The debate over trade policy is fired up in ways we’ve not seen for a century. It has given rise to big thoughts about history and who has been right and wrong on this subject.
Within the American political context, the debate was present even at the Founding. The Hamiltonians preferred industrial protection. The Jeffersonians, favoring agriculture, gravitated toward a free-trade position to maintain international markets.
George Washington in his farewell address decided to thread the needle: “The great rule of conduct for us in regard to foreign nations is in extending our commercial relations, to have with them as little political connection as possible.”
What was behind those words? They spoke to the opportunities and dangers associated with both sides. The Hamiltonian view could give rise to a form of industrial imperialism insofar as it imposed itself on others in the name of pushing exports or banning imports.
The Jeffersonian view could cause the nation to be overly dependent on industrial imports while cultivating too much by way of political attachments to agricultural buyers around the world.
Washington said there is nothing wrong with international commerce, provided it never compromises America’s political independence.
And here we are in 2025 with a profound awareness that America’s political independence has been compromised by strange globalist forces in finance, international treaties, and other entanglements of every sort. The migrant crisis made the point: clearly immigration was being deployed for reasons of domestic political manipulation. That had to stop.
There are other factors at work in why this debate has hit so hard and so suddenly. This once-great manufacturing country finds itself after half a century with industrial corpses all over the nation. The middle class has long struggled financially and that is getting worse. The household is strained by earnings demands that make stable family life nearly impossible.
More than anything else, there is a deeper problem with a nation wholly dependent on imports and consumption: a loss of purpose. Financialization and bloated professionalization has forged a class structure that is inconsistent with the traditional American aspiration of class mobility.
This came into view clearly during the COVID period, which demarcated the laptoppers versus everyone else. That period underscored to everyone that something had gone very wrong.
Part of this new debate has concerned two big terms from the past: mercantilism and Manchesterism.
Let’s explain.
In the late Middle Ages and before the period usually linked to the rise of capitalism, a theory of international trade emerged on the continent. It came to be called mercantilism. The goal of the game was the importation of gold and silver as the path for making the nation great. This meant of course putting a priority on exports.
Central to this vision is that trade is zero-sum, a world of winners and losers. The object of governments was to come out on the winning side. That gives you more resources for building ships, raising armies, exploring the world, and building and securing colonial empires.
The plausibility of the idea was inseparable from the form of money itself. It was gold, silver, and copper. Who doesn’t want more of that?
Spain became its greatest practitioner. It became the excuse for its empire and colonial excursions in the Americas. The stories of how the natives were treated are legion, and eventually led to the moral outrage over slavery in the 19th century.
There is no question that Spain benefited as a nation. But these riches came at a huge cost. The government overspent on essentially everything, driving itself to bankruptcy several times. Most interesting from an economic point of view is that the huge increases in gold money ended up fostering rampant inflation over a 200-year period, leading to the so-called Price Revolution.
This also led to the formation of the “quantity theory of money.” It became obvious that a larger money stock is not always better. It leads all existing quantities to drop in purchasing power relative to goods and services. Some people benefit from access before the prices rise, which increases class inequality. It also feeds industrial distortions as credit becomes more widely available before there are savings at hand to justify expected consumption.
In the end, while Spain’s mercantilist strategy seemed beneficial in the short term, it was arguably the very cause of the downfall of the empire itself. It fed decadence, inflation, government expansion, and made the elites blind to the risks and costs of the empire they created.
In light of this, and with the subsequent rise of England as an industrial power, a new idea appeared on the horizon that was later dubbed Manchesterism. The goal of the trading strategy should not always be to maximize exports and hoard money within a nation. There should be a flow back and forth between trading nations such that no one is left with a bloated state and a problem of perpetual inflation.
England eventually embraced free trade based on the belief that low tariffs and free flows of money and goods worked out best for everyone in the end.
How can we transfer this old debate to our own times? There are some major differences between then and now. The most salient one is the form of money. It is no longer in the form of gold that cannot be printed. Money today is paper or digital which can be expanded to infinity in the form of debt creation.
Today the paper dollar is the international reserve currency. It is socked away by nations around the world as they export to the United States. Those dollar reserves are then deployed to create industrial competition with U.S. producers. It is this practice which has had such a devastating effect on American manufacturing.
It’s true that we get goods and they get only paper. But no country can lose multiple dozens of its once-lucrative main industries in 50 years and be thrilled about the shock.
The mercantilist nations in this case have been first Japan and then China, both of whom hold vast dollar reserves, the same as Spain once accumulated gold. China remains today the world’s top practitioner of mercantilist trade policy.
Has China benefited? Certainly.
Unlike Spain, however, China has not had to pay the price in terms of domestic price adjustments. This is because they use one currency internally and deploy the U.S. dollar as expansionary collateral for banking support for their industry. It’s clever, and Trump is correct to call it out.
It’s not at all clear, however, that the United States can adopt the same mercantilist policy given the U.S. dollar’s global status. And this is where the tariffs come into play. The Trump administration is attempting to use them as a backdoor method of settling accounts while retaining the dollar as the global reserve currency.
Anyone who is sure that this is going to work is inflating their own confidence beyond believability. The truth is that no one knows for sure. The reason to take the risk is the profound awareness that something has gone very wrong.
My own strong recommendation is that the United States not rely on its international economic muscle exclusively in this struggle. There are ways to lower business costs domestically and slash regulations as much as possible. Tear down the barriers to enterprise domestically and you create more favorable conditions for economic recovery. As for the dollar, at the very least, stop creating and exporting debt assets that are then deployed as weapons.
Is my plan enough? I don’t know but it seems worth the effort, and less risky than wrecking supply chains and trade relationships around the world. In the end, George Washington was right: let’s trade as much as possible but maintain as little political connection internationally as possible. That rule is our shining light.
