Starting March 12, 2025, all steel and aluminum products imported into the United States face a hefty 25% tariff. And last week, President Donald Trump placed a 25% tariffs on auto imports. Both of these moves are part of the sweeping set of protectionist policies the new administration has already imposed in the short time since President Donald Trump returned to the White House. The President touts his moves as necessary steps to protect U.S. industries from foreign competition, reviving the rhetoric of economic nationalism that defined his first term.
This moment is not unprecedented. The U.S. has previously embraced a robust industrial policy—including tariffs, subsidies, and direct investment in industrial projects—to bolster the development of specific industries. From 18th century manufacturing strategies to Cold War technology races, these policies have shaped the national economy. Trump’s approach, which uses tariffs on a global scale, introduces new risks, however. Instead of fostering innovation and stability, these policies could fragment the global economy into rival blocs.
Industrial policy in the U.S. is as old as the nation itself. Alexander Hamilton, a founding father who advocated for strong federal government and economic modernization, laid out a roadmap for government intervention in 1791 to foster domestic manufacturing. In his Reports on Manufactures, Hamilton envisioned tariffs to protect fledgling industries and subsidies to spur innovation. Notably, the highest tariff rate—15%—was placed on imported firearms and other military weapons, as Hamilton recognized U.S. military dependence on foreign-made weapons as a threat to national security. He also recommended an annual federal purchase of domestic weapons and the establishment of a federal arsenal, which Congress largely adopted in 1794.
These policies aimed to protect emerging industries and reduce reliance on British imports, an early reflection of how economic independence is often accompanied with geopolitical stakes. And they worked, ultimately contributing to 5% annual growth of industrial output over the following century, allowing the U.S. to achieve self-sufficiency in arms manufacturing and strengthening the nation’s ability to defend itself without relying on European powers.
Read More: What Are Tariffs and Why Is Trump In Favor of Them?
Industrial policy can also exacerbate domestic political divisions, however. In the 19th century, tariff policies designed to protect emerging manufacturing industries in the North deepened regional economic divides. The controversial Tariff of Abominations of 1828 imposed high duties on imported manufactured goods, benefiting the industrial North while harming the agrarian, import-reliant South. Southern leaders argued the tariff unfairly burdened their economy and even attempted to nullify it, sparking the Nullification Crisis of 1832–33.
In the 20th century, industrial policy evolved into an ambitious tool for both economic and geopolitical advancement. Over the course of World War II, the federal government heavily invested in innovations like radar, nuclear energy, and synthetic rubber. These investments not only helped win the war, but they laid the foundations for America’s postwar economic boom as well. During the Cold War, NASA’s Apollo program was a symbol of what government-backed innovation could achieve as it propelled the U.S economically through technological spillovers in computing, materials science, and telecommunications, while simultaneously affording the United States global political stature by demonstrating technological superiority over the Soviet Union, with the historic achievement of landing humans on the moon.
But not every initiative was a moonshot. In the 1960s, the federal government also poured resources into developing a supersonic transport plane. Initially intended as a technological marvel to rival Concorde, the Anglo-French supersonic aircraft, development of Boeing 2707 faced insurmountable technical and economic challenges and was ultimately aborted: a failure of industrial policy to balance ambition with feasibility.
The U.S. wasn’t alone it its pursuit of these policies. In the 20th century, the Japanese government used a combination of protectionist tariffs and quotas, subsidies, and generous government loans, among other measures, giving rise to national champions like Toyota, Honda, and Nissan that dominated the international automobile market. In response, the Reagan Administration implemented voluntary export restraints (VER), limiting the number of cars Japan could export to the United States.
But the real issue for car manufacturers wasn’t global trade, but their inability to adapt to changing consumer preferences and improve efficiency. In fact, the VER encouraged Japanese manufacturers to upgrade to higher-value vehicles and establish U.S. production facilities, while American companies gained short-term profits without addressing their uncompetitive cost structures and quality issues. The policy prioritized protecting entrenched domestic producers over incentivizing the innovation needed for long-term competitiveness. In the end, American consumers were left to bear the burden of heightened auto prices, resulting in a national net welfare loss of over $3 billion.
Read More: ‘Big 3’ Automakers Get Brief Reprieve from Trump’s Tariffs
Industrial policy took on a new dynamic in the 1990s as a group of liberal policy entrepreneurs argued for aggressively subsidizing “high-value” or “sunrise” industries that could boost American competitiveness. This push culminated during the Clinton administration, where industrial policy became a keystone of the “new economy.” As Nobel prize winner Paul Krugman notes in his book Peddling Prosperity, these policies were designed to offer an alternative to the market-driven approaches of the Reagan years, promising a partnership between the government and businesses to address economic stagnation. Once again though, such efforts, though ambitious, were not enough to help the United States resolve structural issues, such as job losses and wage stagnation, that came with its integration into the global economy.
The recent global wave of investment-focused industrial policy surpasses all of these previous efforts in size and scope. Under the Biden Administration, the U.S. committed unprecedented volumes of funding to subsidies for semiconductors and clean energy, aiming to secure supply chains and outcompete China, which has aggressively pursued industrial policy to dominate key industries such as electric vehicles and critical minerals. In response, the European Union’s Green Deal Industrial Plan and Japan’s subsidies for the hydrogen industry reflect similar ambitions in driving the growth of green industries.
And yet, these global initiatives have also sparked new protectionist measures to lure industries within their borders, ultimately creating inefficiencies and trade distortions that undermine the economic logic of global value chains. By obsessing over “onshoring” production and abandoning the idea of comparative advantage, nations risk raising costs, reducing productivity, and fragmenting the international division of labor that has brought decades of economic benefits through specialization and economies of scale.
Protectionism is expected to only gain stronger and stronger momentum in the United States under Trump. Within the first couple of months of the new administration, Trump has imposed or promised to impose a wide range of tariffs on U.S. trading partners. China, Canada, and the European Union have already responded with duties on a wide range of U.S. goods covering tens of billions of dollars’ worth of trade. Other countries that are hit by tariffs are poised to follow similar retaliatory tariffs.
As a result, multinational corporations, caught in the crossfire, are forced to operate in heightened policy uncertainty, or restructure supply chains based on political alliances, rather than economic efficiency. Such a shift undermines not only international trade but also the effectiveness of domestic policies, since any American company that sources inputs from other countries may now need to face elevated costs due to the tariffs.
Industrial policy, both past and present, has often prioritized short-term political gains over long-term economic growth, leading to inefficiencies and, at times, political instability. But such a unilateral approach to industrial policy, where nations act independently to outcompete one another, has potential consequences: escalating subsidies, retaliatory tariffs, and subsequently fractured supply chains. History shows how shifting from protectionist policies to a collaborative, objective-oriented approach creates a more stable global economic system.
Yilin Wang is a Ph.D. student in Economics at the University of Virginia. She conducts research on international trade policy and protectionism.
Made by History takes readers beyond the headlines with articles written and edited by professional historians. Learn more about Made by History at TIME here. Opinions expressed do not necessarily reflect the views of TIME editors.
