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Land Of The Free Trade
Foreign trade—import and export alike—has been indispensable in building America from the very start, and many of our worst economic troubles have arisen when that trade wasn’t free enough. A historic overview.
July/august 1993 | Volume 44, Issue 4
The main cause of this rapid growth was the European war that broke out in 1793 and raged for most of the next quarter-century. As a neutral power the United States was at first in a good position to benefit, its flag protecting cargoes that actually originated in belligerent powers or their colonies. But as the conflict escalated between Great Britain and France, they sought more and more to fight by interfering with each other’s commerce. Neutrals inevitably suffered, as both sides tried to prevent neutral shipping from trading with the enemy. Ever more restrictive regulations were issued. Between 1803 and 1807 Britain seized 528 American ships, and the French seized another 389. Meanwhile, ships of the Royal Navy high-handedly stopped American vessels, even warships, and seized any sailors they claimed had deserted.
Starting from scratch, foreign companies were lean and hungry after World War II; American firms were often fat, dumb, and happy.
When in 1807 a British frigate fired a broadside into the newly commissioned USS Chesapeake , which was totally unprepared to receive it, national outrage resulted. Probably only because Congress was out of session at the time was a declaration of war averted. But President Jefferson felt obliged to do something. Unfortunately, as often happens in politics, his best course, perhaps most easily seen in retrospect, would have been to do nothing beyond exert what diplomatic pressure he could. Instead, on December 22, 1807, he signed the Embargo Act. This remarkable legislation forbade American ships to deal in foreign commerce, and the American Navy was deployed to enforce it. In effect, in an attempt to get Britain and France to respect neutral rights, the United States went to war with itself and blockaded its own shipping.
Albert Gallatin, the Secretary of the Treasury, warned that such a direct affront to the economic interests of American merchants would be perceived as tyranny and provoke a bitter and divisive reaction. But Jefferson, who viscerally loathed all things commercial anyway, was then at the height of his political power, a position in which so many grievous political misjudgments are made, and the Embargo Act was rammed through Congress with little debate.
If the Embargo Act was intended as a shot across the bows of the belligerent powers, it resulted only in the United States’s shooting itself in the economic foot, for it devastated American foreign commerce. This in turn crippled the American economy, especially in all the great port towns up and down the coast and in New England, which was so heavily dependent on foreign trade and shipping in general.
American domestic exports fell from $109 million in 1807 to $26 million the following year. Domestic imports dropped by 44 percent. And Gallatin had been right. As soon as news of the act reached a port, all the American ships in a position to do so immediately sailed away to avoid being interned. Smuggling flourished (indeed, it became so rife on Lake Champlain that Jefferson actually declared the surrounding country to be in a state of insurrection). A blanket of bureaucratic restrictions smothered internal commerce as well, lest any of it leak into illegal foreign trade.
The embargo’s effect on Britain and France was negligible, and their reaction was contempt, a dangerous emotion to engender in international politics. When Napoleon seized Spain in 1808, he seized as well 250 American vessels and their cargoes in Spanish ports. When the American ambassador demanded an explanation, the emperor calmly replied—one wonders what might be the French word for chutzpah— that he was only helping enforce the Embargo Act.
Jefferson knew just whom to blame for the “absurd hue and cry.” New England merchants, he wrote in a letter to a friend, wanted to sacrifice “agriculture and manufactures to commerce . . . and to convert this great agricultural country into a city of Amsterdam.”
Thanks to enormous political pressure, the Embargo Act lasted only fourteen months, and increasing loopholes and simple evasion—blockade-running, if you will—lessened its effect toward the end of its existence. The Non-Intercourse Act, which succeeded it, forbade trading only with Britain and France, overwhelmingly our major trading partners, and the deep depression in American shipping continued. Finally, in 1812, when Britain still refused to accede to American demands, the United States stumbled into a war it lacked the means to fight effectively.
At least now the blockade of American ports was carried out by an enemy fleet, not our own, and one larger than all the other fleets in the world combined. American foreign commerce all but ceased. In 1814 domestic exports were only one-eighth of what they had been seven years before, while imports were one-sixth.
So bitterly resented was the War of 1812 in New England and other centers of commerce that its continuation threatened the Union itself. Fortunately it did not continue, and the seas were opened once more.