Robber Baron Capitalism in Four Lessons – Part III: The Report on the Manufactures Revisited

 

“In the days of Henry Clay, I was a Henry Clay-tariff-man and my views have undergone no material change on that subject.”

Letter from Lincoln to Edward Wallace, May 12, 1860

“During my whole political life, I have loved and revered Clay as a teacher and leader.”

Lincoln, July 6, 1852

“Give us a protective tariff, and we shall have the greatest nation on earth.”

Lincoln, 1847

“Such are some of the items of this vast system of protection, which it is now proposed to abandon. We might well pause and contemplate, if human imagination could conceive the extent of mischief and ruin from its total overthrow, before we proceed to the work of destruction. Its duration is worthy, also, of serious consideration. Not to go behind the Constitution, its date is coeval with that instrument. It began on the ever memorable 4th day of July the 4th day of July, 1789. The second act which stands recorded in the statute book, bearing the illustrious signature of George Washington, laid the cornerstone of the whole system. That there might be no mistake about the matter, it was then solemnly proclaimed to the American people and to the world, that it was necessary for “the encouragement and protection of manufactures,” that duties should be laid.

[…]

Mr. Hamilton, surveying the entire ground, and looking at the inherent nature of the subject, treated it with an ability which, if ever equalled, has not been surpassed, and earnestly recommended protection.”

Henry Clay before the United States Senate on the National System, February 2, 3, and 6; 1832

“If the system of perfect liberty to industry and commerce were the prevailing system of nations—the arguments which dissuade a country in the predicament of the United States, from the zealous pursuits of manufactures would doubtless have great force. It will not be affirmed, that they might not be permitted, with few exceptions, to serve as a rule of national conduct. In such a state of things, each country would have the full benefit of its peculiar advantages to compensate for its deficiencies or disadvantages. If one nation were in condition to supply manufactured articles on better terms than another, that other might find an abundant indemnification in a superior capacity to furnish the produce of the soil. And a free exchange, mutually beneficial, of the commodities which each was able to supply, on the best terms, might be carried on between them, supporting in full vigour the industry of each. And though the circumstances which have been mentioned and others, which will be unfolded hereafter render it probable, that nations merely Agricultural would not enjoy the same degree of opulence, in proportion to their numbers, as those which united manufactures with agriculture; yet the progressive improvement of the lands of the former might, in the end, atone for an inferior degree of opulence in the mean time: and in a case in which opposite considerations are pretty equally balanced, the option ought perhaps always to be, in favour of leaving Industry to its own direction.

But the system which has been mentioned, is far from characterising the general policy of Nations. The prevalent one has been regulated by an opposite spirit.

The consequence of it is, that the United States are to a certain extent in the situation of a country precluded from foreign Commerce.”

Alexander Hamilton, The Report on the Manufactures, December 1791

 

As of the time of this writing, there are only two Conservatives in the entire United States of America – myself and President Donald Trump.

The reason for this surprising absence of support is because, aside from both of us, there are in the nation only two types of non-Liberals who, unlike us, are simultaneously non-Conservatives. The first group of non-Liberals, yet still non-Conservatives, are those in the mainstream who claim to support Lincoln’s political tradition but keep yielding to Progressive policies that Lincoln would have no patience for. The second group of non-Liberals, yet still non-Conservatives, consists of Confederate apologists who at once despise Lincoln but who defend numerous side effects of Lincoln’s war.

The first group of non-Liberals is unworthy of their founder, the second literally does not know the difference between North and South.

And perhaps on no other issue are the consequences of their failure to adopt unqualified Lincolnism (as I and Trump have have adopted without reservations) by both mainstream and fringe non-Liberals been more manifest than on trade policy.

For thirty years mainstream Republican economists have been committing a gross policy failure in trade relations with China without realizing both why Lincoln – exactly as Trump did – would have condemned them for it and why Lincoln on economic grounds would have been entirely justified in doing so.

On the other side, non-Liberal American trade Protectionists are mostly (though, to be fair, not exclusively) Confederate apologists. Through breathtaking stupidity they sympathize with the Confederacy despite the fact it was Lincoln who saved American industry from the free trade-inclined South. In the process they justly and forever exclude themselves from ever having a say in policy on any successful rightwing movement.

