History of tariffs in the United States

Tariffs have historically played a key role in the trade policy of the United States. Their purposes include to generate revenue for the federal government and to allow for import substitution industrialization (industrialization of a nation by replacing imports with domestic production) by acting as a protective barrier around infant industries. They also aim to reduce the trade deficit and the pressure of foreign competition. Tariffs were one of the pillars of the American System that allowed the rapid development and industrialization of the United States.
The United States pursued a protectionist policy from the beginning of the 19th century until the middle of the 20th century. Between 1861 and 1933, they had one of the highest average tariff rates on manufactured imports in the world. After 1942, the U.S. began to promote worldwide free trade. After the 2016 presidential election, the US increased trade protectionism.
According to Dartmouth economist Douglas Irwin, tariffs have served 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." 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 increased to 50 percent and remained at that level for several decades. From 1934 onwards, which Irwin characterizes as the "reciprocity period", the average tariff declined substantially until it leveled off at 5 percent.
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.
After the United States achieved independence in 1776, under the Articles of Confederation, the U.S. federal government could not collect taxes directly but had to "request" money from each state. The power to levy taxes and tariffs, when proposed by the United States House of Representatives, was granted to the federal government by the United States Constitution after it came into effect in 1789. The new government needed a way to collect taxes from all the states that was easy to enforce and had only a nominal cost to the average citizen. The Tariff Act of 1789 was the second bill signed by President George Washington imposing a tariff of about 5% on nearly all imports, with a few exceptions. In 1790 the United States Revenue Cutter Service was established to primarily enforce and collect the import tariffs. This service later became the United States Coast Guard.
The UK was the first country to employ a strategy of promoting emerging industry on a large scale. However, its most fervent supporter was the United States; Paul Bairoch called the U.S. “the mother country and bastion of modern protectionism.”
Many American intellectuals and politicians during the country's catching-up period felt that the free trade theory advocated by British classical economists was not suited to their country. They argued that the country should develop manufacturing industries and use government protection and subsidies for this purpose, as Britain had done before them. Many of the great American economists of the time, until the last quarter of the 19th century, were strong advocates of industrial protection: Daniel Raymond who influenced Friedrich List, Mathew Carey and his son Henry, who was one of Lincoln's economic advisers. The intellectual leader of this movement was Alexander Hamilton, the first Secretary of the Treasury of the United States (1789–1795).
The United States rejected David Ricardo's theory of comparative advantage and protected its industry. The country pursued a protectionist policy from the beginning of the 19th century until the middle of the 20th century, after the Second World War.
In Report on Manufactures, which is considered the first text to express modern protectionist theory, Alexander Hamilton argued that if a country wished to develop a new activity on its soil, it would have to temporarily protect it. According to him, this protection against foreign producers could take the form of import duties or, in rare cases, prohibition of imports. He called for customs barriers to allow American industrial development and to help protect infant industries, including bounties (subsidies) derived in part from those tariffs. He also believed that duties on raw materials should be generally low. Hamilton argued that despite an initial "increase of price" caused by regulations that control foreign competition, once a "domestic manufacture has attained to perfection... it invariably becomes cheaper".
In this report, Hamilton also proposed export bans on major raw materials, tariff reductions on industrial inputs, pricing and patenting of inventions, regulation of product standards and development of financial and transportation infrastructure. The U.S. Congress adopted the tariffs but refused to grant subsidies to manufactures. Hamilton shaped the pattern of American economic policy until the end of World War II, and his program created the conditions for rapid industrial development.
Alexander Hamilton and Daniel Raymond were among the first theorists to present the infant industry argument. Hamilton was the first to use the term "infant industries" and to introduce it to the forefront of economic thinking. He believed that political independence was predicated upon economic independence. Increasing the domestic supply of manufactured goods, particularly war materials, was seen as an issue of national security. And he feared that Britain's policy towards the colonies would condemn the United States to be only producers of agricultural products and raw materials.
Britain initially did not want to industrialize the American colonies, and implemented policies to that effect (for example, banning high value-added manufacturing activities). Under British rule, America was denied the use of tariffs to protect its new industries. Thus, the American Revolution was, to some extent, a war against this policy, in which the commercial elite of the colonies rebelled against being forced to play a lesser role in the emerging Atlantic economy. This explains why, after independence, the Tariff Act of 1789 was the second bill of the Republic signed by President Washington allowing Congress to impose a fixed tariff of 5% on all imports, with a few exceptions.
