The Broken Promises of Free Trade

President Trump needs to return America to its original and authentic conservative economic policy: the American System of protective tariffs.

President Ronald Reagan built the most successful political coalition in modern American history.

His juggernaut—an alliance of social conservatives, neoconservatives, and economic liberals—routed the Democrats. Reagan won over 90 percent of the electoral college in 1980, and a staggering 97 percent in 1984.

Capital-R Republicans have smugly celebrated this triumph ever since. In fact, Reagan’s Coalition was so successful that uniting these disparate interests became Republican doctrine. Any who dared question this political logic—or perhaps, as Patrick Buchanan correctly pointed out, illogic—were ostracized by the party.

Although Reagan’s Coalition dominated the ballot box, it was profoundly ineffectual at delivering its promises. After over 40 years of Reaganite and Reagan-lite Republicanism, America is objectively less wealthy, less free, and less safe today than it was in 1979. Why?

Because the three “legs” of Reagan’s political “stool” are wobbly. That is, they have little in common, other than an uncanny ability to win elections.

Worse still, these interests often work at cross-purposes. For example, neoconservative war hawks routinely subvert traditional conservative interests, like economic protectionism, to further their own imperial agenda.

Over the last decade, Trump has flipped the tables on Republican dogma. No longer is that old ideological purity the litmus test for Republican policy. Instead, “Trumpism” has replaced ideology with a simple question: Does the policy put America first?

Accordingly, President Trump has alienated the economic liberals—the “Free-Trade Brigade” promoted by economists like Milton Friedman—that supported Reagan’s coalition.

America prospered under Alexander Hamilton’s “American System” of tariffs for over a century and a half. Meanwhile, the Reaganite free-trade experiment gutted America’s industry, eroded her middle class, and undermined her national sovereignty.

This is because international free trade—or more properly, asymmetrical trade—is a deal with the Devil, where the United States pawns its past and mortgages the future in exchange for “benefits” today, whether those be “cheap” goods or political influence in far-flung lands.

President Trump is right: America needs to reject this Faustian temptation, and return to authentic economic conservatism—the American System of protective tariffs.

Contrary to popular belief, international “free trade” is a relatively new economic hypothesis and an even newer political ideology. For most of her history, the United States functioned not under free trade, but instead the “American System” of economic protectionism.

In 1791, Alexander Hamilton published his Report on Manufactures, which explained how protective tariffs should be used to protect American manufacturing from foreign—at the time European—competition. Hamilton believed tariffs were needed for two reasons.

First, he believed tariffs were essential to national security. How could the United States defend her newfound freedom if she could not manufacture firearms or steel within her own borders? Remember, the French provided the American Colonies with over 80,000 firearms, without which the Revolution would have failed. Relying on another nation to produce the means of defense was a risky proposition. For Hamilton, manufacturing was an existential necessity.

Second, Hamilton believed that a robust manufacturing industry was the key to unlocking wealth. This belief was well-founded. Remember, the American colonists had lived under British rule for nearly two centuries. During this period, they observed how Great Britain enriched herself at the Colonies’ expense, through a trade pattern called mercantilism. Essentially, Great Britain imported raw materials and exported manufactured goods.

Mercantilism enriched Great Britain at the Colonies’ expense. During the 18th century, Britain’s trade surplus with the Colonies grew from £67,000 during the 1720s to £739,000 in the 1760s. Colonial demand fueled British industry and spurred the Industrial Revolution.

Consider that between 1700 and 1773, Colonial demand accounted for 72 percent of Great Britain’s manufacturing growth. During this time, manufactured goods rose from 4 percent to 27 percent of British exports. By 1770, nearly a fifth of all Britons worked in manufacturing.

As I explain in my book Reshore: How Tariffs Will Bring Our Jobs Home & Revive the American Dream, asymmetrical trade made Great Britain rich and set the stage for the Industrial Revolution and the Victorian Golden Age. Hamilton was eager to copy Britain’s successful strategy.

