A Brief History of Tariffs in the US

The current on-again/off-again conversation about tariffs on imported goods is not new. In fact, before the general income tax was passed in 1913, tariffs were one of the few ways our government had to raise money, often comprising up to 95% of federal revenue. To some extent, tariffs in the developing American economy were part of the rivalry between the agricultural-based economy of the South and the developing industrial-based economy of the North. Some historians have pointed to the Tariff of 1828 (called The Tariff of Abominations), meant to aid small Northern industry, as the starting point for talk of Southern secession, eventually leading up to the Civil War. 

In 1913, the 16th Amendment to the Constitution allowed the federal government to raise revenue through income taxes, which reduced Washington’s financial need for tariffs. Politicians pivoted to arguments about the values of protectionism (pro-tariff) versus free trade (anti-tariff). Tariffs on manufactured goods fell from an average of 44% to 25%.  

The decade of the 1920s was a period of robust growth for most American industry. The outlier was the farm industry, which had expanded rapidly during WWI to meet the increased need for food both at home and abroad. When the war ended, many farmers were left with high debts for loans taken out for war production and lower commodity prices due to excess crops. The farm industry asked Washington for help in the form of tariffs on imported food. As the tariff bill worked its way through Congress, many protectionist industrial tariffs were added on. This led to reciprocal tariffs from our trading partners, notably Canada and Western Europe; world trade plummeted by almost 70% and foreign investors in the US stock market withdrew their capital.  

After the stock market crash of 1929, then-President Hoover signed the 1930 Smoot-Hawley Tariff Act, raising tariffs on virtually all imported goods by 20%. At the time, over 1000 notable economists signed a petition to Hoover outlining the economic dangers of the broad tariff in an economically fragile world, but their concerns were dismissed. Our trading partners enacted reciprocal tariffs, and world trade froze, reducing by 65%!  European banks began to fail from loan defaults. Many economic historians consider the financial chaos in Europe, which was partly caused by the tariffs, to have laid the groundwork for the rise of fascism less than a decade later.  

An example of the effects of Smoot-Hawley is that before 1930, US farmers exported a million dozen eggs to Canada. After 1930, that number fell to 13,662 dozen!  

The enactment of the Smoot-Hawley tariffs cost the Republican party the White House. Franklin D. Roosevelt was swept into power, and both houses were turned over to the Democrats. Both Smoot and Hawley were turned out of office.   

Although some specific protectionist tariffs have existed since Smoot-Hawley, none have had the scope and impact of the 1930s experience. The 2002 Steel War with Europe lasted a year and effectively pivoted US steel imports to the Far East. The tariff was removed in 2003.  

In 2018, the Trump administration placed tariffs on solar panels (China is the #1 producer), 25% tariffs on steel and 10% tariffs on aluminum. By 2019, China was no longer the US’ top trade partner, replaced by Mexico. In January 2020, a truce was signed with China.  

At this juncture, we do not know the scope and impact of the Trump administration’s tariff proposals. However, it’s important to remember that tariffs in the US are not new. They are often political tools used to facilitate deal-making and can have unintended consequences for the economy. 

For informational and educational purposes only. 

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