Tariffs In American History

Tariffs have historically played a key role in the trade policy of the United States. Economic historian Douglas Irwin classifies U.S. tariff history into three periods: a ''revenue period'' (ca. 1790–1860), a ''restriction period'' (1861–1933) and a ''reciprocity period'' (from 1934 onwards). In the first period, from 1790 to 1860, average tariffs increased from 20 percent to 60 percent before declining again to 20 percent. From 1861 to 1933, which Irwin characterizes as the "restriction period", the average tariffs rose to 50 percent and remained at that level for several decades. From 1934 onwards, in the "reciprocity period", the average tariff declined substantially until it leveled off at 5 percent. Especially after 1942, the U.S. began to promote worldwide free trade. After the 2016 presidential election, the US increased trade protectionism.

According to Irwin, tariffs were intended to serve three primary purposes: "to raise revenue for the government, to restrict imports and protect domestic producers from foreign competition, and to reach reciprocity agreements that reduce trade barriers."

According to Irwin, a common myth about U.S. trade policy is that low tariffs harmed American manufacturers in the early 19th century and then that high tariffs made the United States into a great industrial power in the late 19th century. As its share of global manufacturing powered from 23% in 1870 to 36% in 1913, the admittedly high tariffs of the time came with a cost, estimated at around 0.5% of GDP in the mid-1870s. In some industries, they might have sped up development by a few years. However, U.S. economic growth during its protectionist era was driven more by its abundant resources and openness to people and ideas.

Tariff revenues

Tariffs were the greatest (approaching 95% at times) source of federal revenue until the federal income tax began after 1913. For well over a century the federal government was largely financed by tariffs averaging about 20% on foreign imports. At the end of the American Civil War in 1865 about 63% of Federal income was generated by the excise taxes, more than twice the 25.4% generated by tariffs. In 1915 during World War I, tariffs generated 30.1% of revenues. Since 1935, tariff income has continued to be a declining percentage of Federal tax income.

Colonial Era to 1789

In the colonial era, before 1775, nearly every colony levied its own tariffs, usually with lower rates for British products. There were taxes on ships (on a tonnage basis), import taxes on slaves, export taxes on tobacco, and import taxes on alcoholic beverages. The London government insisted on a policy of mercantilism whereby only British ships could trade in the colonies. In defiance, some American merchants engaged in smuggling.

During the Revolution, the British blockade from 1775 to 1783 largely ended foreign trade. In the 1783–89 Confederation Period, each state set up its own trade rules, often imposing tariffs or restrictions on neighboring states. The new Constitution, which went into effect in 1789, banned interstate tariffs or trade restrictions, as well as state taxes on exports.

Early National period, 1789–1828

The framers of the United States Constitution gave the federal government authority to tax, stating that Congress has the power to "lay and collect taxes, duties, imposts and excises, pay the debts and provide for the common defense and general welfare of the United States." and also "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." Tariffs between states is prohibited by the U.S. Constitution, and all domestically made products can be imported or shipped to another state tax-free.

Responding to an urgent need for federal revenue and in light of concerns over the trade balance, the First United States Congress passed, and President George Washington signed, the Hamilton Tariff of 1789, which authorized the collection of duties on imported goods. Customs duties as set by tariff rates up to 1860 were usually about 80–95% of all federal revenue. Having just fought a war over taxation, among other things, the U.S. Congress wanted a reliable source of income that was relatively unobtrusive and easy to collect. It also sought to protect the infant industries that had developed during the war but which were now threatened by cheaper imports, especially from England.Dewey, ''Financial History of the United States'' (5th ed. 1915) ch. 4–5

Tariffs and excise taxes were authorized by the United States Constitution and recommended by the first United States Secretary of the Treasury, Alexander Hamilton in 1789 to tax foreign imports and set up low excise taxes on whiskey and a few other products to provide the Federal Government with enough money to pay its operating expenses and to redeem at full value U.S. Federal debts and the debts the states had accumulated during the Revolutionary War. The Congress set low excise taxes on only a few goods, such as, whiskey, rum, tobacco, snuff and refined sugar. The tax on whiskey was highly controversial and set off massive protests by Western Farmers in the Whiskey Rebellion of 1794, which was suppressed by General Washington at the head of an army. The whiskey excise tax collected so little and was so despised it was abolished by President Thomas Jefferson in 1802.

All tariffs were on a long list of goods (dutiable goods) with different customs rates and some goods on a "free" list. Books and publications were nearly always on the free list. Congress spent enormous amounts of time figuring out these tariff import tax schedules.

With tariffs providing the basic federal revenue, an embargo on trade, or an enemy blockade, would threaten havoc. This happened in connection with the American economic warfare against Britain in the 1807–15 period. In 1807 imports dropped by more than half and some products became much more expensive or unobtainable. Congress passed the Embargo Act of 1807 and the Non-Intercourse Act (1809) to punish British and French governments for their actions; unfortunately their main effect was to reduce imports even more. The War of 1812 brought a similar set of problems as U.S. trade was again restricted by British naval blockades. The fiscal crisis was made much worse by the abolition of the First Bank of the U.S., which was the national bank. It was reestablished right after the war.

The lack of imported goods relatively quickly gave very strong incentives to start building several U.S. industries in the Northeast. Textiles and machinery manufacturing plants especially grew. Many new industries were set up and run profitably during the wars and about half of them failed after hostilities ceased and normal import competition resumed. Industry in the U.S. was advancing up the skill set, innovation knowledge and organization curve as they adapted to the Industrial Revolution's new machines and techniques.