President Washington largely followed Hamilton’s policy recommendations, which became known as the “American System.” Throughout the 19th century, America had the highest average tariff rates in the world. Contrary to the claims of the free-trade ideologues that tariffs kill economic growth, it was during this century that America industrialized and surpassed Great Britain as the world’s leading industrial power. By 1945, half of everything on Earth was made in America.

It was at this peak that America’s leaders began to take the country’s economic power for granted, and to devise free trade strategies for political purposes. In the aftermath of World War II, America instituted the Marshall Plan, an economic subsidy program designed to rebuild Western Europe and ensure the continent did not fall into Soviet hands. A corollary to the plan was to allow asymmetric trade between America and her European vassals. Specifically, European countries were allowed to protect their industry with high tariffs, while America lowered hers. This allowed European countries to “piggyback” their economic production on America’s consumer market, in the same way that Great Britain had done for the Colonies before the Revolution. The same courtesy was extended to Japan.

This proved geopolitically successful: Western Europe recovered far faster than Eastern Europe and, as a result, remained firmly in America’s sphere of influence. Accordingly, asymmetrical trade became a standard tool in America’s geopolitical arsenal: align with the United States rather than the Soviets, and you will have preferential access to America’s consumer market.

The biggest prize was China. Neoconservatives, bent on spreading Western liberal democracy to the rest of the world, believed that asymmetrical trade would not only drive a wedge between China and the USSR, but would result in China liberalizing, as had our other trade “partners” (vassalage, rather than partnership, is probably the more accurate way to think about the relationship with the U.S.). Accordingly, Congress granted China “most favored nation” status in 1980, and the United States supported China’s entry into the World Trade Organization (WTO) in 2001.

Soon after China entered the WTO, it became abundantly clear that the neoconservatives bit off more than they could chew. China did not become a bigger version of Japan or South Korea—another vassal state within the Western economic sphere. Instead, China exploited America’s free-trade system to restore its own civilization. Rather than abandoning Chinese Communism in favor of Western liberalism, China used American wealth and technology to breathe new life into its Confucian bureaucratic aristocracy.

Worse still, China used its newfound industrial might to replace the United States as the world’s trade hub. It turns out that Chairman Mao was almost right when he said that “political power flows through the barrel of a gun.” The economic history above clarifies his point: “Political power flows through those who make the barrel of a gun”.

The Reagan Consensus’ neoconservatives and economic liberals used America’s economic might to accomplish political goals—from overwhelming the Soviet Union, to funding endless wars in the Middle East, to liberalizing China—with varying degrees of success.

However, this came at a price. Granting asymmetrical access to America’s market was—quite literally—a one-way street. Foreign producers could sell their products in America without tariffs; meanwhile, American producers were disadvantaged by tariffs in foreign countries. To make matters worse, foreign goods were nominally “cheaper” than American goods due to economic disparities and externalities.

The result? In every year since 1974, America has purchased far more than she sold. In 2024, the goods trade deficit was $1.2 trillion. The net deficit, which accounts for America’s surplus in services, was $918 billion. The cumulative value of these net trade deficits since 1974, accounting for inflation, exceeds $28 trillion.

How do we pay for these deficits? By selling assets—our history—and debt—our future. Doing so has made Americans less wealthy, less free, and less safe.

How have free trade and the trade deficit that inevitably results from free trade made Americans less wealthy? Remember, the trade deficit is nothing more than the difference between America’s economic consumption and production—how much we use, minus how much we make. We can look at this another way: the trade deficit is the value of America’s offshored economic production—the cost to buy it, rather than build it ourselves. This shrinks our gross domestic product (GDP) and costs Americans millions of good-paying manufacturing jobs, which previously had sustained our middle class.

Remember, America lost over 5 million manufacturing jobs since China entered the WTO in 2001. Why? Because, rather than building our own products, we bought them on credit from China. Those jobs are now in China—along with the capital equipment and, increasingly, our technology.

Many of these manufacturing jobs lost to China and other countries were not replaced with opportunities in other sectors of the American economy. How do we know this? Because about 10 million more people dropped out of the labor force since 2001 than we would have expected, even accounting for our aging population.