Between 1792 and the war with Britain in 1812, the average tariff level remained around 12.5%, which was too low to encourage consumers to buy domestic products and thus support emerging American industries. When the Anglo-American War of 1812 broke out, all rates doubled to an average of 25% to account for increased government spending. The war paved the way for new industries by disrupting manufacturing imports from the UK and the rest of Europe. A major policy shift occurred in 1816, when American manufacturers who had benefited from the tariffs lobbied to retain them. New legislation was introduced to keep tariffs at the same levels —especially protected were cotton, woolen, and iron goods. The average rate rose to 35% in 1816. The public agreed, and by 1820, the average rate in the U.S. had risen to 40%. Between 1816 and the end of World War II, the U.S. had one of the highest average import tariffs on manufactured goods in the world.
In the 19th century, statesmen such as Senator Henry Clay continued Hamilton's themes within the Whig Party under the name "American System" which consisted of protecting industries and developing infrastructure in explicit opposition to the "British system" of free trade.
The American Civil War (1861–1865) was partly triggered by the tariff question. Southern agricultural states opposed any form of protection, while northern industrial states wanted to maintain protection. The fledgling Republican Party led by Abraham Lincoln, who called himself a "Henry Clay tariff Whig", strongly opposed free trade. Early in his political career, Lincoln was a member of the protectionist Whig Party and a supporter of Henry Clay. In 1847, he declared: "Give us a protective tariff, and we shall have the greatest nation on earth". He implemented a 44-percent tariff during the Civil War—in part to pay for railroad subsidies and for the war effort, and to protect favored industries. Tariffs remained at this level even after the war, so that the North's victory in the Civil War allowed the U.S. to remain one of the largest users of tariff protection for industry.
From 1871 to 1913, "the average U.S. tariff on dutiable imports never fell below 38 percent [and] gross national product (GNP) grew 4.3 percent annually, twice the pace in free trade Britain and well above the U.S. average in the 20th century," notes Alfred Eckes Jr, chairman of the U.S. International Trade Commission under President Reagan.
After the United States caught up with European industries in the 1890s, the Mckinley Tariff's argument was no longer to protect “infant industries”, but to maintain workers' wages, support agricultural protection and the principle of reciprocity.
In 1896, the GOP platform pledged to "renew and emphasize our allegiance to the policy of protection, as the bulwark of American industrial independence, and the foundation of development and prosperity. This true American policy taxes foreign products and encourages home industry. It puts the burden of revenue on foreign goods; it secures the American market for the American producer. It upholds the American standard of wages for the American workingman".
In 1913, following the electoral victory of the Democrats in 1912, there was a significant reduction in the average tariff on manufactured goods from 44% to 25%. However, the First World War rendered this bill ineffective, and new "emergency" tariff legislation was introduced in 1922, after the Republicans returned to power in 1921.
According to economist Ha-Joon Chang, the protectionist period thus corresponded to the golden age of American industry, when US economic performance outstripped that of the rest of the world. They pursued an interventionist, protectionist policy to promote and protect their industries through tariffs. This would have enabled the United States to enjoy the fastest economic growth in the world throughout the 19th century, right up to the 1920s. It was only after the Second World War that the U.S. liberalized its trade (although not as unequivocally as Britain did in the mid-nineteenth century).
In 1896, the GOP platform pledged to "renew and emphasize our allegiance to the policy of protection, as the bulwark of American industrial independence, and the foundation of development and prosperity. This true American policy taxes foreign products and encourages home industry. It puts the burden of revenue on foreign goods; it secures the American market for the American producer. It upholds the American standard of wages for the American workingman."
"I use no porter or cheese in my family, but such as is made in America," the inaugural President George Washington wrote, boasting that these domestic products are "of an excellent quality." One of the first acts of Congress Washington signed was a tariff among whose stated purpose was "the encouragement and protection of manufactures." In his 1790 State of the Union Address, Washington justified his tariff policy for national security reasons:
As President Thomas Jefferson wrote in explaining why his views had evolved to favor more protectionist policies: "In so complicated a science as political economy, no one axiom can be laid down as wise and expedient for all times and circumstances, and for their contraries."
After the War of 1812, Jefferson's position began to resemble that of Washington, some level of protection was necessary to secure the nation's political independence. He said:
In 1832, then the United States Senator from Kentucky, Henry Clay said about his disdain for "free traders" that "it is not free trade that they are recommending to our acceptance. It is in effect, the British colonial system that we are invited to adopt; and, if their policy prevail, it will lead substantially to the re-colonization of these States, under the commercial dominion of Great Britain." Clay said:
Clay explained that "equal and reciprocal free trade never has existed; [and] it never will exist." He warned against practicing "romantic trade philanthropy... which invokes us to continue to purchase the produce of foreign industry, without regard to the state or prosperity of our own." Clay that he was "utterly and irreconcilably opposed to trade which would throw wide open our ports to foreign productions without reciprocation".
