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Ways U.S. Trade Tariffs Have Changed in the Last 100 Years

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Ways us trade tariffs have changed in the last 100 years

Before the 2016 election, many Americans probably only had a vague memory of tariffs as something from high school history class. In many ways, that’s not surprising. Prior to the 2016 election, tariffs hadn’t been an important element of United States economic policy for nearly a hundred years. But with President Trump’s platform of economic nationalism, tariffs are back in the plan — and causing a fierce economic dust-up with trade partners such as China and Canada.

What are tariffs and why have they been unpopular for so long before suddenly returning? To fully understand the effects of the tariffs that are now sweeping through the U.S. economy, it’s instructive to know about the strange journey of the tariff, from its importance to the early economy of the United States to the reasons for its abandonment in the 20th century and beyond.

Us trade tariffs money manufacturing

Tariffs in the Infant Economy of the U.S.

In the economy of the early United States, tariffs were a fact of life and a standard tool of political economy. In an economic system much less dependent on imports of cheap consumer goods, tariffs were a way to raise revenue without levying taxes that the average American would feel. Alexander Hamilton, the architect of many American economic institutions, favored high protective tariffs to develop domestic manufacturing. Without them, he feared, the U.S. would become wholly dependent on the more advanced economies of established powers like Britain and France.

The Tariff of 1828, called the Tariff of Abominations” by its opponents, was the first tariff to create major controversy in the United States. By that time, the economies of the Northern and Southern states had reached a point of critical divergence. The tariff was highly favorable to the fledgling industrial state in the North, but it hurt the import-dependent slave economy of the Southern states. The tariff led to a hot-burning conflict now known as the Nullification Crisis, in which President Andrew Jackson dispatched troops to South Carolina, which had challenged the supremacy of the federal government by threatening to declare the tariff null and void.

After the crisis was resolved, tariff levels fluctuated throughout the 19th century. One faction would gain power and raise tariffs, and another would sweep them out a few years later and lower them. With the establishment of the income tax in 1913, tariffs hit a low ebb, but they would soon come back with a vengeance.

The Hawley-Smoot Tariff and the Great Depression

After the great stock market crash of 1929, Congress debated furiously on how to protect the vulnerable economy. Senator Reed Smoot and Representative Willis Hawley advocated a high protective tariff to protect American industry, and President Herbert Hoover signed the Hawley-Smoot Tariff into law in 1930 over the vehement objections of many leading economists.

Unfortunately, the economists’ warnings proved correct, and the tariff had nearly the opposite of its intended effect. The Hawley-Smoot Tariff is generally considered to have exacerbated the Depression. By curtailing many imports and raising costs for businesses, the tariff reduced investment and forced consumers to tighten their belts — which, for a vulnerable consumer economy that needed fuel, was a heavy blow. 

Free trade or tariffs
Tariffs or Free Trade?

The Turn Away from Tariffs in the 20th Century

After the disastrous Hawley-Smoot Tariff, the U.S. government largely shelved tariffs for the rest of the 20th century. With the post-war American economy firing on all cylinders, free global trade quickly became the conventional wisdom that, for the most part, Democrats and Republicans alike could agree on. Tariffs were seen as a barrier to trade that would only serve to hurt not only the U.S. economy, but the economies of U.S. trading partners. Thus, international trade agreements continued to reduce tariffs throughout the mid-to-late 20th century until they were barely there at all in most cases.

Tariffs Reborn in the Trump Era

Not many analysts would have predicted that tariffs would once again become a key feature of the American economy, but few things about politics in the late 2010s have been predictable in any sense. During his campaign for the Presidency, Donald Trump promised to help American manufacturing by instituting tariffs on imported goods from China. And he made it clear shortly after taking office that he intended to follow through, imposing tariffs on imported goods ranging from steel and aluminum to a wide variety of consumer goods. Shortly after these tariffs were imposed, they were followed by retaliatory tariffs from China, Canada, the EU and others, throwing a wrench into the gears of global trade.

Whether that will lead to the promised resurgence of American manufacturing is an open question. As of now, the numbers don’t look particularly good, and business leaders across the political spectrum have largely condemned Trump’s tariff strategies. The U.S. steel and aluminum sectors, however, are seeing a measure of resurgence—but whether that boom will outlive the tariff (or, indeed, if the tariff goes away at all) remains to be seen.

Businesses continue to work on innovative solutions to overcome the economic obstacles of tariffs and a trade war. Firms that have already made technological investments to take their operations into the 21st century are at an advantage. High-tech tools like manufacturing software and cloud-based ERP solutions enable them to create robust data modeling that they can use to find savings and trim budgets by streamlining their operations. Other businesses, meanwhile, have simply been scrambling to buy up as much as they can before further tariffs are announced or leaning on suppliers to lock in negotiated rates. 

In short, tariffs have had a long and prominent career in the U.S. economy. But the past century’s tariffs have been something like the shark from Jaws: Just when you think it’s safe to go back in the water, tariffs rear their heads again to take a bite out of the economy. Businesses will continue to take the necessary steps to adjust and roll with the punches as the trade war rolls on, but one bit of wisdom now stands out even more so than before: It’s always foolish to assume that tariffs will never again be a factor in the political economy of the U.S.

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