For you see, American Protectionism can never be divorced from Lincoln’s Nationalism because his Conservatism is the only surviving Nationalism in the West. Primarily this is because Bismarck’s industrial Nationalism lost two wars to Lincoln’s industrial Nationalism. Hence, the rest of the West must build their respective Nationalisms from scratch.

Not so in America where Lincoln’s economic triumph was the impetus behind its two centuries of military triumph.

But American Nationalism can also never disassociate itself from Lincoln’s heroism because Lincoln Lincoln’s Protectionism is also inherently elitist and New York-centric since Lincoln inherited Alexander Hamilton’s National System by way of Lincoln’s political idol, Henry Clay.

A dominant political tradition like this eventually evolves into an inherently elitist one. And no one should be surprised that a New Yorker, Franklin Delano Roosevelt, became the greatest ideological enemy of his fellow New Yorker, Alexander Hamilton.

It is also not a coincidence that the greatest post-New Deal practitioner of Hamilton’s Nationalism, the only modern Republican able to draw Lincoln’s sword from the stone, Donald Trump, is also New York born and bred.

For good or otherwise, Trump’s unorthodox style of communication prevents many non-Liberals from appreciating his right to rule over Lincoln’s kingdom with an iron hand.

Pragmatically Distributed will resolve that shortcoming with the fine economic details of Hamiltonian Protectionism that Trump may have inadvertently skimmed.

We will do nothing less than rebuild trade theory and policy completely from scratch because both Protectionist and Republican free trade theory of the last several decades is a chaotic mess of misunderstandings and faulty assumptions In the case of free trade Republicans especially their trade policy errors have largely been the result of “word thinking”. Both of their arguments are so distorted that nothing short of rejecting them wholesale will clear the way for the one and only trade policy suitable for the premier Capitalist world power in history.

Mainstream GOP and Libertarian mistakes fall into three categories: A misunderstanding of what government interventions are consistent with Capitalism, assuming their conclusions without enough supporting information about the true cost-benefit calculations of outsourcing industry, and simple word thinking.

At the end, we will see that Hamilton’s protectionist policies were closest to meeting our ideal trade and industrial policy, though still in need of refinements that I am only too happy to provide with the benefit of two centuries hindsight unavailable at the time to Hamilton.

Although the great Hamiltonian Republicans of the late 19th and early 20th centuries such as Grant, McKinley, and Theodore Roosevelt took Hamilton’s protectionist policies as a point of near religious dogma, Hamilton never lost sight of the fact that tariffs and protectionism were simply tools that were appropriate for circumstances and inappropriate in others.

In his circumstances, Hamilton was right to protect. Not so much because American industry was at an infant stage (although that justification was strong enough) but because the quality of market signals and information was relatively distorted by the Protectionist nations of his era. To trade freely with Protectionist states, as the antebellum South would have preferred, would have distorted investment in American based manufacturing by making native industry wrongly appear less competitive relative those of Protectionist states. Actually, Hamilton would have preferred to trade freely as soon as possible, but could not do so when Protection was the order of the day for all of our potential partners.

The example of Hamilton, Clay, and Lincoln is Pragmatically Distributed and our defense of their economics is as follows.
Scope Conditions

1st Out of Scope Condition – What percentage of the labor force works in manufacturing.

Unlike most other arguments in favor of protection, this discussion is limited strictly to industrial competitiveness, not employment levels. It may be the case that industrial employment will continue to shrink on account of greater mechanization, or other factors, just as employment in agriculture has decreased. But in this case the manufacturing sector would continue to be an important economic asset just as agriculture remains a valuable national asset despite agriculture employing only a small percentage of the total labor force. Hamiltonian Protectionist policy does not justify itself on employment grounds no matter if 0% to 100% of Americans work in that sector.

2nd Out of Scope Condition – Immigration.

Immigration is ignored because immigration is a completely separate topic from trading tangible goods, even as a rough analogy.

This is because there is no export/trade/exchange of citizens from wealthy nations to poor nations.

Immigration is more analogous to a one-sided trade embargo where one nation embargoes goods from another yet the embargoed nation continues to allow the import of the other state’s goods: The “trade” of populations in immigration policy is almost all one-sided from poor nations to compete for jobs in wealthy nations, and normally without the citizens of wealthy nations having the opportunity to compete for jobs in poor nations.

