A Deep History of America’s Tariff Wars

It is now ten years since Donald Trump arrived on the American political stage and, whatever one thinks of his style and policies, there is no question that he has turned US politics upside down. One of the most obvious ways, underscored by the Supreme Court’s recent decision to invalidate President Trump’s Liberation Day tariffs, is the way trade policy has become central to American political debate in a way that few imagined possible prior to 2016.

Three decades ago, the debate about trade in America seemed to be over. Convinced protectionists were hard to find, and a broad commitment to trade liberalisation crisscrossed the political spectrum. This was symbolised by the presence of Democrat and Republican former presidents at the official signing into law of the North American Free Trade Agreement (NAFTA) by President Bill Clinton on 8 December 1993. Further liberalisation of trade relations, led by the United States as the world’s sole superpower, seemed unstoppable. The high point, in retrospect, was the decision of the United States to allow China to enter the World Trade Organization in December 2001 and to accord Permanent Normal Trade Relations to the People’s Republic that same year.

There were, however, warning signs that should have indicated that the consensus in favour of free trade was not as solid as most supposed. The most notable such sign was Pat Buchanan’s campaign for the Republican nomination for president in 1992. Buchanan eventually lost to President George H.W. Bush, but his campaign did considerable damage to Bush’s re-election chances and, when combined with a bad economy, helped make Bush a one-term president.

One important feature of Buchanan’s campaign was his unabashed protectionism. According to Buchanan, trade liberalisation had devastated the employment prospects of America’s working class and contributed to the many social problems afflicting that demographic. At one point, Buchanan even claimed that ‘the hidden cost of free trade’ included ‘broken homes, uprooted families, vanished dreams, delinquency, vandalism, [and] crime’. Similar messages came from the Texas oilman billionaire, Ross Perot. He castigated Republicans and Democrats alike for their free trade policies. Perot’s memorable claim that NAFTA’s liberalising of trade between Canada, Mexico and America would mean that ‘you are going to hear a giant sucking sound of jobs being pulled out of this country’ resonated with some conservatives, but also liberals, even progressives. That message contributed to many Americans voting for Perot in 1992 and 1996, allowing Clinton to enjoy a two-term presidency.

In other words, both Buchanan and Perot tapped into widespread scepticism about the trade liberalisation consensus that dominated the leadership of the Republican and Democrat parties in the 1990s and well into the 2010s. They were ‘Trump protectionists’ avant la lettre.

Congress eventually approved NAFTA in 1993 with Republican and Democrat support, but anti-free trade sentiment was always simmering beneath the surface. In 1999, the Seattle meeting of the World Trade Organization (WTO) was overshadowed by the presence of thousands of protesters, most of whom were Americans united by their negative assessment of economic globalisation’s impact on the United States.

Such anti-free trade sentiment, alongside the deep commitment to tariffs of Buchanan, Perot, Trump, and many of their supporters, should not be regarded as an outlier in the story of America. The political and legal skirmishing that came to a head with the Supreme Court’s decision in Learning Resources et al. v. Trump to abrogate the constitutional basis for the second Trump administration’s trade strategy forms part of a long history of debate about trade policy that has shaped American politics since the US Constitution’s ratification in 1788.

In the 19th century, the issue that most divided Americans was the topic of slavery. The sheer intensity of that debate, and its role in igniting the Civil War, distracts attention, however, from the fact that, after slavery, the subject that most split Americans politically, regionally and by industry was tariffs. And the disputes, then as now, went beyond economics.

Broadly speaking, tariffs have served one of three purposes in the United States. As America’s foremost scholar of US trade policy, Douglas A. Irwin points out, tariffs have been used ‘to raise revenue for the government, to restrict imports and protect domestic producers from foreign competition, and to reach reciprocity agreements that reduce trade barriers’.

Revenue was the focus of tariff policy in the republic’s first decades. One of the first acts of Congress in the 1790s was to impose tariffs on imports into America. The primary objective, however, was not to promote protectionist policies. There was no federal income tax at the time, and tariffs were one of the few means by which the new Federal Government could raise revenue.

Political discussions about tariffs did not take long to gravitate beyond revenue questions. The first Secretary of the Treasury, Alexander Hamilton, was willing to contemplate the use of tariffs to enable (or so he believed) the United States to develop a domestic manufacturing industry. His position was fiercely opposed by the first Secretary of State, Thomas Jefferson, who, among other things, had thoroughly absorbed the powerful critique of protectionist and interventionist ideas more generally expressed in Adam Smith’s The Wealth of Nations. Jefferson, however, also saw tariffs for protectionist purposes as being at odds with what he regarded as every human’s natural right to trade with whom they wished.

While tariffs remained relatively low throughout the 19th–century’s first decades, there was no shortage of efforts to utilise tariffs for protectionist ends. Some of this was driven by American politicians committed to economic nationalist agendas. In his desire to use interventionist measures to restructure the entire American economy and build what he called ‘a genuine AMERICAN SYSTEM’, the Speaker of the House of Representatives, Henry Clay, outlined in a March 1824 speech an agenda that included an extremely high tariff. Its purpose was explicitly protectionist – and specifically directed against British manufacturing – rather than revenue-raising.