The Tariff Act of 1789 imposed the first national source of revenue for the newly formed United States. The new U.S. Constitution ratified in 1789, allowed only the federal government to levy uniform tariffs. Only the federal government could set tariff rates (customs), so the old system of separate state rates disappeared. The new law taxed all imports at rates from 5 to 15 percent. These rates were primarily designed to generate revenue to pay the annual expenses of the federal government and the national debt and the debts the states had accumulated during the American War of Independence and to also promote manufactures and independence from foreign nations, especially for defense needs.Douglas A. Irwin, "The Aftermath of Hamilton's 'Report on Manufactures'", ''Journal of Economic History,'' Sept 2004, Vol. 64, Issue 3, pp. 800–821

Hamilton believed that all Revolutionary War debt should be paid in full to establish and keep U.S. financial credibility. In addition to income in his Report on Manufactures Treasury Secretary Alexander Hamilton proposed a far-reaching plan to use protective tariffs as a lever for rapid industrialization. In the late 18th century the industrial age was just starting and the United States had little or no textile industry—the heart of the early Industrial Revolution. The British government having just lost the Revolutionary War tried to maintain their near monopoly on cheap and efficient textile manufacturing by prohibiting the export of textile machines, machine models or the emigration of people familiar with these machines.

Clothing in the early United States was nearly all hand made by a very time-consuming and expensive process—just like it had been made for centuries before. The new textile manufacturing techniques in Britain were often over thirty times cheaper as well as being easier to use, more efficient and productive. Hamilton believed that a stiff tariff on imports would not only raise income but "protect" and help subsidize early efforts at setting up manufacturing facilities that could compete with British products.

Ashley notes that:
: From 1790 onwards there were constant alterations in the tariff between 1792 and 1816 there were some twenty-five Tariff Acts passed, all modifying the customs duties in one way or another. But Hamilton's Report, and the ideas it embodied, do not seem to have exercised any special influence on the legislation of this period; the motives were always financial.

Higher tariffs were adopted during and after the War of 1812, when nationalists such as Henry Clay and John C. Calhoun saw the need for more federal income and more industry. In wartime, they declared, having a home industry was a necessity to avoid shortages. Likewise owners of the small new factories that were springing up in the northeast to mass-produce boots, hats, nails and other common items wanted higher tariffs that would significantly protect them when the more efficient British producers returned after the war ended. A 10% discount on the customs tax was offered on items imported in American ships, so that the American merchant marine would be supported.

Once industrialization and mass production started, the demand for higher and higher tariffs came from manufacturers and factory workers. They believed that their businesses should be protected from the lower wages and more efficient factories of Britain and the rest of Europe. Nearly every northern Congressman was eager to logroll a higher tariff rate for his local industry. Senator Daniel Webster, formerly a spokesperson for Boston's merchants who imported goods and wanted low tariffs, switched dramatically to represent the manufacturing interests in the Tariff of 1824. Rates were especially high for bolts of cloth and for bar iron, of which Britain was a low-cost producer.Taussig, ''The Tariff History of the United States'' (8th edition (1931), ch. 2Robert V. Remini, "Martin Van Buren and the Tariff of Abominations." ''American Historical Review'' 63.4 (1958): 903–917.

The culmination came in the Tariff of 1828, ridiculed by free traders as the "Tariff of Abominations", with import custom duties averaging over 25 percent. Intense political opposition to higher tariffs came from Southern Democrats and plantation owners in South Carolina who had little manufacturing industry and imported some products with high tariffs. They would have to pay more for imports. They claimed their economic interest was being unfairly injured. They attempted to "nullify" the federal tariff and spoke of secession from the Union (see the Nullification Crisis). President Andrew Jackson let it be known he would use the U.S. Army to enforce the law, and no state supported the South Carolina call for nullification. A compromise ended the crisis included a lowering of the average tariff rate over ten years to a rate of 15% to 20%.

Second Party System, 1829–1859

From 1832 to 1860, the Democrats tried to lower the tariff. The Tariff of 1832 eliminated certain features of the Tariff of 1828 that were disliked by manufacturers and the commercial East, but increased the duty on woolens. The Compromise Tariff of 1833 gradually reduced duties above 20% by removing one tenth from each impost in excess of that level at 2-year intervals. The Tariff of 1842 returned the tariff to the level of 1832, with duties averaging between 23% and 35%. The Walker Tariff of 1846 essentially focused on revenue and reversed the trend of substituting specific for ad valorem duties. The Tariff of 1857 reduced the tariff to a general level of 20%, the lowest rate since 1830, and expanded the free list.

The Democrats dominated the Second Party System and set low tariffs designed to pay for the government but not protect industry. Their opponents the Whigs wanted high protective tariffs but usually were outvoted in Congress. Tariffs soon became a major political issue as the Whigs (1832–1852) and after 1854, the Republicans wanted to protect their mostly northern industries and constituents by voting for higher tariffs and the Southern Democrats, which had very little industry but imported many goods voted for lower tariffs.

Each party as it came into power voted to raise or lower tariffs under the constraints that the Federal Government always needed a certain level of revenues. The United States public debt was paid off in 1834 and President Andrew Jackson, a strong Southern Democrat, oversaw the cutting of the tariff rates roughly in half and eliminating nearly all federal excise taxes in about 1835.