Some of the barriers preventing wealthy nations from “exporting” its people to poor nations are intentional such as the often restrictive immigration rules in the Third World. Others are not purposeful barriers to immigration from wealthy nations to the poor (e.g., the lower living standards of poor nations).

Nevertheless, whether intended or not these barriers act as barriers to immigration from wealthy to poor nations. By contrast, one-sided trade embargoes never happen in the trade of goods- if one country places an embargo the embargoed nation always retaliates with its own embargo.

3rd Out of Scope Statement – Trade relations between developed and developing nations. Developed nations are over 75% of world GDP. Therefore the most useful information for American economic policy makers is how trade affects advanced nations since this trade has the most economic impact on America.

4th Out of Scope Statement – Progressive trade policy.

Progressive trade policy will be dealt with in a future article.

General economic assumptions about manufacturing:

1st Hamiltonian Assumption – Encouraging a healthy manufacturing sector is a requirement for an advanced economy.

Is this sector needed at all?

It is for five reasons:

1) The health of the industrial sector is directly related to military strength.

America won the Civil War, two World Wars, and the Cold War because of the industrial power built in the 19th and early 20th centuries.

2) As mentioned by Alexander Hamilton in the Report on the Manufactures, strong industrial environment contributes to a strategy of diversified economic growth.

Because the economic cycle is driven by demand in a specific sector or group of sectors, and because governments cannot anticipate in advance in which sector(s) and at what time the next demand boom will emerge, the best governmental policy is to cast as wide a net as possible by nurturing the health of many different economic sectors rather. Much like a personal investment portfolio, and instead of betting national wealth on only one or a few sectors, the healthier the business climate is across a broad range of economic sectors the greater the chances are that at least one sector can take advantage of the next sector-based boom cycle.

In a diversified economy where the business environments for the technology, medical, manufacturing, real estate, financial (etc., …) sectors are generally healthy such kind of economy will be positioned to take advantage of growth when the next sector-particular boom cycle occurs without the government needing to know in advance in *which* sector(s) the next boom cycle will occur.

Those free trade advocates (who are probably a small fraction of all free traders) who question the need for a manufacturing sector are really suggesting the adoption of an economic disadvantage in the event high tech manufacturing (or any other manufacturing sector) becomes the next boom sector, an event that cannot be predicted or dismissed ahead of time by any free trade economist nor anyone else.

3) Economies diversified across many sectors generally suffer less during crashes and recover faster than economies overly dependent on one or a few sectors.

Commodities dependent economies such as Brazil have harsher boom-bust cycles because there are fewer alternative sectors to pick up the slack when commodity demand falters. Although there are also examples of economies becoming excessively dependent on manufacturing, the point of Hamiltonian policy is not to rely excessively on manufacturing for growth. We do not even have a recommendation for what percentage of American GDP should result from manufacturing because the economic reality of value subjectivity makes it impossible to know what the objectively “correct” percentage should be.

We instead recommend nothing less than treating manufacturing as one of many sectors that deserves sector-specific encouragement with Capitalistic policies. From there, the market will determine what that percentage is.

4) The profound upstream and downstream cascading effects native manufacturing has on the utilization of natural resources, supply chains, energy, construction, real estate, and infrastructure.

All American sectors that do business with native manufacturing are at least to some degree dependent on the performance of American industry. Many of those sectors such as natural resources, supply chain architecture, energy, construction, and infrastructure, are quite valuable and have great impact over the performance of other sectors aside from industry. If the performance of American manufacturing is not competitive because a Capitalistic government’s obligation of encouraging a strong business climate for industry, then the competitiveness of upstream and downstream sectors already mentioned will be reduced in proportion to their dependence on industry.

5) The idea domestic manufacturing is not a desirable goal of policy is nonsense on its face given the demand for millions upon millions of different types of tangible products.

The sheer demand for physical goods is enough to prove the lucrative economic value of having competitive manufacturers who can compete to satisfy this great scale of demand.

The 1st Mainstream Libertarian & GOP Trade Policy Mistake: Not distinguishing between Capitalistic market interventions and crony Capitalist interventions.

Their policy failure is a classic example of failure via word thinking.

Whenever Protectionists (however poorly they argued their case, and poorly made arguments were certainly their norm) pointed to negative consequences arising from American trade with China the standard response of mainstream GOP economists was that nothing could be done because any government intervention in favor of domestic manufacturers would be “favoritism” or “crony capitalism”.