In 1822, President James Monroe observed that "whatever may be the abstract doctrine in favor of unrestricted commerce," the conditions necessary for its success—reciprocity and international peace—"has never occurred and can not be expected." Monroe said, "strong reasons... impose on us the obligation to cherish and sustain our manufactures."
President Abraham Lincoln declared, "Give us a protective tariff and we will have the greatest nation on earth." Lincoln warned that "the abandonment of the protective policy by the American Government... must produce want and ruin among our people."
Lincoln similarly said that, "if a duty amount to full protection be levied upon an article" that could be produced domestically, "at no distant day, in consequence of such duty," the domestic article "will be sold to our people cheaper than before."
Additionally, Lincoln argued that based on economies of scale, any temporary increase in costs resulting from a tariff would eventually decrease as the domestic manufacturer produced more. Lincoln did not see a tariff as a tax on low-income Americans because it would only burden the consumer according to the amount the consumer consumed. By the tariff system, the whole revenue is paid by the consumers of foreign goods... the burthen of revenue falls almost entirely on the wealthy and luxurious few, while the substantial and laboring many who live at home, and upon home products, go entirely free.
Lincoln argued that a tariff system was less intrusive than domestic taxation: The tariff is the cheaper system, because the duties, being collected in large parcels at a few commercial points, will require comparatively few officers in their collection; while by the direct tax system, the land must be literally covered with assessors and collectors, going forth like swarms of Egyptian locusts, devouring every blade of grass and other green thing.
President William McKinley stated the United States' stance under the Republican Party as:
He also categorically rejected the "cheaper is better" argument:
President Theodore Roosevelt believed that America's economic growth was due to the protective tariffs, which helped her industrialize. He acknowledged this in his State of the Union address from 1902:
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 (~$59.8 billion in 2023). 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.
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.
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.
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 revenue and a trade imbalance with England that was fast destroying the infant American industries and draining the nation of its currency, 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.
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.
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.
In 1789, Samuel Slater emigrated illegally, since he was familiar with textile manufacturing in Britain. Looking for opportunities he heard of the failing attempts at making cotton mills in Pawtucket, Rhode Island. Contacting the owners he promised to see if he could fix their mills—they offered him a full partnership if he succeeded. Declaring their early attempts unworkable he proceeded from January 1790 to December 1790 to build the first operational textile manufacturing facility in the United States. The Industrial Revolution was off and running in the United States. Initially the cost of their textiles was slightly higher than the cost of equivalent British goods but the tariff helped protect their early start-up industry.
Ashley notes that:
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.
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%.
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.
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.
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 ($0.6 billion in 2023 dollars), to more than $80 million by 1856 ($2.1 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.
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.
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. In February 1861, increases were enacted after Southerners resigned their seats in Congress on the eve of the Civil War.
Some 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. The arguments that tariffs were a major cause of the Civil War have become a staple of the Lost Cause of the Confederacy.
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.
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.
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.
After the Civil War, high tariffs remained as the Republican Party remained in office and the Southern Democrats were restricted from office. Advocates insisted that tariffs brought prosperity to the nation as a whole and no one was really injured. As industrialization proceeded apace throughout the Northeast, some Democrats, especially Pennsylvanians, became high tariff advocates.
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.
Apart from wool and woolens, American industry and agriculture—and industrial workers—had become the most efficient in the world in most industries by the 1880s as they took the lead in the Industrial Revolution. No other country had the industrial capacity, large market, high efficiency and low costs, or the complex distribution system needed to compete in most markets in the vast American market. Most imports were a few "luxury" goods. Indeed, it was the British who watched cheaper American products flooded their home islands. The London Daily Mail in 1900 complained:
Some American manufacturers and union workers demanded the high tariff be maintained. The tariff represented a complex balance of forces. Railroads, for example, consumed vast quantities of steel. To the extent tariffs raised steel prices, they paid much more making possible the U.S. steel industry's massive investment to expand capacity and switch to the Bessemer process and later to the open hearth furnace. Between 1867 and 1900 U.S. steel production increased more than 500 times from 22,000 tons to 11,400,000 tons and Bessemer steel rails, first made in the U.S. that would last 18 years under heavy traffic, would come to replace the old wrought iron rail that could only endure two years under light service.
