Lessons from 200 Years of Tariff History

Tariff policy has been a contentious issue since the founding of the United States. Hamilton clashed with Jefferson and Madison over tariff policy in the 1790s, South Carolina threatened to secede from the union over tariff policy in 1832, and the Hawley-Smoot tariff generated outrage in 1930. Currently, Trump is sparking heated debates about his tariff policies. 

To understand the ongoing tariff debate, it is essential to grasp the basics: Tariffs are taxes levied by governments on imported goods. They have been the central focus of U.S. trade policy since the federal government was established in 1789. Historically, tariffs have been used to raise government revenue, protect domestic industries, and influence the trade policies of other nations. The history of U.S. tariffs can be understood in three periods corresponding with these three uses. 

From 1790 until the Civil War in 1861, tariffs primarily served as a source of federal revenue, accounting for about 90 percent of government income (since 2000, however, tariffs have generated less than 2 percent of the federal government’s income).¹ Both the Union and the Confederacy enacted income taxes to help finance the Civil War. After the war, public resistance to income taxes grew, and Congress repealed the federal income tax in 1872. Later, when Congress attempted to reinstate an income tax in 1894, the Supreme Court struck it down in Pollock v. Farmers’ Loan & Trust Co. (1895), ruling it unconstitutional. To resolve this issue, the Sixteenth Amendment was ratified in 1913, granting Congress the authority to levy income taxes. Since then, federal income taxes have provided a much larger source of revenue than tariffs, allowing for greater federal government expenditures. The shift away from tariffs as the primary revenue source began during the Civil War and was further accelerated by World War I, which required large increases in federal spending.

Before the Civil War, the North and South had conflicting views on tariffs. The North, with its large manufacturing base, wanted higher tariffs to protect domestic industries from foreign competition. This protection would decrease the amount of competition Northern manufacturers faced, allowing them to charge higher prices and encounter less risk of being pushed out of business by more efficient foreign producers. By contrast, the South, with an economy rooted in agricultural exports (especially cotton) favored low tariffs, as they benefited from cheaper imported manufactured goods. These imports were largely financed by selling Southern cotton, produced by enslaved labor, to foreign markets, particularly Great Britain. The North-South tariff divide eventually led to the era of protective tariffs (1860-1934) after the Civil War, when the victorious North gained political power, and protectionist policies dominated U.S. trade.

For more than half a century after the Civil War, U.S. trade policy was dominated by high protectionist tariffs. Republican William McKinley, a strong advocate of high tariffs, won the presidency in 1896 with support from industrial interests. Between 1861 and the early 1930s, average tariff rates on dutiable imports rose to around 50 percent and stayed elevated for decades. As a point of comparison, average tariffs had declined to about 5 percent by the early 21st century. 

Republicans passed the Hawley-Smoot Tariff in 1930, which coincided with the Great Depression. While it is generally agreed among economists that the Hawley-Smoot Tariff did not cause the Great Depression, it further hurt the world economy during the economic downturn (though many observers at the time thought that it was responsible for the global economic collapse). The widely disliked Hawley-Smoot Tariff, along with the catastrophic effects of the Great Depression, allowed the Democrats to gain political control of both Congress and the Presidency in 1932. They passed the Reciprocal Trade Agreements Act (RTAA) in 1934, which gave the president the power to negotiate reciprocal trade agreements. 

The RTAA transitioned some of the power over trade policy, i.e., tariffs, away from Congress and to the President. Whereas the constituencies of specific members of Congress are in certain regions of the U.S., the entire country can vote in Presidential elections. For that reason, regional producers generally have less political power over the President than they do over their specific members of Congress, and therefore the President tends to be less responsive to their interests and more responsive to the interests of consumers and exporters located across the nation. Since consumers and exporters generally benefit from lower tariffs, the President has an incentive to decrease them. Thus, the RTAA contributed to the U.S. lowering tariff barriers around the world. This marked the beginning of the era of reciprocity in U.S. tariff policy (1934-2025) in which the U.S. has generally sought to reduce tariffs worldwide.

World War II and its consequences also pushed the U.S. into the era of reciprocity. The European countries, which had been some of the United States’ strongest economic competitors, were decimated after two World Wars in 30 years. Exports from Europe declined and the U.S. shifted even more toward exporting after the Second World War. As more U.S. firms became larger exporters, their political power was aimed at lowering tariffs rather than raising them. (Domestic companies that compete with imports have an interest in lobbying for higher tariffs, but exporting companies have the opposite interest.)