Clay’s arguments, significantly, encountered fierce opposition. Congressman Daniel Webster of Massachusetts, for instance, responded immediately to Clay’s 1824 speech, countering that free enterprise unshackled by protectionist fetters was the key to economic growth. Webster went on to insist that Clay’s protectionism involved trying to protect and promote one part of the American economy (manufacturing) at the expense of those sectors of the same economy (particularly agriculture), which were focused on exports to foreign markets. Several US Senators, such as South Carolina’s Robert Hayne, made similar arguments. In Hayne’s view, Clay’s ‘scheme of promoting certain employments at the expense of others’ was ‘unequal, oppressive, and unjust’, and would result in ‘the destruction of all foreign commerce’.

Many of these debates broke down along sectoral lines. The Southern states, for example, were dead set against protectionist tariffs. They feared the prospects of retaliatory tariffs being imposed on US agricultural exports to Europen (especially cotton). Conversely, many Northern states, in which much industrial manufacturing was located, saw tariffs as a way of discouraging foreign manufacturers from exporting their goods to US domestic markets by making such goods more expensive than they would otherwise be.

Such were Antebellum America’s internal tensions around tariffs that South Carolina, in reaction to the federal tariff acts of 1828 and 1832 passed during John Quincy Adams’ presidency, insisted that these pieces of legislation were unconstitutional. They declared them ‘null and void’ within South Carolina. The Nullification Crisis, as it came to be called, prefigured some of the constitutional arguments that would resurface in the lead-up to the Civil War.

The crisis was eventually resolved with the passing of the 1833 tariff act, which lowered the average tariff rate considerably. The fact, however, that a state of the Union would consider defying federal law over tariffs and risk federal troops being sent to enforce tariff levies illustrates the depth of the divisions among Americans over tariffs.

Protectionism’s high point in America arguably occurred during the Postbellum period. For one thing, the defeated Southern states were in no position to resist politically a turn towards the extensive use of tariffs. It was also the case that many temporary duties on foreign imports imposed by the Union government in Washington DC, during the Civil War in order to pay for the war became permanent for decades afterwards. And plenty of Northern manufacturing interests were determined to keep policy moving in protectionist directions. They lobbied hard for the maintenance and extension of tariffs, especially in the face of fierce competition from Britain, which had emerged as the world’s manufacturing dynamo in the wake of the Industrial Revolution.

Few figures better epitomised protectionism’s ascendency in Postbellum America than President William McKinley. When he ran for president in 1896, McKinley described himself as ‘a tariff man standing on a tariff platform’. Indeed, McKinley had been consistently in favour of tariffs from the beginning of his political career as an Ohio Congressman in 1877 until his assassination on 14 September 1901. Protectionism, according to McKinley, was about giving American businesses, especially manufacturers, a price advantage in US domestic markets as they competed against goods produced by foreign companies. For McKinley, this was one way to promote American prosperity. His dedication as a member of Congress to the protectionist cause resulted in the passing of what came to be called the McKinley Act of 1890. It raised the average tariff on imports from 38 per cent to an astonishing 49.5 per cent.

This is not to suggest that Postbellum protectionist designs went unchallenged. For example, Grover Cleveland – the first Democrat to be elected president after the Civil War – sought to reduce the tariff rate and restrict the use of tariffs to the raising of revenue. There was also considerable intellectual opposition to protectionist policies. In his 1888 book The Tariff History of the United States, the Harvard economist Frank Taussig looked closely into the political dynamics shaping US tariff policy. He found a steady pattern of ‘manipulation of the tariff in the interest of private individuals’, despite increasing hostility to tariffs throughout much of the United States. Though Taussig found no tangible evidence of bribery, he did stress that ‘contributions to the party chest are the form in which money payments by the protected interests are likely to have been made’. Taussig also argued that ‘some Congressmen thought it not improper to favour legislation that put money in their own pockets, and that many thought it quite proper to support legislation that put money into the pockets of influential constituents’.

High tariff policies suffered major setbacks in America in the 1900s. The establishment of today’s federal income tax via the Sixteenth Amendment and the Revenue Act of 1913 obviated the need for tariffs as a source of revenue. But protectionism also fell into disrepute because of growing awareness of the cronyism and the long-term diminishment of competitiveness that is inevitable with protectionist policies.

Protectionism was also discredited in America by the 1930 Smoot-Hawley Tariff Act. Legislated ostensibly to protect American agriculture in the middle of the Great Depression, the tariff schedule it outlined expanded rapidly beyond these parameters. It eventually increased duties more on manufacturing products than on agriculture. The prospect of significant tariff rate increases attracted a plethora of business representatives and their lobbyists to Washington to secure preferential tariff treatments.

The passing of Smoot-Hawley eventually attracted massive retaliation from abroad at the worst possible time for American exporters. The result was the Act’s effective dismantling in 1934 when Congress passed the Reciprocal Trade Agreements Act. This allowed the president to negotiate tariff reductions on a bilateral basis: a move that would eventually allow the United States to pursue a trade liberalisation agenda after the Second World War that would persist until the first Trump administration followed by the Biden administration, and then the second Trump administration, took trade policy in protectionist directions.

96 years after Smoot-Hawley, the United States finds itself navigating the latest swing of the trade-policy pendulum. The Supreme Court may have put down limits on the executive branch’s capacity to invoke emergency powers to raise tariffs without Congress’s consent. But if history is any guide, the court’s decision will have little effect on the deeper economic and political forces that ultimately drive US trade policy. In the end, trade policy in America is determined by a mélange of factors, ranging from which set of economic ideas are exercising intellectual dominance to which interest-groups can persuade legislators to see things their way. These forces, rather than court decisions, will ultimately determine whether protectionism or free trade prevails in America in the coming decades.