In their minds, the words “favoritism” or “crony capitalism” were equated with the word “socialism”, which to them is “bad”. Similarly, doing nothing in terms of corrective industrial policy was considered “laissez-faire” and therefore “good” because they associate the term “laissez-faire” with the term “free markets”. Hence, any policy helping struggling industry was ruled out automatically.

With the end of those word associations came the end of their thinking.

The Hamiltonian response is that this sort of clumsy methodology is unworthy of Federalist policy standards; standards which are the first and last word on what is acceptable in American Conservatism.

The mainstream GOP policy response was wrong because they did not distinguish between the two types of government interventions, one of which is to be encouraged in Hamiltonian economics because it yields more competitive businesses while the second type of government intervention results in less dynamic, though relatively stable, industries.

In Hamiltonian Capitalism the government is responsible for policies that improve (to the extent possible) the economic climate of the national economy generally as well as the climate of particular economic sectors. However, the government does not favor which particular businesses thrive in any given economic environment.

In crony Capitalism, not only does the government intervene in the shared business environment but the government favors specific, politically well-connected, firms. The upside of crony Capitalism is that businesses are given more freedom to compete without being weighed down by pure Socialist command and control economics or Progressive micro-managing. The disadvantage is that well-connected firms such as Russia’s Gazprom, China’s Lenovo, and (to a lesser extent) Japanese companies such as Sony are still less incentivized to become more competitive because they know they can count on government as a backstop should they encounter a crisis.

An example of a good intervention by Hamiltonian government is deregulation of the auto manufacturing sector. An example of the kind crony Capitalism discouraged by Hamiltonian economics would be giving direct subsidies to a specific car manufacturer such as Ford.

Contra the lazy thinking of free trade advocates, there are numerous policies that may be put in place to improve the business climate for manufacturers without falling into genuine crony Capitalism. These include environmental interventions that mainstream Republicans do not traditionally object to, everything from tax incentives, encouraging greater energy production, building out infrastructure needed for supply chains, and so forth.

Among types of environmental correctives, tariffs are absolutely a legitimate tool for intervention, whenever appropriate, in the business environment.

Libertarian economists, both mainstream and fringe, have a more fundamental objection to Hamiltonian interventions. In contrast to less Libertarian-minded Republicans who do see some need for government oversight of the economy but who are confused about what qualifies as a legitimate environmental intervention vs what is true cronyism, Libertarians are inclined to reject even a limited government role as an economic “umpire”.

Hamiltonian Capitalists simply reject the Libertarian goal of removing all or nearly all government oversight for reasons already discussed in the past. Free market governments must claim jurisdiction over the business climate by setting common rules because in a hypothetical absence of government the temptation to distort market signals does not disappear. Instead the temptation atomizes down to various businesses who would then distort common rules once regulated by government (such as financial statement reporting, regulatory barriers to forming monopolies or cartels, etc) to attract more investment to themselves to the detriment of competitors.

The 2nd Mainstream Libertarian & GOP Trade Policy Mistake: Ignoring government’s obligation to intervene in the business climate of the manufacturing sector.

Their reluctance to intervene environmentally in a specific sector is related to their confused aversion to endorsing corporate “favoritism”.

Mainstream Republicans normally claim they prefer to treat companies equally when they endorse a change in policy. An example of this preference are proposals for dollar-for-dollar phasing out of targeted tax cuts to particular types of businesses in favor of tax cuts for all businesses.

This preference led free traders to object to environmental intervention on behalf of the manufacturing sector on grounds that no sector should be favored over others.

But this objection is wrong both theoretically and in practice – Because economic sectors have different operational needs, the reality is that the US Congress, as well as all other legislative bodies in the Capitalist world, must in theory pass sector-specific legislation that affects one sector’s operations deeply while having little to no effect on operations in other sectors.

And in practice, economic legislation that affects specific sectors more than others is passed on a routine basis.

The nature of sectors having differing operational needs makes lawmaking in this manner unavoidable: Arms export laws impact the business climate of the defense sector, not the medical industry. Medical licensing laws impact the business climate of the medical sector, not the defense sector.

