In the late 1790s, three events–the Panic of 1797, the Quasi-War with France, and a yellow fever epidemic–coincided to end a decade-long export boom in the United States and usher in hard times for the republic. Focusing on Baltimore as a case study, the evidence reveals that the economic downturn was a turning point for the U.S. economy rather than a temporary setback; thereafter, the domestic economy eclipsed overseas trade as the primary engine of growth. The first event that led to the hard times, the Panic of 1797, was a financial collapse precipitated by the Bank of England's suspension of specie payments. This action unraveled the web of Atlantic credit that many merchants depended on. Those with commercial interests in the Caribbean were somewhat insulated from the effects of the Panic, but they experienced major disruptions in 1797 and 1798 thanks to the Quasi-War with France. To make matters worse, the yellow fever epidemic eliminated any chance for recovery by shutting down affected American ports. Although the hard times had largely ended by 1800, the export boom did not return. Instead, U.S. overseas trade experienced extreme volatility and stagnation between 1800 and 1807. The Embargo of 1807 and the War of 1812 accelerated the demise of the export economy as the wellspring of American prosperity, but the experience of Baltimore's business community demonstrates that the hard times of the late 1790s were the initial turning point for the shift towards the domestic economy.
Journal of the Early Republic – University of Pennsylvania Press