Henry Clay and his Whig Party, envisioning a rapid modernization based on highly productive factories, sought a high tariff. Their key argument was that startup factories, or "infant industries", would at first be less efficient than European (British) producers. American factory workers were paid higher wages than their European competitors. The arguments proved highly persuasive in industrial districts. Clay's position was adopted in the 1828 and 1832 Tariff Acts. The Nullification Crisis forced a partial abandonment of the Whig position. When the Whigs won victories in the 1840 and 1842 elections, taking control of Congress, they re-instituted higher tariffs with the Tariff of 1842. In examining these debates Moore finds that they were not precursors to Civil War. Instead they looked backward and continued the old debate whether foreign trade policy should embrace free trade or protectionism.

Walker Tariff

The Democrats won in 1845, electing James K. Polk as president. Polk succeeded in passing the Walker tariff of 1846 by uniting the rural and agricultural factions of the entire country for lower tariffs. They sought a level of a "tariff for revenue only" that would pay the cost of government but not show favoritism to one section or economic sector at the expense of another. The Walker Tariff actually increased trade with Britain and others and brought in more revenue to the federal treasury than the higher tariff. The average tariff on the Walker Tariff was about 25%. While protectionists in Pennsylvania and neighboring states were angered, the South achieved its goal of setting low tariff rates before the Civil War.

Low tariff of 1857

The Walker Tariff remained in place until 1857, when a nonpartisan coalition lowered them again with the Tariff of 1857 to 18%. This was in response to the British repeal of their protectionist "Corn Laws".

The Democrats in Congress, dominated by Southern Democrats, wrote and passed the tariff laws in the 1830s, 1840s, and 1850s, and kept reducing rates, so that the 1857 rates were down to about 15%, a move that boosted trade so overwhelmingly that revenues actually increased, from just over $20 million in 1840 ($ billion in dollars), to more than $80 million by 1856 ($ billion). The South had almost no complaints but the low rates angered many Northern industrialists and factory workers, especially in Pennsylvania, who demanded protection for their growing iron industry. The Republican Party replaced the Whigs in 1854 and also favored high tariffs to stimulate industrial growth; it was part of the 1860 Republican platform.''Republican Party National Platform, 1860''
Reported from the Platform Committee by Judge Jessup of Pennsylvania and adopted unanimously by the Republican National Convention held at Chicago on May 17, 1860. Broadside printing by ''The Chicago Press & Tribune'', May, 1860

Third Party System

After the Second Party System ended in 1854 the Democrats lost control and the new Republican Party had its opportunity to raise rates. The Morrill Tariff significantly raising tariff rates became possible only after the Southern Senators walked out of Congress when their states left the Union, leaving a Republican majority. It was signed by Democratic President James Buchanan in early March 1861 shortly before President Abraham Lincoln took office. Pennsylvania iron mills and New England woolen mills mobilized businessmen and workers to call for high tariffs, but Republican merchants wanted low tariffs.Taussig, ''The Tariff History of the United States'' (1931), pp. 123–161Richard Hofstadter, "The Tariff Issue on the Eve of the Civil War", ''The American Historical Review'' (1938) 44#1 pp. 50–5
full text in JSTOR
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The high tariff advocates lost in 1857, but stepped up their campaign by blaming the economic recession of 1857 on the lower rates. Economist Henry Charles Carey of Philadelphia was the most outspoken advocate, along with Horace Greeley and his influential newspaper, the New York Tribune.

1860–1912

Civil War

In February 1861, increases were enacted after Southerners resigned their seats in Congress on the eve of the Civil War. During the war far more revenue was needed, so the rates were raised again and again, along with many other taxes such as excise taxes on luxuries and income taxes on the rich. By far most of the wartime government revenue came from bonds and loans ($2.6 billion), not taxes ($357 million) or tariffs ($305 million).

The Morrill Tariff took effect a few weeks before the war began on April 12, 1861, and was not collected in the South. The Confederate States of America (CSA) passed its own tariff of about 15% on most items, including many items that previously were duty-free from the North. Previously tariffs between states were prohibited. The Confederates believed that they could finance their government by tariffs. The anticipated tariff revenue never appeared as the Union Navy blockaded their ports and the Union army restricted their trade with the Northern states. The Confederacy collected a mere $3.5 million in tariff revenue from the Civil War start to end and had to resort to inflation and confiscation instead for revenue.

Most historians in recent decades have minimized the tariff issue as a cause of the war, noting that few people in 1860–61 said it was of central importance to them. Compromises were proposed in 1860–61 to save the Union, but they did not involve the tariff. Arguably, the effects of a tariff enacted in March 1861 could have made little effect upon any delegation which met prior to its signing. It is indicative of the Northern industrial supported and anti-agrarian position of the 1861 Republican-controlled congress. Some secessionist documents do mention a tariff issue, though not nearly as often as the preservation of the institution of slavery. However, a few libertarian economists place more importance on the tariff issue.

According to economist Douglas Irwin, tariffs played little to no role in causing the Civil War. After the 1828 Tariff of Abominations, South Carolina threatened secession, but the crisis was resolved through the Compromise of 1833, which led to a steady decline in tariffs. Further reductions followed in 1846 and 1857, bringing the average tariff below 20% on the eve of the war—one of the lowest levels in the antebellum period. Irwin notes that Southern Democrats had substantial influence over trade policy until the Civil War. He rejects the revisionist claim—often associated with the Lost Cause narrative—that the Morrill Tariff triggered the conflict. Instead, Irwin argues that the Morrill Tariff only passed because Southern states had already seceded and their representatives were no longer in Congress to oppose it. It was signed by President James Buchanan, a Democrat, before Lincoln took office. In short, Irwin finds no evidence that tariffs were a major cause of the Civil War.

