The dirty little secret of international economics is that while economists love to sing the praises of free trade, the economic costs of tariffs — even fairly high tariffs — tend to be modest. Why? Because the private sector responds to tariffs by cutting off only the least essential imports. Impose, say, a 20 percent tariff on imports, and we will stop importing only goods that can be produced at home at a modestly higher cost or for which there are reasonably good domestic substitutes. If an imported good is really needed — for example, if it’s a crucial input for manufacturing that we can’t quickly start making here — companies will simply pay the tariff and continue buying abroad.
If events cut off a large fraction of a nation’s international trade, however, that kind of prioritization won’t be possible. The domestic economy will lose access not just to cheap stuff but also to goods it has a very hard time doing without.
Do we have historical examples of what happens when a trading nation is forced into autarky? Not many, precisely because it’s such an extreme event. You could say that something like this happened to Japan during World War II, especially after America captured Saipan and Guam in 1944. This put the U.S. submarine bases near Japan’s most crucial shipping routes and airfields close enough to bomb its ports, effectively isolating Japan’s economy from the rest of the world. Sure enough, Japan’s war economy imploded.
But what about autarky in a nation that wasn’t under direct military assault? Well, there’s a surprising — and surprisingly old — example from U.S. history.
America wasn’t a direct participant in the Napoleonic wars, a huge conflict that, among other things, led Britain to accumulate a remarkable amount of government debt: