Even for non-news nerds, the word “tariff” has probably reached your ears. Debate on tariffs has flooded headlines since Trump’s presidency. Still, it helps to step back and examine the big picture to gain a deeper understanding and perspective on what is boiling on Capitol Hill. But before anything else, “tariff” should be defined for clarification: “a tax imposed by one country on the goods and services imported from another country” (Investopedia).
A Brief History of Tariffs in the U.S.
It all starts close to the founding of America. Great Britain charged Americans with taxes on imports, leading to the “Boston Massacre” and the famous “Boston Tea Party” in 1773. The idea of taxing—including tariffs—without representation drove the early Americans into the Revolution. The Tariff Act of 1789 was then passed, hoping to raise government revenue. Alexander Hamilton viewed the legislation as protecting the expanding manufacturing sector from foreign competition and as promoting industrial growth. By the 19th century, some estimate that tariffs provided 95% of the federal revenue.
But with the introduction of income tax and an industrial boom, the need for tariffs as a source of funding declined, and the industry could still thrive despite foreign competition.
Later in the 20th century, President Hoover signed the Smoot-Hawley Tariff Act in response to the Stock Market Crash of 1929, seeking to protect domestic farmers from the disastrous effects of the crash. In return, European countries imposed retaliatory tariffs, and trade between Europe and the U.S. fell two-thirds. Some analysts claim that the trade tension fueled European bank failures and extremist ideologies.
By the end of World War II, the countries formed the General Agreement on Tariffs and Trade—later transformed into the World Trade Organization in 1995. Tariffs reduced substantially and the U.S. favored free trade since.
Recent Tariffs in the U.S.
But how does the current president fit into the history of U.S. tariffs? President Trump has shifted the tide in terms of the political position on tariffs. Before the Cold War, Republicans supported protectionism and then established themselves as the free-trade party postwar. “And Democrats in the postwar era,” as University of Georgia historian Stephen Mihm explains, “become increasingly associated with tariffs and protectionism—specifically, calls for protectionism driven not by industry, which it had been before, but by labor unions wary of competition from Japan and Taiwan.”
Here are just a few examples of Trump’s tariffs:
- China: 25% tariffs on $200 billion worth of goods, including computer modems and routers, printed circuit boards, chemicals, building materials, and furniture.
- Turkey: Doubled tariffs on steel and aluminum from 50% and 20%.
- India: Tariffs on $5.6 billion of imports from India.
Most countries subject to U.S. tariffs have also retaliated with tariffs of their own.
Some of the justifications for these tariffs include bringing back jobs and balance the trade deficit. On December 2, 2019, Trump announced taxes on industrial metals from Brazil and Argentina and harsher penalties on French products. What seems like an ever-growing mountain of tariffs may be somewhat alleviated by the “Phase One” deal with China made in the second week of December to begin a rolling back process on the trade war. Nevertheless, whether Trump’s approach to foreign policy has fulfilled his promise to “Make America Great Again” remains to be determined in 2020.