Reconstruction era

Historian Howard K. Beale argued that high tariffs were needed during the Civil War, but were retained after the war for the benefit of Northern industrialists, who would otherwise lose markets and profits. To keep political control of Congress, Beale argued, Northern Industrialists worked through the Republican Party and supported Reconstruction policies that kept low-tariff Southern whites out of power. The Beale thesis was widely disseminated by the influential survey of Charles A. Beard, ''The Rise of American Civilization'' (1927).

In the late 1950s historians rejected the Beale–Beard thesis by showing that Northern businessmen were evenly divided on the tariff, and were not using Reconstruction policies to support it.

Politics of protection

The iron and steel industry, and the wool industry, were the well-organized interests groups that demanded (and usually obtained) high tariffs through support of the Republican Party. Industrial workers had much higher wages than their European counterparts, and they credited it to the tariff and voted Republican.

Democrats were divided on the issue, in large part because of pro-tariff elements in the Pennsylvania party who wanted to protect the growing iron industry, as well as pockets of high tariff support in nearby industrializing states. However President Grover Cleveland made low tariffs the centerpiece of Democratic Party policies in the late 1880s. His argument is that high tariffs were an unnecessary and unfair tax on consumers. The South and West generally supported low tariffs, and the industrial East high tariffs. Republican William McKinley was the outstanding spokesman for high tariffs, promising it would bring prosperity for all groups.

Farmers and wool

The Republican high-tariff advocates appealed to farmers with the theme that high-wage factory workers would pay premium prices for foodstuffs. This was the "home market" idea, and it won over most farmers in the Northeast, but it had little relevance to the southern and western farmers who exported most of their cotton, tobacco and wheat. In the late 1860s the wool manufacturers (based near Boston and Philadelphia) formed the first national lobby, and cut deals with wool-growing farmers in several states. Their challenge was that fastidious wool producers in Britain and Australia marketed a higher quality fleece than the Americans, and that British manufacturers had costs as low as the American mills. The result was a wool tariff that helped the farmers by a high tariff rate on imported wool—a tariff the American manufacturers had to pay—together with a high tariff on finished woolens and worsted goods.Tom E. Terrill, ''The Tariff, Politics, and American Foreign Policy 1874–1901'' (1973)

Cleveland tariff policy

Democratic President Grover Cleveland redefined the issue in 1887, with his stunning attack on the tariff as inherently corrupt, opposed to true republicanism, and inefficient to boot: "When we consider that the theory of our institutions guarantees to every citizen the full enjoyment of all the fruits of his industry and enterprise... it is plain that the exaction of more than inimal taxesis indefensible extortion and a culpable betrayal of American fairness and justice." The election of 1888 was fought primarily over the tariff issue, and Cleveland lost. Republican Congressman William McKinley argued,

Free foreign trade gives our money, our manufactures, and our markets to other nations to the injury of our labor, our tradespeople, and our farmers. Protection keeps money, markets, and manufactures at home for the benefit of our own people.

Democrats campaigned energetically against the high McKinley tariff of 1890, and scored sweeping gains that year; they restored Cleveland to the White House in 1892. The severe depression that started in 1893 ripped apart the Democratic party. Cleveland and the pro-business Bourbon Democrats insisted on a much lower tariff. His problem was that Democratic electoral successes had brought in Democratic congressmen from industrial districts who were willing to raise rates to benefit their constituents. The Wilson–Gorman Tariff Act of 1894 did lower overall rates from 50 percent to 42 percent, but contained so many concessions to protectionism that Cleveland refused to sign it (it became law anyway).

McKinley tariff policy

McKinley won the 1896 presidential election arguing for the high tariff as a positive solution to depression. In 1897, the Republicans rushed through the Dingley tariff, boosting rates back to the 50 percent level. Democrats responded that the high rates created government sponsored "trusts" (monopolies) and led to higher consumer prices. McKinley won reelection by an even bigger landslide and started talking about a post-tariff era of reciprocal trade agreements. Reciprocity went nowhere; McKinley's vision was a half century too early.

The Republicans split bitterly on the Payne–Aldrich Tariff of 1909. Republican President Theodore Roosevelt (1901–1909) saw the tariff issue was ripping his party apart, so he postponed any consideration of it. The delicate balance flew apart on under Republican William Howard Taft. He campaigned for president in 1908 for tariff "reform", which everyone assumed meant lower rates. The House lowered rates with the Payne Bill, then sent it to the Senate where Nelson Wilmarth Aldrich mobilized high-rate Senators.David W. Detzer, "Businessmen, Reformers, and Tariff Revision: The Payne–Aldrich Tariff of 1909", ''Historian,'' (1973) 35#2 pp. 196–204, onlineStanley D. Solvick, "William Howard Taft and the Payne-Aldrich Tariff," ''Mississippi Valley Historical Review'' (1963) 50#3 pp. 424–44
in JSTOR

Aldrich was a New England businessman and a master of the complexities of the tariff, the Midwestern Republican insurgents were rhetoricians and lawyers who distrusted the special interests and assumed the tariff was "sheer robbery" at the expense of the ordinary consumer. Rural America believed that its superior morality deserved special protection, while the dastardly immorality of the trusts—and cities generally—merited financial punishment. Aldrich baited them. His Payne–Aldrich Tariff Act of 1909 lowered the protection on Midwestern farm products, while raising rates favorable to his Northeast.

