writes Jeff Pross. It was no other than Alexander Hamilton, the first US Secretary of the Treasury, who instituted the first US tariffs in 1792 with the explicit intent of raising funds and paying off the first States’ debts and developing US industries. (Here is the full story).
In 1944, global institutions were established to assure free trade (IMF, World Bank, GATT, WTO), which impose tough rules that guarantee free movement of goods across borders. These rules prohibit public subsidies and “industrial policy” (tariffs to safeguard industries threatened by imports). Sure, China and many other nations flout those rules (here is a list of the nearly 600 WTO trade disputes since 1995), but neither the US nor Europe became rich by following these rules themselves! Quite the contrary, Pross suggests that China’s current trade strategies are basically plays from the 1800-1944 US/European development playbook. In fact, the US/Chinese trade tensions hold an “uncanny resemblance to the German/UK trade tensions in the nineteenth century… Both rivalries feature countries enmeshed in tariff threats, standard-fights, technology theft, financial power struggles, and infrastructure subsidies for advantage.”
“Between 1816 and the end of the Second World War, the U.S. had one of the highest average tariff rates on manufacturing imports in the world.” Over its history, the U.S. has never shied away from using subsidies and industrial policy to support everything from agriculture to transportation to health research. Right after independence and technologically behind Britain, America was absolutely shameless about snatching technology and intellectual property from other countries. By comparison, China’s “forced” technology transfer is pretty tame: It simply demands that any foreign investor who voluntarily decides to do business in China’s domestic market must engage in a joint venture with a Chinese partner.
European countries followed the same playbook of development. Britain built up wool manufacturing in the late 1500s through industrial policy.. lowering tariffs on imports of raw materials, but raising tariffs on imports of manufactured products — in order to keep the resources coming in but to protect its high value-added industries. In the mid-1800s, Britain pulled off the original “technology transfer” with China as its victim: Britain sent agents through China to steal tea plants/seeds and learn agricultural practices to introduce tea plants to India and marginalize China in the global tea market. And oh, to “fix” its trade deficit with China, the British government (!) resorted to overt drug trade, flooding China with Opium; and once addicted, the British sold China opium at exorbitant prices to reverse the trade deficit into a surplus.
