Want to destroy American business? Protect it, writes Carl Benedikt Frey | The lessons of the past are clear, argues the economic historian: in the long run, tariffs choke growth

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DONALD TRUMP insists that tariffs will bring back jobs and revitalise American industry, and that short-term pain would be worth it for long-term gain. Yet history suggests they are more likely to steepen America’s slide into stagnation.

Cheerleaders of tariffs argue that, as Oren Cass, one of the most vocal, put it, “Behind some of the world’s highest tariff barriers, the United States transformed from colonial backwater to continent-spanning industrial colossus.” They claim that Thomas Jefferson’s trade embargo in 1807, followed by the war of 1812 with Britain, jump-started American industrialisation.

Not so. America’s early industrial gains owed far more to pirated British technology and welcoming European talent than to protectionism. Though the embargo indeed encouraged the rise of small-scale textile mills, trade restrictions ensured these were persistently inefficient. These mills collapsed once trade resumed because they could not compete with superior British imports. The real drivers of New England’s textile revolution were people who brought skills learned abroad, such as Samuel Slater, an immigrant from Britain who memorised the country’s textile-machinery designs and established America’s first cotton mills, and Francis Cabot Lowell, who secretly replicated British power-loom technology. Waves of European craftsmen and engineers brought expertise that propelled the country’s 19th-century boom.

Critics today point to Chinese imports harming American manufacturing, yet not long ago similar fears surrounded Japanese competition. By 1980, when Ford and General Motors recorded combined annual losses exceeding $1.3bn (over $5bn today), Japanese car workers had become 17% more productive than American ones. Similarly, in semiconductors America’s share of global production dropped from 57% in 1977 to just 40% by 1989, while Japan’s share almost doubled to 50%. But Japan’s manufacturing edge came not from unfair trade practices but from innovation: lean production techniques (like Toyota’s just-in-time system) and a talent for refining foreign inventions (Sony’s Walkman and vcr were adaptations of Western innovations).

America ultimately regained its technological edge not through isolation but by embracing global economic integration. Silicon Valley, recognising it could no longer compete with Japan’s process technologies and manufacturing efficiency, pivoted to innovation, design and software development. Meanwhile, it offshored assembly to low-cost East Asian manufacturers, especially in China, cutting costs and neutralising Japan’s competitive edge.

In contrast, Britain’s post-war history provides a cautionary tale. While continental Europe pursued integration through the European Economic Community, a forerunner to the eu, Britain remained out until 1973, shielding domestic industries from competition. Internally, weak competition policy enabled widespread cartelisation, resulting in persistently low productivity growth. Britain fell behind more open and competitive economies like West Germany and France, both of which had overtaken Britain’s gdp per person by the 1970s.

Today, despite its large domestic market, America faces similar threats from declining competition. Even before Mr Trump’s first term, three-quarters of American industries had become more concentrated than they were in the highly competitive era of the 1990s computer boom, exercising a drag on productivity. This pattern extends into the historically dynamic technology sector, where, despite a few bright spots like OpenAI, fewer startups now challenge entrenched incumbents.

Meanwhile, spending on corporate lobbying has risen by almost two-thirds in real terms since the late 1990s, increasing regulatory capture and weakening antitrust enforcement. Compounding this, Mr Trump’s selective, sector-specific tariffs have set off a scramble for exemptions, with his corporate allies well placed to win relief while their rivals bear the full duty. This environment favours politically connected incumbents, which tend to produce fewer patents than the startups snapping at their heels.

Though there are valid national-security reasons for reducing dependence on China in specific sectors, such as critical minerals, America’s technological strength hinges largely on global integration. No country can hope to be technologically self-sufficient: America may dominate electronic-design-automation software but Japan produces 56% of global silicon wafers, Taiwan makes 95% of advanced chips and China processes over 90% of critical minerals and magnets. American security depends on strengthening alliances, not weakening them.

Nor do tariffs protect workers. The tariffs in Mr Trump’s first term ultimately caused a net loss in American jobs. Duties on essential inputs, such as Canadian steel, only drive up costs and weaken American competitiveness. Indeed, about half of American imports directly support domestic manufacturing, and hence American exports.

America’s greatest economic strength has always been its capacity for industrial renewal—enabling new companies to emerge, innovate and grow. Century-old firms dominate in many advanced economies: the five biggest companies are, on average, 84 years old in Japan, 116 in Britain, 120 in Germany and 152 in France. In America, by contrast, they average just 39 years, and are all technology firms. Yet such dynamism is not guaranteed.

History shows that when competition yields to cronyism, technological leadership slips. America must choose between keeping its economy open and relinquishing its competitive edge.