The end of WWII left the U.S. concerned that yet another World War could erupt if economic conditions were unfavorable around the world. America also sought increased trade to stave off the spread of Communism during the Cold War. These geopolitical motivations led the U.S. to seek increased trade with non-Communist nations, which was partially accomplished by decreasing tariffs. This trend culminated in the creation of the General Agreement on Tariffs and Trade (GATT) in 1947, which was then superseded by the World Trade Organization (WTO) in 1995. These successive organizations helped reduce tariffs and other international trade barriers.

Although there is a strong consensus among economists that tariffs do more harm than good,^2,3,4 there are some potential benefits of specific tariff policies.

Pros

1. National Security: In his 1776 classic The Wealth of Nations, Adam Smith acknowledged that trade restrictions could be justified when used to protect industries essential to national defense. In times of war, a nation's wealth is secondary to its security, and tariffs can protect essential industries. However, it is often challenging to determine which industries are truly vital for defense, and some firms have exploited this argument to gain protection, even when their goods are not crucial to national security. 
2. Negotiating Tool: Tariffs can also provide leverage in negotiations. For example, in early 2025, President Trump threatened Mexico and Canada with tariffs, but then (temporarily as it turns out) removed the threat once they agreed to address the flow of fentanyl into the U.S. However, this tactic is a dangerous game. For the threat of tariffs to work, the nations you are negotiating with must believe you are willing to impose the tariffs you are threatening. This can lead to a difficult decision wherein you either have to back down from your threat and lose reputation, or follow through and impose the tariffs even though you do not want to.
3. Protection of Infant Industries: It is possible that imposing tariffs on specific goods can foster the growth of developing industries that would not have been able to grow in the environment of foreign competition that existed without tariff protection. It is also possible that these protected industries could create more wealth for the nation once they are grown than would have been generated in the no-tariff scenario. Most economists argue that there is not much historical evidence of this occurring. Although the infant industry argument is possible, it relies on the assumption that the government can effectively identify which firms are going to prosper and bring greater economic benefits than would be accrued due to free trade. The government not only has to identify which infant industries to protect, but it also must have the appropriate incentives and mechanisms to carry out the protection. In reality, no one can consistently identify the appropriate infant industries to support.
4. Revenue: Tariffs can raise revenue for the government, but they are not capable of funding the current levels of government spending for many developed nations.

Cons

1. Economic Inefficiency: Let us imagine a scenario where person A and person B are trading with each other. The government then imposes a tax on the purchase of person B’s goods. Both person A and B are affected because person A must pay more for person B’s goods and person B cannot sell as many goods to person A. The same logic applies to tariffs. This is the process by which tariffs distort markets and lead to deadweight economic loss. Often, people assume that tariffs help the imposing country and hurt the country forced to pay them. This is incorrect. Tariffs hurt both countries, as both persons A and B are harmed due to the loss of economic efficiency. In addition, protectionist tariffs shelter domestic industries from competition, thereby allowing them to be less efficient. Lessened efficiency leads to poorer quality products and higher prices. Lastly, tariffs can disrupt supply chains that span multiple countries. For example, US tariffs on Chinese goods increased costs for American manufacturers that rely on parts imported from China.⁵ Disrupting supply chains also leads to economic inefficiency.
2. Higher Prices for Consumers: In our thought experiment above, person A must pay more for person B’s goods after the tariff is imposed. This is how tariffs raise prices for domestic consumers.
3. Trade Wars: Tariffs can spark trade wars that end up greatly decreasing the amount of trade across nations. When country A imposes tariffs on country B, country B may react by imposing counter-tariffs on country A. This causes an expanding cycle that leads to further decreases in trade and economic efficiency. A well-known example is the “Chicken War” in the 1960s, in which the U.S. imposed a 25% tariff on light trucks from Western Europe, which is still in place today.
4. Corruption: Once tariffs are enacted, they are politically difficult to remove. The costs of tariffs are thinly spread over millions of Americans, whereas the benefits are concentrated in a comparatively small number of people involved in specific industries. This makes the beneficiaries more politically motivated to maintain the tariffs than the general populace is to resist them, leading to long-lasting tariffs that aid a powerful few while harming the public.

Although tariffs have some theoretical benefits in specific situations, the competence and incentives of the U.S. political system often do not allow these benefits to come to fruition. Tariffs almost always come with the cost of economic inefficiency, which is why economists generally agree that tariffs do more harm than good. Does the increase in U.S. tariffs, particularly on China, since 2016 mark the end of the era of reciprocity or is it just a blip? The answer will affect the economic well-being of Americans and people around the world. 

The history of tariffs described in this article is largely based on Clashing Over Commerce by Douglas Irwin (2017).

The author would like to thank Professor John L. Turner at the University of Georgia for his invaluable input.