The adoption of the Constitution in 1789 and the emergence of a stronger federal government did not have dramatic immediate effects. The crucial political decisions of that time were matched by challenging economic problems. The central problem was
Independence itself. All at once the young nation found itself outside the walls of the British Empire, and soon even the wartime trade alliances with France and Spain began to crumble.
In the Caribbean, U. S. ships were excluded from direct trade with the British West Indies. American merchants who tried to evade the law faced possible seizure by officials. Spain added to American woes by withdrawing the wartime privilege of direct U. S. trade with Cuba, Puerto Rico, and Hispaniola. In addition, Spain reinstituted its traditional policy of restricting trade with its possessions, permitting them to import goods only from Spain. U. S. trade with the French West Indies increased, but this was not enough to offset the declines in commercial trade with other Caribbean islands. Even in its lively trade with the French, the United States was not allowed to carry sugar from French islands, and only in times of severe scarcity did the French import American flour. In addition, the French imposed high duties on U. S. salted fish and meat, and these products were banned entirely from the British islands.
Restrictions and trade curtailments were not limited to the Caribbean. Now Americans were also cut off from direct trade with the British fisheries in Newfoundland and Nova Scotia. As a result, the New England states suffered severe losses in trade to the north in provisions, lumber, rum, and shipping services. To the east and into the Mediterranean, American shipping faced harassment by the Barbary pirates because the United States was no longer protected by the British flag and by British tribute to the governments of Tunis, Tripoli, and Algeria.
While American shipping rocked at anchor, American shipbuilding and the supporting industries of lumber and naval stores also remained unengaged. Britain now labeled all American-built vessels as foreign, thereby making them ineligible to trade within the Empire even when they were owned by British subjects. The result was the loss of a major market for American shipbuilders, and after 1783, U. S. ship production declined still further because American whale oil faced prohibitively high British duties. In fact, nearly all the activities that employed American-built ships (cod fishing, whaling, mercantile, and shipping services) were depressed industries, and New England—the center of these activities—suffered disproportionately during the early years of independence.
The states of the former Middle colonies were also affected. Pennsylvania and New York shared losses in shipbuilding. Moreover, their levels of trade in wheat, flour, salted meat, and other provisions to the West Indies were well below those of colonial peacetime years. By 1786, the Middle colonies had probably reached the bottom of a fairly severe business downturn, and then conditions began to improve as these products were reaccepted into the traditional West Indian and southern European markets.
Similar problems plagued the South. For instance, British duties on rice restricted the planters of South Carolina and Georgia primarily to markets in the West Indies and southern Europe. As the price of rice declined, further setbacks resulted from the loss of bounties and subsidies on indigo and naval stores. Having few alternative uses of their productive capacity, the Carolinas and Georgia faced special difficulties. Their economic future did not look bright. Similarly, Virginia and Maryland faced stagnating markets for their major staple—tobacco. In Britain, a tax of 15d. sterling was imposed on each pound of foreign tobacco. In France, a single purchasing monopoly, the Farmers-General, was created to handle tobacco imports. Meanwhile, Spain and Portugal prohibited imports of American tobacco altogether. These economic changes were the results of the colonies’ choice to become independent (Economic Reasoning Propositions 1, scarcity forces us to make choices; 2, choices impose costs; and 4, laws and rules matter).
Offsetting these restrictions were a few positive forces. Goods that previously had been “enumerated” now could be traded directly to continental European ports. This lowered the shipping and handling costs on some items such as tobacco, thereby having
An upward effect on their prices. Meanwhile, the great influx of British manufactures sharply reduced prices on these goods in American ports. Although American manufacturers suffered, consumers were pleased: Compared with the late colonial period, the terms of trade—the prices paid for imports relative to the prices paid for exports—had improved. This was especially true in 1783 and 1784, when import prices were slightly below their prewar level and export prices were higher. Thereafter, however, the terms of trade became less favorable, and by 1790, there was little advantage in the adjustments of these relative prices compared with the prewar period.
World History
