On October 16, the province of Ontario released a television ad that showed Ronald Reagan criticizing “tariffs or trade barriers of any kind” in a 1987 address. The ad—re-aired during a World Series game in which the Los Angeles Dodgers faced off against the Toronto Blue Jays —incensed President Donald Trump, who put US-Canada trade talks on ice and announced a new hike in tariffs on Canadian imports. Reagan, per the president’s Truth Social account, “LOVED” tariffs.
“Reagan, per the current president’s Truth Social account, ‘LOVED’ tariffs.”
A chorus of pundits instantly rose up to assure us that Reagan, hero of the free-market conservative movement that Trump has consigned to history’s ash heap, felt no affection for this instrument of trade protection. The irony, however, is that the clip used in Ontario’s ad came from an address Reagan gave soon after announcing $300 million in tariffs on Japanese semiconductors. A self-identified champion of free trade, Reagan admitted that “imposing such tariffs or trade barriers and restrictions of any kind are steps that I am loath to take.”
This context makes clear that popular, persistent narratives about the Reagan Revolution are woefully oversimplified. But the real history also illuminates a commensurate oversimplification in how President Trump has approached his signature policy.
To revisit this history is to enter a world marked by American economic anxiety—an image at odds with cultural memories of a glitzy, prosperous 1980s. But the era’s fizzy financialization obscured deeper worries about declining US “competitiveness.” In the late 1970s and early 1980s, US industrial slowdown and Japanese manufacturing growth pushed a broad cross-section of American politicians, policy entrepreneurs, and—crucially—business leaders into advocacy for a new industrial policy to revive productive sectors of the economy. “I believe in the free market,” Chrysler chairman Lee Iacocca, a Republican, told a group of Democratic panjandrums in 1983, “but I see what the Japanese are doing to me.”
Japan was a Cold War ally, but American elites perceived its economic “miracle” as a long-term threat to US global predominance; in 1982’s Blade Runner, after all, the future looked Japanese. The East Asian miracle spanned traditional industries, such as automaking and steel, and so-called sunrise sectors like robotics, consumer electronics, and the making of semiconductor chips. Critics concerned with competitiveness highlighted trade deficits in certain manufactured goods—caused in part by an overvalued dollar—and emphasized the unparalleled threat posed by Japan’s burgeoning economy. Substitute China, and this scenario will sound familiar.
Calls for industrial police came from a circle of reform-minded liberals who called themselves “Atari Democrats.” This group advocated an admixture of social-spending restraint and “big government” intervention in the economy. The latter element ran directly counter to the ostensible free-market framework of Reaganomics, and in his first term, the president generally sought to fend off the industrial policy challenge. Even here, though, historical reality was complex: Reagan’s Commerce Department negotiated voluntary export restraints with Japan’s automakers in 1981 that, while limited in scope and efficacy, lasted until 1994.
Reagan and his first-term treasury secretary, imperious ex-Merrill Lynch chairman Donald Regan, remained largely unconcerned with the devastation being wrought on US manufacturers by recession, global competition, and finance-friendly economic policy. But in Reagan’s second term, a new economic team helmed by James Baker decided that Wall Street’s effervescence couldn’t dissipate political pressure coming from those worried about competitiveness. Baker wrote in his 2006 memoir that “protectionist fever” was stoked “each time…another pop economist wrote about the inevitable triumph of Japan, Inc.” He had in mind the Atari Democrats’ in-house economic thinkers: Lester Thurow, Robert Reich, and Ira Magaziner.
Around the same time, Silicon Valley firms such as Intel and Advanced Micro Devices (which had already funded pro-industrial policy Democratic pressure groups like Jerry Brown’s National Commission on Industrial Innovation) lobbied for support to US chipmakers via the Semiconductor Industry Association (SIA). American chipmakers tripled their profits in the 1980s—a sign of the sector’s growing importance—but Japanese competitors sextupled theirs. Over this period, US firms’ share of global semiconductor production sank from 70 percent to 40 percent, while that of Japanese companies like Fujitsu and Toshiba collectively rose to almost 50 percent of global production (this was especially pronounced for Dynamic Random Access Memory chips, or DRAMs). As one Atari Democrat, congressman Timothy Wirth, gloomily asked at an economic conference: “How did the Japanese run us out of the semiconductor business?” The answer, he concluded, was that Japanese industrial policy “identified … companies, protected consumer products, launched huge R&D effort.” Wirth added, “And we do nothing.”
Baker’s Treasury Department team settled on a two-pronged strategy: First, depreciate the dollar while appreciating other currencies; second, tackle Japanese competition in high technology. The first step was accomplished in the 1985 Plaza Accord, wherein the finance ministers of Britain, France, West Germany, and Japan met with Baker and Federal Reserve chair Paul Volcker at New York’s Plaza Hotel and agreed to actively depreciate the dollar. Step two became the 1986 US-Japan Semiconductor Trade Agreement. Japan’s government agreed both to prevent “dumping”—that is, exporting products at a lower price-tag than they carried in the domestic market—and to open one-fifth of the Japanese market to foreign chipmakers within five years.
This brings us back to Reagan’s seemingly reluctant April 1987 tariff hike at the center of the recent US-Canada brouhaha. It was, in fact, a temporary response to the slow speed at which Japan implemented the measures agreed to in 1986. For all his ardently laissez-faire rhetoric, Reagan undertook a range of measures that resembled “managed trade,” the concept advocated by industrial policy champions like Thurow, Reich, and Democratic congressman Richard Gephardt. Reagan no doubt believed in his movement’s free-market worldview in an abstract sense. But those around him were prepared to take quite bold steps in an apparently opposite direction.
“Reagan didn’t limit himself to trade-policy initiatives.”
Reagan didn’t limit himself to trade-policy initiatives. Broader concerns about revitalizing America’s waning industrial economy informed the Reagan Administration’s decision to sponsor SEMATECH, a public-private research and development consortium that ultimately helped the US semiconductor industry drive innovation in the 1990s. SEMATECH was a limited venture that fell far short of industrial policy advocates’ aspirations, but it reinforces the conclusion that Reagan’s administration chose targeted state intervention over fealty to free-market dogma.
The example of SEMATECH suggests a further lesson from the 1980s: Tade protectionism is only one dimension of a broader economic strategy. Here is where President Trump’s particular beguilement by tariffs seems shortsighted. Trump 2.0 has talked loudly about manufacturing and rebuilding America. But the administration has yet to deliver an agenda for making good on these promises. In fact, it appears to have done the opposite: Trump halted Biden-era investments in clean-energy industrial policy, and is using the cover of a government shutdown to freeze infrastructure projects in urban America. One of the architects of Reagan-era trade heterodoxy, Robert Lighthizer, was a key player in Donald Trump’s first term. It is revealing that today, he languishes in a Palm Beach condo as AI executives and teenagers meme the American state to death.
Trump’s trade wars have produced a lot of sound and fury. But DOGE and other second term austerity initiatives expose how Trump is more significantly following something like the reverse of Reagan’s course in office: having started out by questioning neoliberal orthodoxy, his administration has fallen back into small-government dogma. Perhaps Trump will go beyond punitive, scattershot tariffs and fulfill the promise of a new GOP coalition untethered from free market myths. But for the time being, there is little sign of this happening.