By 1913 with the new income tax generating revenue, the Democrats in Congress were able to reduce rates with the Underwood Tariff. The outbreak of war in 1914 made the impact of tariffs of much less importance compared to war contracts. When the Republicans returned to power they returned the rates to a high level in the Fordney–McCumber Tariff of 1922. The next raise came with the Smoot–Hawley Tariff Act of 1930 at the start of the Great Depression.

Tariff with Canada

The Canadian–American Reciprocity Treaty increased trade between 1855 and its ending in 1866. When it ended, Canada turned to tariffs. The National Policy was a Canadian economic program introduced by John A. Macdonald's Conservative Party in 1879 after it returned to power. It had been an official policy, however, since 1876. It was based on high tariffs to protect Canada's manufacturing industry. Macdonald campaigned on the policy in the 1878 election, and handily beat the Liberal Party, which supported free trade.

Efforts to restore free trade with Canada collapsed when Canada rejected a proposed reciprocity treaty in fear of American imperialism in the 1911 federal election. Taft negotiated a reciprocity agreement with Canada, that had the effect of sharply lowering tariffs. Democrats supported the plan but Midwestern Republicans bitterly opposed it. Barnstorming the country for his agreement, Taft undiplomatically pointed to the inevitable integration of the North American economy, and suggested that Canada should come to a "parting of the ways" with Britain. Canada's Conservative Party, under the leadership of Robert Borden, now had an issue to regain power from the low-tariff Liberals. After a surge of pro-imperial anti-Americanism, the Conservatives won.Paolo Enrico Coletta, ''The Presidency of William Howard Taft'' (1973)

Ottawa rejected reciprocity, reasserted the National Policy and went to London first for new financial and trade deals. The Payne Aldrich Tariff of 1909 actually changed little and had slight economic impact one way or the other, but the political impact was enormous. The insurgents felt tricked and defeated and swore vengeance against Wall Street and its minions Taft and Aldrich. The insurgency led to a fatal split down the middle in 1912 as the GOP lost its balance wheel.

1913 to 1929

Starting in the Civil War, protection was the ideological cement holding the Republican coalition together. High tariffs were used to promise higher sales to business, higher wages to industrial workers, and higher demand for their crops to farmers. Democrats said it was a tax on the little man. After 1900 Progressive insurgents said it promoted monopoly. It had greatest support in the Northeast, and greatest opposition in the South and West. The Midwest was the battle ground.

The tariff issue was pulling the GOP apart. Roosevelt tried to postpone the issue, but Taft had to meet it head on in 1909 with the Payne–Aldrich Tariff Act. Eastern conservatives led by Nelson W. Aldrich wanted high tariffs on manufactured goods (especially woolens), while Midwesterners called for low tariffs. Aldrich outmaneuvered them by lowering the tariff on farm products, which outraged the farmers. The great battle over the high Payne–Aldrich Tariff Act in 1910 ripped the Republicans apart and set up the realignment in favor of the Democrats.

Woodrow Wilson made a drastic lowering of tariff rates a major priority for his presidency. The 1913 Underwood Tariff cut rates, but the coming of World War I in 1914 radically revised trade patterns. Reduced trade and, especially, the new revenues generated by the federal income tax made tariffs much less important in terms of economic impact and political rhetoric. The Wilson administration desired a 'revamping' of the current banking system, "...so that the banks may be the instruments, not the masters, of business and of individual enterprise and initiative.".

President Wilson achieved this in the Federal Reserve Act of 1913. Working with the bullish Senator Aldrich and former presidential candidate William Jennings Bryan, he perfected a way to centralize the banking system to allow Congress to closely allocate paper money production.

The Federal Reserve Act, with the Sixteenth Amendment of the Constitution, would create a trend of new forms of government funding. The Democrats lowered the tariff in 1913 but the economic dislocations of the First World War made it irrelevant. When the Republicans returned to power in 1921 they again imposed a protective tariff. They raised it again with the Smoot–Hawley Tariff Act of 1930 to meet the Great Depression in the United States. But that made the depression worse. This time it backfired, as Canada, Britain, Germany, France and other industrial countries retaliated with their own tariffs and special, bilateral trade deals. American imports and exports both went into a tailspin.

The Democrats promised an end to protection on a reciprocal country-by-country basis (which they did), hoping this would expand foreign trade (which it did not). By 1936 the tariff issue had faded from politics, and the revenue it raised was small. In World War II, both tariffs and reciprocity were insignificant compared to trade channeled through Lend-Lease. Low rates dominated the debate for the rest of the 20th century. In 2017 Donald Trump promised to use protective tariffs as a weapon to restore greatness to the economy.

Tariffs and the Great Depression

Economist Douglas A. Irwin assesses the impact of the Smoot-Hawley Act: in the two years following the imposition of the Smoot-Hawley tariff in June 1930, the volume of U.S. imports fell by over 40%. He shows that part of this collapse in trade is attributed to the tariff itself, and not to other factors such as falling incomes or foreign retaliation. Partial and general equilibrium evaluations indicate that the Smoot-Hawley tariff reduced imports by between 4% and 8% (ceteris paribus). In addition, a counterfactual simulation suggests that almost a quarter of the observed 40% drop in imports can be attributed to the increase in the effective tariff (i.e. Smoot-Hawley plus deflation).