The manufacturing sector’s environmental needs have been neglected and this should be remedied with sector-specific economic policy just as with any other economic sector.
Hamilton’s 1st Law of Trade – Comparative advantage is only a mathematical relationship; it is not by itself enough to say whether the outcomes of trade policy are good or bad.

This concept is where both free trade Republicans, Libertarians and protectionists fell flat.

Using comparative advantage free traders argued that America’s outsourcing of manufacturing capacity to China was a net positive economically because it resulted in cheaper goods for American consumers. Their conclusion was wrong because it was reached without sufficient information to make a value judgment.

By pointing to America’s loss of manufacturing jobs and capacity to China protectionists argued comparative advantage itself was a net negative economically. Their conclusion was wrong because it was reached without enough information to make a value judgment.

Comparative advantage is only a mathematical expression of an economic relationship. This expression does nothing more or less than help explain why production shifts to more efficient nations or areas.

As with all mathematical expressions of economic law, comparative advantage is neither a positive or negative.

To reach a value judgment about economic policy an economist must ask why a result occurred, not draw a value judgment from the law’s outcomes.

To illustrate this idea with a different economic law, consider one scenario where the price of oil rises following a contraction in the oil supply. Then, consider another scenario where the price of oil declines following an expansion in the supply of oil. In both cases the mathematical law of supply and demand cannot by itself tell us whether those respective contractions or expansions of supply were “good” or “bad” nor what policy action, if any, to take.

That can only be answered by asking why did supply of oil contract or expand.

If the supply of oil contracted because environmental regulations blocked oil drilling then its outcome would be detrimental and the policy recommendation might be to remove the regulations. However, if supply contracted because rapid economic growth increased demand for energy then the contraction could be considered positive and no corrective governmental measures are needed in the business climate.

In the case of supply expansion, if the supply expanded because new oil reserves were discovered then the outcome can be considered positive. However, if supply expanded because war disrupted energy supplies to an oil importing trade partner then the expansion could be judged as a negative.

But by itself and without context the law of supply and demand says nothing useful to us about whether the outcomes of that law are economically beneficial or harmful.

Likewise, in order to arrive at a policy judgment about America’s trade relationship with China the question to ask is not why comparative advantage predicted American manufacturing would shift to China.

The policy question is why was Chinese production efficient enough to cause American production capacity to shift?
Hamilton’s 2nd Law of Trade – The ultimate objective of Capitalistic trade is to benefit the consumer’s interests with goods produced by competitive businesses.

Free trade partisans usually summarize their objections against Protectionism with the argument that the primary reason an economy exists is to serve the consumer, not the producer. Hence, if the consumer benefits from the outsourcing of manufacturing with lower prices then the impact on producers is not a policy a concern.

On this point, Hamiltonians agree with free traders in the narrow sense that the consumer must ultimately benefit from trade, not the producer.

Where free traders have failed has been in remembering the consumer benefits from trade, or any other economic policy, only to the extent those firms satisfying customer demand are competitive.

Only competitive firms can provide the consumer with goods of increasing volume, quality, variety, and at competitive prices.

When defending the past three decades of trade relations with China, free traders have wrongly argued that the fact Chinese goods are low priced as proof this trade relationship was a net positive.

But low prices by themselves cannot be the standard to judge trade outcomes.

Communist countries also provided manufactured goods such as cars at low prices. What they failed at was providing the consumer with higher quality, volume, and variety. Hence West Germany produced Porsches and BMWs while East Germany produced Trabants.

The standard to judge trade relations is businesses competitiveness, not price as free traders would simplistically have it.
Hamilton’s 3rd Law of Trade – Economic Darwinism is the force that ensures trade relationships are beneficial overall by selecting for the most competitive businesses to manufacture goods; and the force of economic Darwinism depends on accurate market signals about the competitiveness of different companies.

Federalists practice Capitalism in the only manner it should be practiced: Ruthless economic Darwinism.

To ensure optimal selective pressure is in effect, inefficient firms must be wiped out so their capital resources and economic niches can be taken over by fitter businesses.

The loss of domestic manufacturing capacity through trade can be, net-net, advantageous if it results in the following:

1) Goods previously created domestically become available for import at greater volume, quality, variety, and at more competitive prices.
2) Remaining domestic businesses are more competitive and specialized.
3) This enhancement in competitiveness yields more efficient downstream and upstream effects in the use of natural resources, design of supply chains, production and distribution of energy, real estate utilization, and infrastructure layout.

