Alexander Hamilton, one of the founding fathers of the United States, is widely regarded as the architect of industrialization in the country. Many developmental economists, myself included, believe that Hamilton’s vision shaped the U.S. economic landscape. In 1781, Hamilton authored "The Report on Manufactures," a 130-page pamphlet presented to the newly formed U.S. Congress. In it, he argued that the federal republic should prioritize industrialization over agriculture for its economic development. At the time, this idea seemed absurd to most economists, as North America had virtually unlimited agricultural land, where the potential for agricultural production and returns on investment appeared endless.
The Americans had just emerged victorious in the War of Independence against imperial Britain. A primary cause of the war was the colonial policies imposed by Britain, including restrictions on industrialization in the colonies. British “Colonial Laws,” such as the Sugar Act, the Iron Act and the Hat Act, prohibited the production of sugar, pig iron, and hats, respectively, in the American colonies. These laws were part of a broader British strategy to ensure the colonies remained sources of cheap raw materials while Britain monopolized industrial production. This policy, known as mercantilism, aimed to maximize the flow of gold into Britain by increasing exports and reducing imports – essentially, maintaining a trade surplus.
According to mercantilist theory, a country with a trade surplus would receive gold from the nation with which it traded. Industrialization, therefore, meant keeping value-added production at home, which helped run trade surpluses. This logic formed the basis for the "Infant Industry" argument and similar theories under mercantilism.
Eventually, Hamilton’s views gained traction both politically and economically. The U.S. adopted a highly protective trade policy and remained one of the most insulated economies in the world for the next century. By the end of that period, the U.S. was fully industrialized. In the 19th century, German economist Friedrich List built upon Hamilton’s ideas, expanding the concept of industrial policy. The "Infant Industry" argument, which suggests that developing economies need to protect nascent industries until they can compete internationally, became widely recognized.
In Hamilton’s time, global trade wars raged between colonial empires like Britain, France, and Spain. These "great powers" formed colonial blocs and often engaged in hot or cold wars. In fact, the world was plunged into World War I when Germany, following its unification in 1871, saw no other option but to fight the established powers for a share of the colonial pie.
Fast forward to today, April 2, 2025. Donald Trump, the 47th President of the United States, announced highly protectionist measures for the world's most developed economy. Under the slogan “America First,” Trump and his administration argue that the U.S. is under attack by other countries, which are supposedly trying to run trade surpluses at America’s expense. They believe that nations, from China to Israel, are after American wealth – specifically, American dollars (since the gold standard was abandoned and replaced with fiat money).
However, this view is deeply flawed. First, the U.S. today is not the same as it was in Hamilton's time. It is now the most developed country in the world, with a GDP exceeding $14 trillion and a high per capita income. The U.S. is also highly industrialized, manufacturing a vast range of products, from aerospace and defense technology to nuclear reactors.
While the "Infant Industry" argument may sound politically appealing, it has no economic basis for a country that is already fully industrialized. Second, the high wages and cost of living in the U.S. make it economically unfeasible to relocate low-value-added industries, such as basic steel production, back to the country. Reviving the Rust Belt is both unrealistic and undesirable. Rational economic policy would focus on leaving these "low-value" sectors to countries with lower wages. International trade, after all, is fundamentally the trade of value-added goods. Third, imposing tariffs on all countries and industries makes little sense for similar reasons.
Reviving protectionism in the U.S. is both outdated and economically indefensible. Instead, the Trump administration would be better off focusing on policies that make American manufacturing more competitive and help low-income Americans achieve greater financial security.