Irwin argues that while the Smoot-Hawley Tariff Act was not the primary cause of the Great Depression, it contributed to its severity by provoking international retaliation and reducing global trade. The Smoot-Hawley Tariff Act raised the average level of tariffs on dutiable imports by 15 to 18 percent. What mitigated the impact of Smoot-Hawley was the small size of the trade sector at the time. Only a third of total imports to the United States in 1930 were subject to duties, and those dutiable imports represented only 1.4 percent of GDP. According to Irwin, there is no evidence that the legislation achieved its goals of net job creation or economic recovery. Even from a Keynesian perspective, the policy was counterproductive, as the decline in exports exceeded the reduction in imports. While falling foreign incomes were a key factor in the collapse of U.S. exports, the tariff also limited foreign access to U.S. dollars, appreciating the currency and making American goods less competitive abroad. Irwin emphasizes that one of the most damaging consequences of the Act was the deterioration of the United States' trade relations with key partners. Enacted at a time when the League of Nations was seeking to implement a global "tariff truce", the Smoot-Hawley Tariff was widely perceived as a unilateral and hostile move, undermining international cooperation. In his assessment, the most significant long-term impact was that the resentment it generated encouraged other countries to form discriminatory trading blocs. These preferential arrangements, diverted trade away from the United States and hindered the global economic recovery.

Trade liberalization

Tariffs up to the Smoot–Hawley Tariff Act of 1930, were set by Congress after many months of testimony and negotiations. In 1934, the U.S. Congress, in a rare delegation of authority, passed the Reciprocal Tariff Act of 1934, which authorized the executive branch to negotiate bilateral tariff reduction agreements with other countries. The prevailing view then was that trade liberalization may help stimulate economic growth. However, no one country was willing to liberalize unilaterally.

Between 1934 and 1945, the executive branch negotiated over 32 bilateral trade liberalization agreements with other countries. The belief that low tariffs led to a more prosperous country are now the predominant belief with some exceptions. Multilateralism is embodied in the seven tariff reduction rounds that occurred between 1948 and 1994. In each of these "rounds", all General Agreement on Tariffs and Trade (GATT) members came together to negotiate mutually agreeable trade liberalization packages and reciprocal tariff rates. In the Uruguay round in 1994, the World Trade Organization (WTO) was established to help establish uniform tariff rates.

Until 2025 only about 30% of all import goods are subject to tariffs in the United States, the rest were on the free list. The "average" tariffs charged by the United States were at a historic low. The list of negotiated tariffs are listed on the Harmonized Tariff Schedule as put out by the United States International Trade Commission.

Post World War II

After the war the U.S. promoted the General Agreement on Tariffs and Trade (GATT) established in 1947, to minimize tariffs and other restrictions, and to liberalize trade among all capitalist countries. In 1995 GATT became the World Trade Organization (WTO); with the collapse of Communism its open markets/low tariff ideology became dominant worldwide in the 1990s.

American industry and labor prospered after World War II, but hard times set in after 1970. For the first time there was stiff competition from low-cost producers around the globe. Many rust belt industries faded or collapsed, especially the manufacture of steel, TV sets, shoes, toys, textiles and clothing. Toyota and Nissan threatened the giant domestic auto industry. In the late 1970s Detroit and the auto workers union combined to fight for protection. They obtained not high tariffs, but a voluntary restriction of imports from the Japanese government.John H. Barton, Judith L. Goldstein, Timothy E. Josling, and Richard H. Steinberg, ''The Evolution of the Trade Regime: Politics, Law, and Economics of the GATT and the WTO'' (2008)

Quotas were two-country diplomatic agreements that had the same protective effect as high tariffs, but did not invite retaliation from third countries. By limiting the number of Japanese automobiles that could be imported, quotas inadvertently helped Japanese companies push into larger, and more expensive market segments. The Japanese producers, limited by the number of cars they could export to America, opted to increase the value of their exports to maintain revenue growth. This action threatened the American producers' historical hold on the mid- and large-size car markets.

The Chicken tax was a 1964 response by President Lyndon B. Johnson to tariffs placed by Germany (then West Germany) on importation of US chicken. Beginning in 1962, during the President Kennedy administration, the US accused Europe of unfairly restricting imports of American poultry at the request of West German chicken farmers. Diplomacy failed, and in January 1964, two months after taking office, President Johnson retaliated by imposing a 25 percent tax on all imported light trucks. This directly affected the German built Volkswagen vans.

Officially, it was explained that the light trucks tax would offset the dollar amount of imports of Volkswagen vans from West Germany with the lost American sales of chickens to Europe. But audio tapes from the Johnson White House reveal that in January 1964, President Johnson was attempting to convince United Auto Workers's president Walter Reuther not to initiate a strike just prior to the 1964 election and to support the president's civil rights platform. Reuther in turn wanted Johnson to respond to Volkswagen's increased shipments to the United States.

1980s to 2000

During the Reagan and George H. W. Bush administrations Republicans abandoned protectionist policies, and came out against quotas and in favor of the GATT/WTO policy of minimal economic barriers to global trade. Free trade with Canada came about as a result of the Canada–U.S. Free Trade Agreement of 1987, which led in 1994 to the North American Free Trade Agreement (NAFTA). It was based on Reagan's plan to enlarge the scope of the market for American firms to include Canada and Mexico. President Bill Clinton, with strong Republican support in 1993, pushed NAFTA through Congress over the vehement objection of labor unions.

