In the end, what made it possible for the protectionists to win the presidency with Lincoln as their candidate was the formation of the Republican Party. Today the Republican Party calls itself the GOP (Grand Old Party), but it is actually younger than the Democratic Party, which has existed in one form or another since the days of Thomas Jefferson (when it was called, somewhat confusingly to the modern observer, the Democratic Republicans). The Republican Party was a mid-19th-century invention, based on a new vision that befitted a country that was rapidly moving outward (into the West) and forward (through industrialization), rather than harking back to an increasingly unsustainable agrarian economy based on slavery.
The winning formula that the Republican Party came up with was to combine the American System of the Whigs with the free distribution of public land (often already illegally occupied) so strongly wanted by the Western states. This call for free distribution of public land was naturally anathema to the Southern landlords, who saw it as the start of a slippery slope towards a comprehensive land reform. The legislation for such distribution had been constantly thwarted by the Southern Congressmen. The Republican Party undertook to pass the Homestead Act, which promised to give 160 acres of land to any settler who would farm it for five years. This act was passed during the Civil War in 1862, by which time the South had withdrawn from Congress.
Slavery was not as divisive an issue in pre-Civil-War US politics as most of us today believe it to have been. Abolitionists had a strong influence in some Northern states, especially Massachusetts, but the mainstream Northern view was not abolitionist.Many people who were opposed to slavery thought that black people were racially inferior and thus were against giving them full citizenship, including the right to vote. They believed the proposal by radicals for an immediate abolition of slavery to be highly unrealistic. The Great Emancipator himself shared these views. In response to a newspaper editorial urging immediate slave emancipation, Lincoln wrote: ‘If I could save the Union without freeing any slave, I would do it; and if I could save it by freeing all the slaves, I would do it; and if I could do it by freeing some and leaving others alone, I would also do that’.[33] Historians of the period agree that his abolition of slavery in 1862 was more of a strategic move to win the war than an act of moral conviction. Disagreement over trade policy, in fact, was at least as important as, and possibly more important than, slavery in bringing about the Civil War.
During the 1860 election campaign, the Republicans in some protectionist states assailed the Democrats as a ‘Southern-British-Antitariff-Disunion party [my italics]’, playing on Clay’s idea of the American system which implied that free trade was in the British, not American, interest.[34] However, Lincoln tried to keep quiet on the tariff issue during the election campaign, not just to avoid attacks from the Democrats but also to keep the fragile new party united, as there were some free-traders in the party (mostly former Democrats who were anti-slavery).
But, once elected, Lincoln raised industrial tariffs to their highest level so far in US history.[35] The expenditure for the Civil War was given as an excuse – in the same way in which the first significant rise in US tariffs came about during the Anglo-American War (1812–16). However, after the war, tariffs stayed at wartime levels or above. Tariffs on manufactured imports remained at 40–50% until the First World War, and were the highest of any country in the world.[36]
In 1913, following the Democratic electoral victory, the Underwood Tariff bill was passed, reducing the average tariff on manufactured goods from 44% to 25%.[37] But tariffs were raised again very soon afterwards, thanks to American participation in the First World War. After the Republican return to power in 1921, tariffs went up again, although they did not go back to the heights of the 1861–1913 period. By 1925, the average manufacturing tariff had climbed back up to 37%. Following the onset of the Great Depression, there came the 1930 Smooth-Hawley tariff, which raised tariffs even higher.
Along with the much-trumpeted wisdom of the Anti-Corn Law movement, the stupidity of the Smoot-Hawley tariff has become a key fable in free trade mythology. Jagdish Bhagwati has called it ‘the most visible and dramatic act of anti-trade folly’.[38] But this view is misleading. The Smoot-Hawley tariff may have provoked an international tariff war, thanks to bad timing, especially given the new status of the US as the world’s largest creditor nation after the First World War. But it was simply not the radical departure from the country’s traditional trade policy stance that free trade economists claim it to have been. Following the bill, the average industrial tariff rate rose to 48%. The rise from 37% (1925) to 48% (1930) is not exactly small but it is hardly a seismic shift. Moreover, the 48% obtained after the bill comfortably falls within the range of the rates that had prevailed in the country ever since the Civil War, albeit in the upper region thereof.
Despite being the most protectionist country in the world throughout the 19th century and right up to the 1920s, the US was also the fastest growing economy. The eminent Swiss economic historian, Paul Bairoch, points out that there is no evidence that the only significant reduction of protectionism in the US economy (between 1846 and 1861) had any noticeable positive impact on the country’s rate of economic growth.[39] Some free trade economists argue that the US grew quickly during this period despite protectionism, because it had so many other favourable conditions for growth, particularly its abundant natural resources, large domestic market and high literacy rate.[40] The force of this counter-argument is diminished by the fact that, as we shall see, many other countries with few of those conditions also grew rapidly behind protective barriers. Germany, Sweden, France, Finland, Austria, Japan, Taiwan and Korea come to mind.
It was only after the Second World War that the US – with its industrial supremacy now unchallenged – liberalized its trade and started championing the cause of free trade. But the US has never practised free trade to the same degree as Britain did during its free trade period (1860 to 1932). It has never had a zero-tariff regime like Britain. It has also been much more aggressive in using non-tariff protectionist measures when necessary.[41] Moreover, even when it shifted to freer (if not absolutely free) trade, the US government promoted key industries by another means, namely, public funding of R&D. Between the 1950s and the mid-1990s, US federal government funding accounted for 50–70% of the country’s total R&D funding, which is far above the figure of around 20%, found in such ‘government-led’ countries as Japan and Korea. Without federal government funding for R&D, the US would not have been able to maintain its technological lead over the rest of the world in key industries like computers, semiconductors, life sciences, the internet and aerospace.
34
The quote is from R. Luthin (1944), ‘Abraham Lincoln and the Tariff’,
35
One of Lincoln’s key economic advisors was Henry Carey, the then leading US economist, who was the son of a leading early American protectionist economist, Mathew Carey, and himself a prominent protectionist economist. Few people have heard of Carey today, but he was regarded as one of the leading American economists of his time.Karl Marx and Friedrich Engels even described him as ‘the only American economist of importance’ in their letter to Weydemeyer, 5 March 1852, in K. Marx & F. Engels (1953),
36
The consolidation of a protectionist trade policy regime was not the only economic legacy of Lincoln’s presidency. In 1862, in addition to the Homestead Act, one of the largest land reform programmes in human history, Lincoln oversaw the passage of the Morill Act. This act established the ‘land grant’ colleges, which helped boost the country’s research and development (R&D) capabilities, which subsequently became the country’s most important competitive weapon. Although the US government had supported agricultural research from the 1830s, the Morrill Act was a watershed in the history of government support for R&D in the USA.
40
In reviewing my own book,
41
These included: ‘voluntary’ export restraints against successful foreign exporters (e.g., Japanese car companies); quotas on textile and clothing imports (through the Multi-Fibre Agreement); agricultural subsidies (compare this with the repeal of the Corn Laws in Britain); and anti-dumping duties (where ‘dumping’ is defined by the US government in a way that is biased against foreign companies, as repeated WTO rulings have shown).