The Great Tariff Myth: Why Protectionism Fails the Free Market

A return to first principles shows that picking economic winners and losers is a rejection of free markets—no matter which party does it.

Can we please just be honest about the tariffs and our government’s addiction to power, control, and central planning? I mean, I thought Republicans were anti-Karl Marx, and pro-Reagan! What the heck happened to the Republican Party? Protectionist tariffs to “rebuild “ our industrial base seem nonsensical and reek of central planning by our federal government. Shouldn’t we promote the free market rather than controlling it? History has proven that true capitalism and true free markets are what make a prosperous nation, while central planning, a/k/a government meddling, leads to its destruction. Republicans have long been against picking “winners and losers,” but here we are with Republican-controlled executive and legislative branches doing just that.

The persistent myth that the protectionist tariffs of Alexander Hamilton and William McKinley built America is a classic case of confusing correlation with causation. Any growth that occurred during that period was primarily driven by population growth factors, not because of these policies. Factors such as massive population growth and westward expansion drove growth during that period. While per capita income did rise, these tariffs acted as a constant brake on progress, ensuring that our prosperity grew far slower than it could have in a truly free market. As per Frédéric Bastiat, you see the one protected domestic factory (the "seen"). Still, you don't see the dozens of other factories that were never built because tariffs made the necessary equipment too expensive (the "unseen").

In truth, tariffs were, and are, a tax on progress. They strongly discourage capital accumulation by making the tools of production—imported machinery and industrial goods—needlessly expensive for the American entrepreneur. Far from a clever strategy to nurture industry, it is a direct government penalty on investment and innovation that has hampered our economic potential.

The real challenge isn't that we stopped making things; it's that since the 1970s, our productivity growth has stagnated. The deindustrialization that followed wasn't just an economic shift; it was a symptom of a deeper sclerosis. As manufacturing moved out, financialization and a bloated service sector moved in, but without the explosive productivity gains that once lifted all boats. This was less an organic free market move and more about escaping an increasingly restrictive regulatory environment in the United States, so manufacturing shifted overseas.