These benefits can occur only to the extent economic Darwinism can read accurate economic signals in order to determine which businesses are competitive enough to deserve survival and which deserve to be crushed.

Hamilton’s 4th Law of Trade – Comparative advantage is a net positive in trade between advanced Capitalist economies because economic Darwinism is basing its selective pressure on relatively more accurate market signals about which manufacturers are truly competitive.

The advantages mentioned in Hamilton’s 3rd Law of Trade become manifest in trade relations between Capitalist nations because of the greater clarity of market signals from which economic Darwinism can base decisions.

When market signalling is accurate, selective pressures can better know which manufacturers are competitive and which are not.

This selective pressure results in cascading improvements in the efficient use of capital resources for both nations.

Hamilton’s 5th Law of Trade – Comparative advantage is economically detrimental to free markets in trade relations between Capitalist and Protectionist economies because the protectionism practiced by one economy distorts the economic signals of the Capitalist nation.

As discussed, the Darwinian benefits of free trade are dependent on selective pressure having the most accurate possible market signals about the competitiveness of individual manufacturers.

The less accurate the market signals, the more detrimental a trade relationship is to the cause of Capitalism.

In open trade between Capitalistic and Protectionist nations the economic benefits of Darwinism are undermined because of faulty economic signalling.

And no free trade relationship has been a greater example of how Capitalist states should not handle trade with a Protectionist state than the modern trade relationship between America and China.

The effect of market manipulation by the Chinese government has been to mask which manufacturers in America or China were actually competitive. State endorsed distortions (normally of a non-tariff nature) such as China’s devaluation of its currency, subsidies for producers, theft of intellectual property, permissive attitude towards industry falsifying public financial reporting, all of these Protectionist distortions have warped the normal economic signalling economic Darwinism requires to know which American and Chinese manufacturers are competitive enough to survive.

Because the Protectionist policies of China masked economic information without American policy makers taking corrective measures in the trade relationship, the loss of American manufacturing capacity to China was therefore economically detrimental to America without America gaining the normal trade benefits it receives from trading with other Capitalistic states.

American manufacturers, lacking corrective policies in their favor mostly because of word thinking and misunderstandings on the role of government in free markets by mainstream Republicans, were wrongly made to appear less competitive than Chinese firms. When those American businesses were driven out of the market, the downstream impact on supply chains, natural resource usage, etc., resulted in misallocation of capital AKA malinvestment.

It is true prices of Chinese goods were lower, but as pointed out before, lower prices cannot be the end-all of Capitalism without destroying the argument for free markets: If free market advocates defend the Chinese state’s manipulation of its industrial sector so long as Chinese industry exports cheap goods then American Liberals can also defend their domestic market manipulations so long as they promise their agenda results in lower prices than what market competition can provide.’

Because of faulty economic signalling, the vast majority of economic models that concluded American trade with China was a net benefit are faulty because competitive pressure in both nations was acting on incorrect information caused by Chinese intervention on behalf of its domestic industry. Those signals were warped in both nations no matter how closely America intended to adhere to free market policy.

America could certainly not have industrialized to the successful extent it did in the 19th century and early 20th century if we had open trade with the largely Protectionist economies of the time because our industries would have been at an artificially created policy disadvantage relative to foreign manufacturers that enjoyed state protection-backstops.

Hamiltonian Trade Theory Continued – Economic Subjectivity & Trade with Other Advanced Economies as well as International Trade Forums

The failures of American trade with China are the most glaring warning that a Capitalistic economy cannot have actual free trade with a Protectionist state because the market distortions of the Protectionist will distort the normal market signals in a Capitalist state.

But what are the implications of these lessons for trade with advanced economies besides China where the market distortions exist but are less obvious? And how should we expect other trade partners to react to what they see as American Protectionism in some areas?

The first thing to keep in mind is that a pure system of free trade will never exist for two reasons.

First, due to the inherently subjective nature of economic value as proven by von Neumann and Morgenstern, not only will different nations never agree exactly on what counts as “unfair” trade practices, economic subjectivity makes it impossible to create an objective standard of “fair” and “unfair” trade practices.