The loss of manufacturing jobs has a spillover effect on wages across the economy. American workers are now in direct competition with low-cost workers in China and India, who make pennies on the dollar compared to American wages. In order to remain economical, Americans have either needed to accept lower wages or to work harder. Unfortunately, we are being ripped off on both ends. Consider that since 1974, Americans have been working well over twice as efficiently per hour, and yet, real wages have actually decreased. Free trade has lowered prices, chief among them the price of American labor.

Free trade has also made Americans less free. Why? Because we pay for the trade deficit by selling assets and debts; we exchange our financial sovereignty for cheap Chinese junk.

For example, in 2024, foreigners bought an estimated $42 billion of American residential real estate, $8 billion of agricultural land, and $12 billion of commercial real estate. This has raised housing prices in our cities, pricing the next generation out of the markets—people can no longer afford to settle where they grew up. This causes family distress, social dislocation, and political atomization.

Not only that, but America also sells ownership in our businesses. As of June 2023, foreign investors own some 17 percent of all American equities. Ownership of our businesses has dire consequences, such as giving foreign governments direct control of large parts of our “private” economy and direct access to our technology. In fact, corporate espionage is the primary vector of intellectual property theft, which costs Americans up to $600 billion per year in foregone profits.

On top of this, we are selling ourselves into debt slavery. Consider that foreigners own some $8.67 trillion of U.S. Treasury securities, accounting for 24 percent of the public debt. Further, America’s corporate and household debt has ballooned since 1973 to its highest levels since World War II. Much of this is owed to foreigners.

Debt is especially dangerous because we have to repay both the principal andthe interest. This inflates the cost of buying foreign products in a way that economists apparently fail to appreciate. Consider that in 2006, America became a debtor nationfor the first time since the Great Depression. As a result, we are now paying more than $150 billion in interest every year to foreign entities for the privilege of buying the products we should be building!

Finally, free trade makes America less free. This is because of import dependency. Essentially, America has offshored so much of its economy—including critical supply chains—that we are now beholden to foreign suppliers.

Consider that America no longer manufactures enough of the machinery required to manufacture basic household items like knives and forks—never mind the sophisticated electrical components needed for computers and smartphones. In other words, even if we wanted to manufacture forks, we would probably need to buy the fork-making machinery from Europe or China.

This is made clear when we look at America’s production of machine tools. A machine tool is a piece of machinery that shapes its output by removing material by way of lathing, planning, drilling, milling, grinding, sawing, or pressing the output. Because machine tools transform raw materials into machines that make machines, they are like the economy’s reproductive system. The American economy’s reproductive system has been neutered. We used to be the leading manufacturer of machine tools. Today, America imports most of its machine tools, and only produces 7 percent of the world’s supply. For comparison, China makes 29 percent; even Italy produces 8 percent. Imagine falling behind Italy!

America imported $763 billion worth of advanced technology productsin 2024, including a sizeable deficit in silicon computer chips. The modern world runs on computers. They are in everything from our most advanced aircraft to the humble toaster. America would shut down without computers—and it does not have computers without imports.

Not only does America rely on foreign chips, but it also does not manufacture the photolithography machines required to print the chips. Those come from the Netherlands and are shipped to Taiwan, which sells the finished chip product to the U.S. The whole computer supply chain is offshored, leaving America profoundly vulnerable.

Never mind the real possibility that China may someday stop shipping silicon chips to America. What if it were only something as simple as D-cell batteries? Or the common light bulbs? All those things come to the U.S. chiefly from China, which the U.S. military has identified as America’s chief strategic rival. No foreign power should have this kind of leverage over the American people, and certainly not its chief rival. And while China has this power over us, is America truly free? No—no more than a suckling infant is free of his mother.

Dependence breeds servitude. Ironically, it is “free” trade that is taking America down the road to serfdom.

