America passed its first tariff measure early in its history - 1789 - but its main purpose was not to protect domestic products from foreign competition. It was to raise revenue at a time when there was no income tax. The average tariff rate at that time was around 8.5 percent, relatively low by global historical levels.
But protectionist policies began to gather steam, and by 1816 the United States had an average tariff between 20 percent and 30 percent. Congress began to scale back America's trade restrictions in 1846, realizing the importance trade was beginning to play in the nation's prosperity. While some trade did begin to expand globally, it remained small-scale for the next several decades. The beginnings of any sort of "global economy" was quickly stifled when Benjamin Harrison defeated Grover Cleveland in 1888. America again began a long period of isolating itself from the world, hiding behind protective tariffs.
Begrudgingly adopting an activist foreign policy only briefly during World War I, America turned back to isolationism following the war. A host of factors began to destabilize the world's economies, further hindering the emergence of the global economy. These factors were: onerous economic conditions imposed on Germany in the Treaty of Versailles, protectionist pressures around the globe closing off borders to trade and investment, the Trade Act of 1930 in the United States - better know as the Smoot-Hawley tariff act - and other measures that deepened the Great Depression. These events, all stemming from isolationism, helped contribute to political instability in Europe, helped to bring on World War II and hindered the creation of a global economy.
The Emergence of the Global Economy
After World War II, the world's economies were in shambles. Europe and Japan lay in ruins, barriers to trade and investment made international transactions nearly impossible, inflated currencies prevented entrepreneurship, while governments scrambled to get their domestic affairs in order. Indeed, the idea of a "global economy" was truly foreign. As the only undamaged industrialized economy at the end of World War II, America was uniquely positioned to become the world's largest economic power.
