America’s Passion for Tariffs Rarely Pays Off, Economists Warn

AFP/APP

New York: President Donald Trump’s renewed push for higher tariffs has revived a long-running debate in the United States over whether protectionist trade policies can strengthen domestic industry or instead create wider economic costs.

Although Trump has frequently pointed to periods of high tariffs as evidence that protectionism can make America prosperous, economists say the country’s historical experience offers a far more complicated picture.

Trump has repeatedly highlighted the period between 1870 and 1913, describing it as one of the richest eras in US history. During much of the 19th century, average American tariff rates frequently approached 50 percent as policymakers sought to shield emerging industries from foreign competition.

Dartmouth College economics professor Douglas Irwin said the administration’s approach effectively seeks to revive a model from an earlier economic era. He described the policy as an attempt to apply a 20th-century political outlook to a 21st-century economy while moving trade policy back towards the 19th century.

Economists acknowledge that tariffs played a role in protecting some American industries during the country’s industrialisation. However, they argue that tariffs were far from the only reason for the rapid expansion of US manufacturing.

Keith Maskus, a professor at the University of Colorado, said studies of the period indicate that tariffs provided some protection for developing industries, but other factors were considerably more important. These included access to international labour and large flows of foreign capital into the United States.

Natural resources also provided a major advantage. Christopher Meissner, a professor at the University of California, Davis, pointed to the country’s abundant supplies of coal, oil, iron ore, copper and timber as key drivers of industrial growth.

According to Meissner, US industry would not have been substantially smaller even if tariff rates had been considerably lower.

High Tariffs Did Not Stop Imports

Trump has frequently cited former president William McKinley, a leading advocate of high tariffs, to support his argument for protectionism. McKinley was associated with one of the most restrictive tariff measures in US history, enacted in 1890.

Historical data, however, show that high duties did not prevent imports from continuing to expand. Imports grew in the years following the 1890 tariff increases, while the subsequent reduction in customs duties in 1894 was followed by imports remaining below earlier peaks.

The historical record therefore challenges the assumption that tariff increases automatically lead to lower imports or guarantee stronger domestic production.

Writing in 1929, Harvard professor George Roorbach observed that US imports had expanded substantially during the decades following the Civil War, despite the country operating under a largely protectionist system.

He argued that changes in import levels appeared to be influenced more strongly by factors other than fluctuations in tariff rates.

The Smoot-Hawley Warning

One of the strongest arguments against aggressive protectionism comes from the experience of the 1930s.

Under Republican President Herbert Hoover, the United States again sharply increased tariffs through the Smoot-Hawley Tariff Act of 1930. The legislation remains closely associated with the global trade war that followed and the worsening of the Great Depression.

The Center for Strategic and International Studies has described Smoot-Hawley as a measure that contributed to a global trade war and deepened the economic downturn.

Maskus said the Great Depression resulted from numerous complex factors, but the tariff increases were among them.

The episode remains an important warning for policymakers because retaliatory measures by trading partners can turn domestic protectionism into a broader disruption of international commerce.

Postwar Shift Towards Free Trade

The United States moved decisively in the opposite direction following the Second World War. In 1947, Washington joined 22 other countries in ratifying the General Agreement on Tariffs and Trade (GATT), establishing a framework for reducing trade barriers and encouraging international commerce.

The postwar trading system subsequently expanded through a series of regional and global agreements.

The North American Free Trade Agreement between the United States, Mexico and Canada came into force in 1994, while the World Trade Organization was established the following year. Washington also entered into a free trade agreement with several Central American countries in 2004.

These arrangements helped integrate the US economy more deeply into international supply chains and reinforced the country’s role in the global trading system.

Trump Reopens Tariff Debate

Trump returned tariffs to the centre of US economic policy during his first presidency, imposing a series of measures targeting Chinese imports. Many of those tariffs remained in place under Democratic President Joe Biden.

Yet the tariffs did not eliminate the underlying trade imbalance with China.

The US trade deficit with China continued to increase for several years after the tariffs were introduced, eventually reaching a turning point in 2022. The subsequent decline in Chinese exports to the United States coincided with a severe slowdown in China’s economy rather than being attributable solely to American tariff policy.

For Maskus, the experience suggests that tariffs were not particularly effective in preventing the continued expansion of imports from China.

A Complicated Historical Lesson

The history of American tariffs provides ammunition for both sides of the current debate. Protectionist policies did coincide with the development of US industry during the 19th century, but economists stress that America’s industrial rise was also supported by abundant natural resources, foreign investment and access to labour.

At the same time, episodes such as Smoot-Hawley demonstrate how aggressive tariff policies can trigger retaliation and worsen economic conditions beyond national borders.

The post-1945 shift towards lower trade barriers reflected a recognition of these risks and helped establish the framework for decades of expanding international commerce.

Trump’s return to high tariffs therefore represents more than a change in trade policy. It is also a revival of an old economic argument: whether the United States can protect its industries and strengthen its economy through higher barriers to foreign goods without producing the unintended consequences that have accompanied protectionism at other points in American history.

The historical record suggests that tariffs can provide protection to selected industries, but they are unlikely to explain economic prosperity on their own. 

For the United States, the bigger question may be whether the benefits of renewed protectionism will outweigh the costs of higher trade barriers, retaliation and disruption to an economy that is now far more globally integrated than it was in the 19th century.