For centuries, America prospered under tariffs—becoming the richest nation in history. Unfortunately, our wealth bred complacency. Our political leaders began to see it as a means to an end—our quality of life was leveraged as a political tool to exert pressure on faraway Shahs and Mullahs.

America’s elites mortgaged our past and sold our future for temporary delights. In doing so, they not only undermined the economic vitality that made America powerful in the first place, but they likened the American people to nothing more than consumers.

But for those of us who know that America is not simply an assortment of atomized individuals, but a people—bound together by blood and tradition, language and culture, and a shared faith in freedom and in God—today’s temporary “gold” gained from free trade is worthless.

We should celebrate the death of Reaganite Republicanism and embrace the return of authentic American conservatism: putting America First.

To amplify your point, this post comes at a time that is critical for Trump's efforts to save our economy from bankruptcy with tariff policy.

Trump has never been a candidate whose claim to office rests on a call for austerity. As the nation rushes headlong toward a fiscal cliff, President Trump has not attempted to trim the life-threatening deficit by cutting spending, rather he wants to grow our way out of of deficits. The principal means to that end, presumably available to any president, is to deploy tariffs.

This fundamental decision to opt for growth rather than austerity was reflected in Donald Trump's first administration and is even more clearly evident today. The heartbreaking failure of DOGE to effect any meaningful cut in federal spending confirms the impossibility in today's political environment to cut spending sufficiently, even as we, and Congress, stare into the abyss.

Senator Rand Paul and Elon Musk found the courage to tell us that the "big beautiful bill" was certainly big but hardly beautiful. It was the product of our politics when Congress is grotesquely dysfunctional. Even as I deplored the profligacy of the law, I warned that its passage was a matter of economic life and death. Donald Trump himself campaigned for the bill as the key to economic prosperity with scant reference to deficit or debt. We were going to grow our way out of debt and deficits into prosperity.

As the big beautiful bill was debated it was not the time to break ranks because the bill as a spending bill was wrong on austerity. At that time our only option was to support it or face disintegration.

What was a president to do? Apart from one (or perhaps two) chances to get legislation through a dysfunctional Congress, there was no hope of effecting spending cuts. But there was one tool that only Donald Trump as president recognized: tariffs. Congress had passed laws that facially permitted the executive to impose tariffs: (1)Tariff Act of 1930, § 338 (19 U.S.C. § 1338); (2) Trade Expansion Act of 1962, § 232 (19 U.S.C. § 1862; (3)Trade Act of 1974, § 301 (19 U.S.C. §§ 2411–2420; (4)International Emergency Economic Powers Act (IEEPA) of 1977 (50 U.S.C. §§ 1701–1707.

Armed with these statutes, President Trump embarked on a campaign, not just to redress unfair trade balances with tariffs but to use tariffs to bludgeon foreign corporations to transfer their manufacturing facilities to the United States, both to avoid tariffs and to avail themselves entry into the huge American consumer market. With much fanfare the president heralded trillions of dollars of foreign investment committed to America. Happy days were here again.

With these announcements it looked like Donald Trump had miraculously found solutions to our desperate fiscal condition but then the Court of Appeals held that many of the tariffs must be enjoined. With this ruling the entire edifice of the Trump administration for the American economy is threatened with ruin. The matter now is scheduled to be taken up shortly by the Supreme Court. We shall see.

If the Supreme Court denies the president's policy of restructuring the American economy by using tariffs, then the criticisms of Sen. Rand Paul, for example, must be reconsidered. In any event, Congress will have to find the fortitude to act contrary to what it was put on earth to do, to stop giving borrowed money away and to start imposing austerity. The implications for the Republican party and the 2026 midterm elections are ominous. Worse, the implications for the American way of life are equally ominous.

A final word about tariffs, the benefits for a nation that imposes tariffs are limited and mixed. Their ability to carry a nation to financial prosperity as a mercantilist nation is limited by size of its own internal market and the capacity of foreign markets to accept those goods that prosper behind tariff barriers. In other words, like all matters, reversion to the Aristotelian mean over time is the prudent course.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.