President Trump has proposed a general tariff for the United States if he is re-elected. This is traditional Republican policy; the GOP was highly protectionist from 1860 until 1932, with the 1862 Morrill Tariff being the first major assault on Britain’s attempt to move to a free-trade world. However looking back, the Republican tariff policy of the 19th Century, when combined with free immigration, produced prosperity mainly for “robber barons” who became unprecedentedly wealthy, and not for ordinary people. It is a poisonous mixture, which Trump should avoid.

The Morrill Tariff fundamentally altered the conditions of world trade, removing the possibility of the free-trade world so beloved of English Whigs, that had seemed to be in reach with the 1860 Cobden-Chevalier Treaty with France (though even that treaty was unilateral, as France merely lowered its tariffs, it did not eliminate them as did feckless free-trading Britain.)

The United States had been only a minor factor in world trade before 1850, but the gold discoveries of 1848 in California and 1851 in Australia, together with the steady construction of new railway systems making communications easier, caused an explosion of trade volume in the 1850s, with Pacific Ocean trade springing up from almost nothing. The United States, being quicker to react in shipbuilding New England and more aggressive in global salesmanship, took a big percentage of the new trade, thereby making itself a force to be reckoned with in the global economy for the first time.

The Morrill Tariff’s rationale was primarily political and fiscal rather than economic. Economically, there was no need for it; the U.S. was remarkably competitive under President Buchanan’s moderate 1857 Tariff. The U.S. ability to discover revolutionary innovations was fully equal to that of Britain, France or the Customs Union that would be Germany, and even with a population of only 31.4 million in 1860, it had a high-wage domestic market that was ample to build production and achieve economies of scale. Politically however, the secession of 1861 removed the free-trading South from Congress, giving a big majority to the Northern protectionists. Fiscally, the outbreak of the Civil War vastly increased Federal spending, requiring new revenues to meet it; raising tariffs on imports was the easiest way to close the fiscal gap, since a Federal Income Tax was thought to be unconstitutional.

The Morrill Tariff continued in force after the end of the war and was even increased several times. This had several economic effects. Fiscally, it enabled the U.S. to pay off the Civil War debt and start running substantial budget surpluses, so much so that the 1889-91 Congress during Benjamin Harrison’s Presidency was known as the “Billion Dollar Congress” for its creativity in wasting the bountiful tariff revenues.

In terms of global economics, high U.S. tariffs undoubtedly intensified the deflationary depression of 1873-96. Naturally, the worst effects of this arose in fatuous free-trading Britain, which resorted to ever-soaring ziggurats of pointless foreign investment, mostly in bonds, instead of building its productive creativity at home. Other countries took action; the new German Reich imposed a harsh tariff schedule in 1879 while France abandoned Cobden-Chevalier with the punitive Méline Tariff of 1892.

Domestically in the United States, there was a question of what to do with the tariffs’ bounty. Not fiscally; Congress could be relied upon to spend it. However, the tariff also produced a massive bonanza for U.S. manufacturers, who could raise their prices in the rapidly growing domestic market, thus building huge profit margins and scale that could be used to “dump” products abroad. The U.S. gained a huge and mostly unfair economic advantage from their high tariffs; the key political question, not entirely understood at the time, would be where that advantage should end up.

If immigration had been controlled, as it eventually was by the 1924 Immigration Act, much of the surplus would have taken the form of higher wages for American workers. The profitability of manufacturing within the high U.S. tariff wall and thereby of increasing scale was so great that manufacturers would have bid up the wages of the limited workforce available. This would have accelerated the transition from marginal farms to the cities, lessening the misery that fueled the Populist movement. It would have increased the returns to workers from gaining new skills and would thereby have created a genuinely high-wage economy where innovation and productivity growth were maximized. The result would have been a working man’s Nirvana like that temporarily achieved in the 1950s and 1960s but gained over half a century earlier.