In 2000 Clinton worked with Republicans to give China entry into WTO and " most favored nation" trading status, i.e., the same low tariffs promised to any other WTO member. NAFTA and WTO advocates promoted an optimistic vision of the future, with prosperity to be based on intellectuals skills and managerial know-how more than on routine hand labor. They promised that free trade meant lower prices for consumers. Opposition to liberalized trade came increasingly from labor unions, who argued that this system also meant lower wages and fewer jobs for American workers who could not compete against wages of less than a dollar an hour. The shrinking size and diminished political clout of these unions repeatedly left them on the losing side.

Despite overall decreases in international tariffs, some tariffs have been more resistant to change. For example, due partially to tariff pressure from the European Common Agricultural Policy, US agricultural subsidies have seen little decrease over the past few decades, even in the face of recent pressure from the WTO during the latest Doha talks.

On March 5, 2002, President George W. Bush placed tariffs on imported steel.

2000 to present

Deindustrialization and China shock

In early 2017, Joseph Stiglitz wrote that "the American middle class is indeed the loser of globalization" (the diminution of international trade regulations as well as tariffs, taxes) and "China, with its large emerging middle class, is among the big beneficiaries of globalization". "Thanks to globalization, in terms of purchasing-power parity, China actually has already become the largest economy in the world in September 2015".

Studies by David Autor, David Dorn and Gordon Hanson show that trade with China cost Americans around one million manufacturing workers between 1991 and 2007. Competition from Chinese imports has led to manufacturing job losses and declining wages. They also found that offsetting job gains in other industries never materialized. Closed companies no longer order goods and services from local non-manufacturing firms and former industrial workers may be unemployed for years or permanently. Increased import exposure reduces wages in the non-manufacturing sector due to lower demand for non-manufacturing goods and increased labor supply from workers who have lost their manufacturing jobs. Other work by this team of economists, with Daron Acemoglu and Brendan Price, estimates that competition from Chinese imports cost the U.S. as many as 2.4 million jobs in total between 1999 and 2011.

Although Autor, Dorn, and Hanson have documented the adverse effects of Chinese import competition on certain U.S. regions, they have emphasized that these findings reflect the broader impact of economic disruptions, including technological change and recessions, rather than trade alone. They do not dispute the overall economic benefits of free trade. Instead of advocating protectionist measures like tariffs, the authors argue that policy responses should focus on helping workers adapt to change.

Economist Douglas Irwin nuances the paper of Autor, Dorn and Hanson. According to Irwin the so-called " China shock" — the sharp increase in Chinese imports to the United States — was an exceptional and largely one-off event. It coincided with a large-scale shift of labor from agriculture to industry in China, combined with a growing working-age population. Irwin argues that such conditions are unlikely to be repeated, given the slowing pace of urbanization and the now-declining working-age population in China. Moreover, the rise in Chinese imports occurred during a period of falling unemployment in the U.S., which, according to Irwin, indicates that it was not the result of a general demand shortfall. The problem, he contends, lay more in the geographic concentration of manufacturing and the limited ability of workers to move between regions and sectors.

Irwin also points to other contributing factors behind the deterioration of the U.S. labor market in the 2000s, including the 2008 financial crisis and macroeconomic imbalances such as China's exceptionally high current account surplus. In his view, the China shock does not alter the broad economic consensus that free trade delivers substantial benefits, although it is acknowledged that certain regions or occupational groups can be adversely affected by trade liberalization. In this context, the China shock represents an extreme case. Additional research, including work by Rob Feenstra, highlights the consumer benefits of the China shock, particularly through lower prices that disproportionately benefited low-income households. Part of China's efficiency gains was also due to unilateral reductions in import tariffs on intermediate goods and raw materials, which made Chinese producers more competitive. This development was not the result of U.S. policy, but of internal reforms in China — reforms that Irwin considers positive.

First Donald Trump presidency

The first Trump tariffs were imposed by executive order (not by act of Congress) during the first presidency of Donald Trump as part of his economic policy. In January 2018, Trump imposed tariffs on solar panels and washing machines of 30 to 50 percent. He soon imposed tariffs on steel (25%) and aluminum (10%) from most countries. On June 1, 2018, this was extended on the European Union, Canada, and Mexico. Separately, on May 10, the Trump administration set a tariff of 25% on 818 categories of goods imported from China worth $50 billion (~$ in ). The only country which remained exempt from the steel and aluminum tariffs was Australia. Argentinian and Brazilian aluminum tariffs were started on December 2, 2019, in reaction to currency manipulation.

Caliendo and Parro have found that the tariffs—and China’s inevitable retaliation—reduced consumption, wages, manufacturing exports, and aggregate welfare. The net welfare losses from 2018–2019 trade war (–0.1%) stand in stark contrast to the China Shock’s net gains (+0.2%).

Joe Biden

In May 2024, the Biden administration doubled tariffs on solar cells imported from China and more than tripled tariffs on lithium-ion electric vehicle batteries imported from China. The administration also raised tariffs on imports of Chinese steel, aluminum, and medical equipment. The tariff increases will be phased in over a period of three years.

Second Donald Trump presidency: Liberation Day tariffs

During his second presidency, Trump imposed a series of steep protective tariffs affecting nearly all U.S. imports. Between January and April 2025, the average effective U.S. tariff rate rose from 2.5% to an estimated 27%—the highest level in over a century.

