary protectionist measures to foster domestic manufacturing in countries still lagging behind industrial leaders like Great Britain.

Alexander Hamilton, from as early as 1782 and later as Secretary of the Treasury in his Report on Manufactures (1791), argued that free trade could not be expected to promote American prosperity under existing global conditions. Rather than rely solely on market forces, Hamilton urged proactive government support. He believed that encouraging domestic manufacturing would make the United States more economically self-sufficient and militarily secure.

Hamilton’s rationale drew partly on mercantilist themes: a favorable trade balance was considered a national priority. But his key innovation was the “infant industry” argument. According to this theory, newly emerging sectors in the United States could not be expected to compete on an equal footing with well-established European peers. They needed to be shielded from competition until they were better developed. Without protective tariffs and government subsidies, American manufacturers might never survive their early, unprofitable stages.

Yet, Hamilton’s logic presents a trade-off: if a domestic industry cannot survive without tariffs, it uses resources less efficiently than available alternatives. And even if domestic producers could eventually learn to be competitive, the initial protection diverts capital and labor from more productive uses, distorting economic incentives.

Friedrich List in Germany

A German economist, journalist, and political exile, Friedrich List spent several years in the United States during the 1820s, where he was influenced by the country’s economic nationalism and by Hamilton’s Report on Manufactures. Originally a liberal reformer in Württemberg, he was imprisoned and later exiled for his political...