Secondly, pure free trade will never exist because game theory predicts that nations do not act purely on economic interests. In general, many niche protectionist policies will continue such as international treaties enshrining nation of origin requirements on food items. For example, nation of origin clauses give permission to bottle and market Scotch to Scotland only. This despite the fact the production of Scotch could be done by any distillery in any nation. How much is a glencairn worth at the margins?

These types of trade barriers will remain because the relative economic benefit of eliminating niche protections are subjectivley valued less by the nations put at a disdvantage than the benefiting nation places on whatever non-economic value they receive from that barrier.

Nevertheless, the increasingly lucrative scale of trade means that the trend around the First World will continue to move towards fewer barriers, despite periodic trade disputes, even if it is infeasible that every last barrier between them will be taken down – infeasible for no other reason than different First World nations can never objectively agree on what qualifies as a barrier. For the most part, trade conflicts in the First World will probably be resolved quickly enough to prevent longer-term economic damage.

We also expect smaller First World economies to bandwagon more and more often in trade blocs in order to maximize their negotiation leverage which they would lack if they negotiated entirely by themselves.

The question then arises of how America should address trade negotiations with advanced economies when trade disputes occasionally arise.

The Hamiltonian answer is simply that negotiations should continue until a compromise is found satisfactory enough for the subjective standards of both sides, or until negotiations fail, or until one side capitulates.

What role should international trade forums play in Hamiltonian industrial policy?

Our attitude to them is like Theodore Roosevelt’s attitude towards the League of Nations: Tolerance so long as not too much is expected from it.

The true factor driving down trade barriers between the First World is the profit potential from that trade, not any rules generated by international trade bureaucrats.

To the extent those forums can facilitate trade negotiations, Hamiltonians have no objection on principle.

But if international bodies insist on imposing their rules on the United States, we object strongly enough to demand either the rule making process of that body be vetoed or else we reserve the option to walk from that body entirely.

We consider final decision making on trade to be the exclusive jurisdiction of the United States Federal Government because it was Hamilton who was most responsible for giving the Federal Government Constitutional power over national economic policy making.

Proposals for Sector Specific Business Climate Intervention by the Federal Government –

No specific manufacturing proposals are necessary in this discussion. The most important facet of industrial policy to discuss are the unique operational needs of the industrial sector. From those sector specific needs, sound industrial proposals can be devised.

Perhaps the most important factor to emphasize which affects American manufacturing more than any other sector is the great sensitivity to time lags in between decision making.

Whereas a marketing campaign can be ended quickly, economic activity in manufacturing is burdened with significant time lags. Everything from opening or closing a manufacturing plant, arranging deals with raw material suppliers, optimizing supply chains, takes much longer to plan and execute than almost any other sector except construction and real estate. The manufacturing sector in particular must be confident of its business environment because it is much harder for it to change its operations suddenly in the event of a surprise shock.

Any American industrial policy worthy of Lincoln and Hamilton must keep the sector’s time constraints prominently in mind. Possible government incentives to alleviate vulnerabilities to time lags include in greater tax deductions for long-term investments, tax cuts directed at exporters, more domestic energy production, deregulation to accelerate how quickly manufacturers can open or shut down buildings and factories, and longer deductions on capital expenditures, especially deductions on losses on capital equipment and inventory to act as a buffer in case of sudden economic shocks.

As demand for lower skilled manufacturing has fallen due to automation, demand for high-skill manufacturing labor has increased. Unfortunately, demand for high skill blue collar labor has been hard to meet due to a lack of training. The shortage in skilled manufacturing training is largely the result of American firms not wanting to invest resources to train labor that could go to a competitor.

This problem could be remedied by government intervention in the business climate of high skill manufacturing training based on Germany’s apprenticeship model. Like Germany, the American government could coordinate with other top manufacturers to design a training curriculum and on-site instruction for blue collar laborers.

And, of course, there is American trade policy to manage. The tariff should absolutely be maintained for the sake of short-term leverage in negotiations with Capitalist nations in order to bring down trade barriers over the long-term. Also, the tariff should be used prominently as a long-term environmental corrective measure for economic relationships with blatantly Protectionist nations such as China.

The tariff restored to its central place as countermeasure against foreign Protectionism is nothing less than following the glorious tradition of Abraham Lincoln and Alexander Hamilton, while rejecting their example on tariffs is unworthy of their Republican Party.