In 1881, British steel rails sold for $31 a ton, and if Americans imported them they paid a $28/ton tariff, giving $59/ton for an imported ton of rails. American mills charged $61/ton and made a good profit, which was then reinvested into increased capacity, higher quality steels, higher wages and benefits and more efficient production. By 1897 the American steel rail price had dropped to $19.60 per ton compared to the British price at $21.00—not including the $7.84 duty charge—demonstrating that the tariff had performed its purpose of giving the industry time to become competitive.
The U.S. steel industry became an exporter of steel rail to England selling below the British price and during WW I would become the largest supplier of steel to the allies. From 1915 to 1918, the largest American steel company, U.S. Steel, alone delivered more steel each year than Germany and Austria-Hungary combined, totaling 99,700,000 tons during WW I. The Republicans became masters of negotiating exceedingly complex arrangements so that inside each of their congressional districts there were more satisfied "winners" than disgruntled "losers". The tariff after 1880 was an ideological relic with no longer any economic rationale.
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 [minimal taxes] is 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,
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 campaigned heavily in 1896 on the high tariff as a positive solution to depression. Promising protection and prosperity to every economic sector, he won a smashing victory. The Republicans rushed through the Dingley tariff in 1897, 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.
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.
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.
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.
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.
The years 1920 to 1929 are generally misdescribed as years in which protectionism increased in Europe. In fact, from a general point of view, the crisis was preceded in Europe by trade liberalisation. The weighted average of tariffs remained tendentially the same as in the years preceding the First World War: 24.6% in 1913, as against 24.9% in 1927. In 1928 and 1929, tariffs were lowered in almost all developed countries.
Paul Krugman writes that protectionism does not lead to recessions. According to him, the decrease in imports (which can be obtained by the introduction of tariffs) has an expansionary effect, i.e. favorable to growth. Thus in a trade war, since exports and imports will decrease equally, for the whole world, the negative effect of a decrease in exports will be compensated by the expansionary effect of a decrease in imports. A trade war therefore does not cause a recession. Furthermore, he notes that the Smoot–Hawley tariff did not cause the Great Depression. The decline in trade between 1929 and 1933 "was almost entirely a consequence of the Depression, not a cause. Trade barriers were a response to the Depression, in part a consequence of deflation."
The Smoot–Hawley Tariff Act was signed by Hoover on June 17, 1930, while the Wall Street crash took place in the fall of 1929 when the new tariff was still being negotiated. Most of the trade contraction occurred between January 1930 and July 1932, before most protectionist measures were introduced, except for the limited measures applied by the United States in the summer of 1930. In the view of Maurice Allais, it was therefore the collapse of international liquidity that caused the contraction of trade, not customs tariffs.
Milton Friedman also held the opinion that the Smoot–Hawley tariff of 1930 did not cause the Great Depression. Douglas A. Irwin writes : "most economists, both liberal and conservative, doubt that Smoot Hawley played much of a role in the subsequent contraction."
Peter Temin states that a tariff is an expansionary policy. Like a devaluation it diverts demand from foreign to home producers. He notes that exports were 7 percent of GNP in 1929. They fell by 1.5 percent of 1929 GNP in the next two years; the fall was offset by the increase in domestic demand from the tariff. He concludes that contrary to the popular argument, the contractionary effect of the tariff was small. (Temin, P. 1989. Lessons from the Great Depression, MIT Press, Cambridge, Mass)
William J. Bernstein wrote:
Jacques Sapir explains that the crisis has other causes than protectionism. He points out that "domestic production in major industrialized countries is declining...faster than international trade is declining." "If this decrease (in international trade) had been the cause of the depression that the countries have experienced, we would have seen the opposite." "Finally, the chronology of events does not correspond to the thesis of the free traders... The bulk of the contraction of trade occurred between January 1930 and July 1932, that is, before the introduction of protectionist measures, even self-sufficient, in some countries, with the exception of those applied in the United States in the summer of 1930, but with very limited negative effects." He noted that "the credit crunch is one of the main causes of the trade crunch." "In fact, international liquidity is the cause of the trade contraction. This liquidity collapsed in 1930 (-35.7%) and 1931 (-26.7%)." A study by the National Bureau of Economic Research highlights the predominant influence of currency instability (which led to the international liquidity crisis) and the sudden rise in transportation costs in the decline of trade during the 1930s.
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.
Currently only about 30% of all import goods are subject to tariffs in the United States, the rest are on the free list. The "average" tariffs now charged by the United States are 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.
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.
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.
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.
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.
Avraham Ebenstein, Margaret McMillan, Ann Harrison also pointed out in their article “Why are American Workers getting Poorer? China, Trade and Offshoring” these negative effects of trade with China on American workers.
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. Usually the goods cannot continue on their way until the custom duty is paid. Custom duties are one of the easiest taxes to collect, and the cost of collection is small.