Hamiltonian Failure?

22 January 2010, 2230 EST

Yesterday, my class on U.S. Foreign Policy considered Walter Russell Mead’s Hamiltonian School — ostensibly an American realism grounded in the aligned interests of the state and business.

The Hamiltonians have their roots in Alexander Hamilton. They have always believed that the American national strategy should be modeled on the British system: use your trade to make money through commerce; government should support large business; your trade policy should be an instrument of your economic development, however that benefits you most; and then, the revenues from your international trade will support your military expenditures and interests while preserving political stability at home.

For most of U.S. history, argues Mead, Hamiltonians were mercantilists — favoring “open door” trading policies over “free” trading policies. However, after World War II, the Hamiltonians became free traders and thus embraced GATT, then WTO, NAFTA, etc.

After outlining Mead’s arguments to the class, I also presented some data that questions whether the new laissez-faire Hamiltonians have made the right call. Does the free trade system they’ve helped create build American wealth?

Dan Drezner might disagree with the limited analysis I provided, but many of the students shared the concerns I was raising.

I started the challenge with the question famously raised by Robert Reich: “Who is us?” Then, I asked the students to consider (from the Hamiltonian position) if the American state has perhaps gone too far in removing itself from global capitalism — effectively benefiting transnational corporate interests (and mercantilist states) at the expense of U.S. interests.

Essentially, the U.S. trade deficit has ballooned to historic levels, a substantial portion of that deficit is linked to trade with China. A huge problem is the loss of America’s manufacturing base:

the U.S. manufacturing sector never emerged from the 2001 recession, which coincided with China’s entry into the World Trade Organization. Since 2001, the country has lost 42,400 factories, including 36 percent of factories that employ more than 1,000 workers (which declined from 1,479 to 947), and 38 percent of factories that employ between 500 and 999 employees (from 3,198 to 1,972). An additional 90,000 manufacturing companies are now at risk of going out of business.

The “continental realist” John Mearsheimer argues that the U.S. has had a flawed China policy for a very long time. Yet, as the data reveal, the U.S. is helping to make China a stronger future great power competitor.

In the long run, the U.S. might be able to survive the loss of its manufacturing base — thanks perhaps to its innovative information technologies. However, in the midst of a deep recession (with real unemployment at near 20%) and huge trade deficits, the current situation seems troubling — at least it should for Hamiltonians worried about American national interests.