Industrial Organization: Contemporary Theory and Empirical Applications, 5th Edition

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Strategic Commitments and International Trade

The first US Secretary of the Treasury was the brilliant but prideful Alexander Hamilton whose picture still adorns the US ten-dollar bill. Hamilton came to his position just as the new country was struggling with a host of financial issues accumulated from its long war for independence and the somewhat chaotic financing that had thereafter characterized the eight years under the Articles of Confederation. Of crucial importance to Hamilton was the young country's international profile. He was convinced that America had to establish its identity in international markets. In particular, Hamilton argued forcefully that America had to raise sufficient taxes to pay off its accumulated foreign debt and eliminate any fear of default. Yet Hamilton's vision did not stop there. He also had a very clear idea about the sort of taxes that would best serve the United States in its quest for a respected place in the international community. In Hamilton's view, the United States had to have an internationally competitive manufacturing sector. Therefore, in his Report on Manufactures (1791), Hamilton argued strongly for tariffs on manufacturing imports. This would help raise the revenue necessary for debt service and, by discouraging imports, encourage the development of US manufacturing that Hamilton viewed so central to the country's future economic success. In fact, he also recommended the establishment of a Society for Useful Manufactures to ...