Smuggling and Coast Guard

Historically, high tariffs have led to high rates of smuggling. The United States Revenue Cutter Service was established by Secretary Hamilton in 1790 as an armed maritime law and custom enforcement service. Today it remains the primary maritime law enforcement force in the United States.

The U.S. Customs and Border Protection (CBP) is a federal law enforcement agency of the United States Department of Homeland Security charged with regulating and facilitating international trade, collecting customs (import duties or tariffs approved by the U.S. Congress), and enforcing U.S. regulations, including trade, customs and immigration. They man most border crossing stations and ports. When shipments of goods arrive at a border crossing or port, customs officers inspect the contents and charge a tax according to the tariff formula for that product.

See also

*Protectionism in the United States
* Tariffs in the first Trump administration
* Tariffs in the second Trump administration
* List of the largest trading partners of the United States
* List of largest trading partners of India

References

Further reading

* Aaronson, Susan Ariel. ''Trade and the American Dream: A Social History of Postwar Trade Policy'' (U of Kentucky Press, 1996)

* Bils, Mark. "Tariff protection and production in the early US cotton textile industry." ''Journal of Economic History'' (1984) 44#4 pp. 1033–1045.
* Bolt, William K. ''Tariff Wars and the Politics of Jacksonian America'' (2017) covers 1816 to 1861
PhD dissertation version

* Cohen, Andrew Wender. ''Contraband: Smuggling and the Birth of the American Century''. WW Norton & Company, 2015.
* Dewey, Davis Rich. ''Financial History of the United States'' (5th ed. 1915
online full text

* Doran, Charles F. and Gregory P. Marchildon. ''The NAFTA Puzzle: Political Parties and Trade in North America'' (1994)
* Eckes, Alfred. ''Opening America's Market: U.S. Foreign Trade Policy since 1776'' (1995)
* Elliott, Orrin Leslie. ''The Tariff Controversy in the United States 1789–1833: With a Summary of the Period Before the Adoption of the Constitution'' (1892
online

* Gingrich, Newt. "Trump's America: The Truth about Our Nation's Great Comeback" (2018)
* Goodman, Matthew P and Ratner, Ely "A Better Way to Challenge China on Trade" ''Foreign Affairs'', March 22, 2018
* Hawke, Gary R. "The United States tariff and industrial protection in the late nineteenth century." ''Economic History Review'' (1975) 28#1 pp. 84–99.

*
* Irwin, Douglas A. "Antebellum Tariff Politics: Regional Coalitions and Shifting Economic Interests", ''Journal of Law and Economics,'' 51 (Nov. 2008), 715–742.
* Lake, David A. "International economic structures and American foreign economic policy, 1887–1934." ''World Politics'' (1983) 35#4 pp. 517–543
online

* Kaplan, Edward S.; ''Prelude to Trade Wars: American Tariff Policy, 1890–1922'' Greenwood Press 1994
* Kaplan, Edward S. ''American Trade Policy: 1923–1995'' (1996)
online review

* Narton, John H. Judith L. Goldstein, Timothy E. Josling, and Richard H. Steinberg, ''The Evolution of the Trade Regime: Politics, Law, and Economics of the GATT and the WTO'' (2008)

* Northrup, Cynthia Clark, and Elaine C. Prange Turney, eds. ''Encyclopedia of Tariffs and Trade in U.S. History'' (3 vol Greenwood, 2003) vol 1 on people, politics concepts and laws on tariff. Vol 2 on primary sources; vol 3 has the full text of each major tariff law, 1789 to 1930.
* Schattsneider, E. E. ''Politics, Pressures and the Tariff'' (1935). Passage of Hawley-Smoot tariff
* Smith, Mark A. ''The Tariff on Wool'' 1926
* detailed political narrative; full text online
*
* Summers; Festus P. ''William L. Wilson and Tariff Reform, a Biography'' (1953) on 1890s
* Taussig, F. W. ''The Tariff History of the United States''. 8th edition (1931)
5th edition 1910 is online
, the standard scholarly history emphasizing politics; it collects articles he wrote in the journals
* Taussig, Frank William. ''Some Aspects of the Tariff Question,'' (3rd ed. 1931), a standard scholarly history, emphasizing the impact on the major industries affected, especially sugar, steel, silk, cotton and wool
online

* Taussig, Frank William. ''The history of the present tariff, 1860–1883'' (1885
online

*
* Taylor, George Rogers, ed. ''The Great Tariff Debate, 1820–1830'' (1953), excerpts from primary and secondary sources
* Terrill, Tom E. ''The Tariff, Politics, and American Foreign Policy 1874–1901'' (1973).

* Wolman, Paul. ''Most Favored Nation: The Republican Revisionists and U.S. Tariff Policy, 1897–1912'' (1992)

Primary sources

* Northrup, Cynthia Clark, and Elaine C. Prange Turney, eds. ''Encyclopedia of Tariffs and Trade in U.S. History'' (3 vol Greenwood, 2003) vol 1 on people, politics concepts and laws on tariff. Vol 2 contains primary sources; vol 3 has the text of each major tariff, 1789 to 1930.

* Ratner, Sidney. ''The Tariff in American History'' (1972) 80 page scholarly history, and 130 pages of text of 23 key primary sources
online

External links

from Northern Illinois University


from Northern Illinois University

{{DEFAULTSORT:Tariffs In United States History
History of foreign trade of the United States
History of taxation in the United States
History of international trade
History of the United States by topic