Working Paper: NBER ID: w15144
Authors: Douglas A. Irwin
Abstract: The Constitution of 1787 was designed to give Congress powers over trade policy that it lacked under the Articles of Confederation. The Washington administration was split over whether to use these powers to raise revenue or to retaliate against Britain's discriminatory trade policies. Obsessed with funding the national debt, Alexander Hamilton sought to avoid any conflict with Britain that might disrupt imports and diminish the customs revenue flowing into the Treasury coffers. By contrast, Thomas Jefferson and James Madison advocated a policy of "aggressive reciprocity" to force Britain to open its home and colonial markets to American goods and shipping services. This paper examines how the nation's founding policymakers confronted this dilemma and evaluates the merits of different trade policy options. The main conclusion is that the Federalist policy of moderate tariffs, non-discrimination, and conflict avoidance provided much needed stability during the critical first decade of the new government.
Keywords: US Trade Policy; Revenue; Reciprocity; Constitutional Convention
JEL Codes: F13; N11; N71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decision to impose tariffs for revenue generation (H29) | need to fund government operations (H69) |
| decision to impose tariffs for revenue generation (H29) | pay off public debt (H63) |
| push for reciprocity in trade policy (F13) | response to Britain's discriminatory practices (J15) |
| federalist policy of moderate tariffs and nondiscrimination (F13) | stability during the early years of the republic (E60) |
| Hamilton's focus on revenue generation through import duties (H27) | avoid jeopardizing customs revenue (H26) |
| Hamilton's focus on revenue generation through import duties (H27) | funding government operations (H61) |
| Jefferson and Madison's advocacy for aggressive reciprocity (F52) | force Britain to open its markets (F13) |