In the event, immigration was unrestricted, and even in the prosperous decades of the 1890s and 1900s the cities were filled with overflowing ghettos of immigrants speaking little English and working for rock-bottom wages. The result was a nation of low-wage sweatshops, not just in the textile industry where sweatshops were traditional but even in such normally high-wage industries as iron and steel – witness the abominable working conditions and resulting labor militancy in the Pittsburgh steel mills of Andrew Carnegie and Henry Frick, who drove down wages to maximize their profits.

The bonanza from tariffs in these circumstances had only one place to go – into the pockets of the new billionaires, who paid little or no tax, income tax being considered unconstitutional and Federal revenue needs being amply met from tariffs. The result was a new class of ultra-rich, far richer than had ever been seen before, or was seen in other countries at that time. Some of them gave away the money in libraries or other benefactions, thus creating huge unaccountable foundations and the beginnings of the gigantic and corrupt charitable “non-profit” sector of today.

In today’s circumstances, Trump’s proposal for an across-the-board tariff has considerable merit, provided it is imposed at a level of say 20%, not at the ultra-high rates of 1890’s McKinley Tariff. The admission of China to the World Trade Organization membership in 2001 was in retrospect a huge mistake; it allowed a centrally planned dictatorship to benefit from the same rules as free-market economies, even if some of those economies are in practice dopily socialist. The massive theft of Western intellectual property from companies foolishly investing in China without taking proper precautions allowed China to seize control of strategic manufacturing sectors without paying the costs of innovation, which are borne by the West.

The Chinese electric vehicle industry, for example is entirely a creation of dopey Western “climate change” regulations, from which China is effectively exempt. It should be subjected to massive tariffs in the West, or possibly banned altogether. Conversely, China’s ability to build infinite numbers of coal and nuclear power stations, thus providing themselves with cheaper energy than their Western competitors, is entirely the product of Western feebleness and environmental lunacy. The EU also is far more protectionist than the United States, with non-tariff barriers being especially dense. Overall, the United States since 1990 has played the role of late 19th century Britain: the universal sucker whose high-minded globalism allows competitors to undermine its predominant industrial position.

Trump’s proposed tariffs should thus be accompanied by a massive sweeping away of regulation, allowing the United States to reopen coal-fired power stations and build new nuclear power stations in a reasonable time at the minimum cost, thereby maintaining the U.S. energy cost advantage against Western Europe and rebuilding its advantage against China and India. The climate change scam should be put down permanently, Western trading partners encouraged to do likewise, and its immense international bureaucracy fired and made to get proper jobs.

There are however two dangers to Trump’s tariffs. First, there are no foreign countries with the self-immolating foolishness of late 19th century Britain; hence there will be tariff responses from trading partners. Imposing U.S. tariffs reduces world trade but provides revenue for the U.S. Treasury; foreign countries imposing tariffs damages world trade further, with no corresponding fiscal benefit to the U.S. Hence from an economic perspective, tariffs should be moderate, and accompanied by massive deregulation, whose benefit to the U.S. is entirely without a corresponding downside.

Second, the effect of tariffs on domestic income distribution should be counteracted. Through artificially low interest rates (a problem that did not exist with the 19th Century Gold Standard) we have already created a situation in which asset prices rise excessively and billionaires are exorbitantly enriched. Those billionaires will now use their wealth to argue for lax immigration policies, allowing high legal immigration to give them cheap labor even if illegal immigration is controlled. They should be fought at all costs. As far as possible the beneficial position established by the 1924 Immigration Act should be restored, so that immigration is low and targeted towards high-skill individuals.

By that combination, of moderate tariffs, deregulation, avoiding “funny money” monetary policies and tight restrictions on immigration, Trump can ensure that the benefits of his tariffs flow to American workers, and not to billionaires or foreigners. By doing so, he will push up productivity growth as AI and automation are used to their fullest extent. That will produce permanently the working class Nirvana we glimpsed briefly in 1950-70. Should he achieve this, Trump would truly be the greatest of Presidents.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)