Joe Bishop-Henchmen
President Donald Trump joins Presidents John Quincy Adams (1828), John Tyler (1842), Benjamin Harrison (1890), and Herbert Hoover (1930) in enacting a tariff designed not just to raise revenue but to be so high as to insulate sectors of American manufacturing from world competition. While he and others claim that high protective tariffs were a mainstay of past American policy, in fact, such policies existed only for four brief periods. Notably, each of those earlier presidents and their parties lost subsequent elections, and their tariff policies were repealed.
A 5 percent revenue tariff, also known as customs duties and in contrast to a protective tariff, was the first major enactment by Congress in 1789. Tariffs, excise taxes on the purchases of certain goods, and land sales were the main revenue source for the federal government in early US history. Between 1820 and 1910, tariff revenue was an average of 1.5 percent of gross domestic product (GDP), ranging from 0.4 percent (1843) to 2.7 percent (1871). Sales of public lands averaged 0.1 percent of GDP, and excise taxes were mostly zero until the Civil War.
While it is therefore true that tariffs constituted the vast majority of federal revenue until the Civil War, this is because federal spending then was less than 3 percent of GDP. (Federal spending is over 25 percent of GDP today.)
Excise taxes became a routine and significant source of revenue from 1862 onward, followed by the corporate income tax in 1909 and the individual income tax in 1913. Tariff revenue therefore steadily declined as a proportion of federal revenue after its 1871 peak and was especially eclipsed as a revenue source after 1913.
In 1816, to help repay the cost of the War of 1812, Congress enacted the Dallas Tariff, usually considered to be the first protective tariff, with rates of approximately 20 percent on manufactured goods but not on raw material imports. Early on, the Founders recognized high tariff rates would neither maximize revenue nor “encourage” manufacturing but instead strangle trade: James Madison observed that “[i]f the duties should be raised too high, the error will proceed as much from the popular ardor to throw the burden of revenue on trade as from the premature policy of stimulating manufacturing.” According to an analysis by the Cato Institute, tariffs in America’s first century “strove to balance maximizing revenue under low impost-style rates on heavily imported goods and affording ‘incidental’ protection to specific industries through differentiated rates.”
On four occasions in the succeeding decades, US policymakers departed from this view that tariffs should primarily raise revenue, and on all four occasions, these highly protective tariffs proved short-lived.
Tariff of Abominations (1828–32). President John Quincy Adams signed the “Tariff of Abominations” into law in May 1828 with rates reaching 50 percent. Unlike the previous protective tariff that only applied to imports of manufactured goods, this tariff also applied to imports of raw materials and farm products. Some scholars believe the tariff bill was deliberately made excessive by southerners seeking to oppose final passage and by westerners led by then-Representative Martin Van Buren, who had written off New England for his fledgling Democratic Party. The bill, however, passed Congress and was signed into law by President Adams despite misgivings that he had been maneuvered into an unpopular position. The bill indeed proved unpopular and enabled Adams’s 1828 opponent, Andrew Jackson, and his Democratic Party to win a landslide in the 1828 election. South Carolina in particular was strongly opposed to the tariff, threatening to nullify the federal law within the state’s borders. Jackson ultimately cut the 1828 rates in half in the Tariff of 1832, and approved an 1833 law that steadily reduced tariff rates to the 1816 level by 1842.
Black Tariff (1842–46). Whig President John Tyler signed the “Black Tariff” into law in August 1842, restoring the higher 1832 rates after vetoing two earlier and higher tariff bills. After US imports and global trade sharply dropped, Tyler’s Whig Party lost 49 House seats to the Democratic Party in the 1842 election and the Senate and the presidency in the 1844 election. The new administration, after a study of tariff rates in 1845, repealed the Black Tariff in 1846.
McKinley Tariff (1890–94). Republican President Benjamin Harrison signed the McKinley Tariff into law in October 1890, again raising tariff rates to approximately 50 percent. Future President William McKinley, then a Representative and Chair of the House Ways & Means Committee, ushered the tariff through as a fulfillment of an 1888 Republican Party platform commitment to protective tariffs. The unpopular tariff helped the opposition Democratic Party pick up a landslide of 83 House seats and the majority in the 1890 elections, and Harrison lost re-election in 1892. The Panic of 1893 occurred after the tariff disrupted access to international commodities and markets for US wheat. Congress drafted new legislation to reduce tariffs, which was signed into law in 1894 by President Grover Cleveland.
McKinley later became president but reversed his protectionist stand: in a speech in September 1901, one day before his assassination, he proposed reducing tariff rates further and adopting free trade with the rest of the world: “The period of exclusiveness is past. The expansion of our trade and commerce is the pressing problem. Commercial wars are unprofitable. A policy of goodwill and friendly trade relations will prevent reprisals. Reciprocity treaties are in harmony with the spirit of the times, measures of retaliation are not.”
Smoot-Hawley Tariff (1930–34). Republican President Herbert Hoover signed the Smoot-Hawley Tariff into law in June 1930, substantially increasing tariff rates to over 50 percent on industrial and agricultural goods and promising the return of prosperity following the 1929 stock market crash. Stocks declined further as the law moved each step towards passage, and 1,028 economists famously petitioned Hoover not to sign the law. Industrial production briefly rose, but global trade sharply dropped by 66 percent, which harmed farmers and reduced employment in export industries. Between 1929 and 1933, exports fell 61 percent, imports fell 66 percent, US GDP dropped 46 percent, and unemployment rose from 8 percent at the law’s passage to ultimately reach 25 percent.
Foreign retaliation, the collapse in global trade, and the economic difficulty of countries dependent on it is seen as a contributing factor to the rise of Japanese militarism in 1931, Britain’s fall from the gold standard and adoption of colonial preference in 1931, and the end of democracy in Germany in 1931–33. In the US, the Democrats picked up 52 House seats in the 1930 election, and Hoover and the Republicans lost the 1932 election in a landslide, with both Senator Smoot and Representative Hawley losing their seats. The new Democratic administration adopted the Reciprocal Tariff Act of 1934, allowing the president to negotiate tariff reductions, and tariff rates fell sharply in succeeding decades. The introduction of the income tax in 1913 and its expansion during World War II to apply to nearly all Americans also reduced the significance of tariffs as a federal revenue source.
Thus, claims that high protective tariffs were a mainstay of past American policy are wrong, as they only existed for four brief periods (1828–32, 1842–46, 1890–94, and 1930–34). The harmful economic effects resulted in landslide wins for the opposition party after each of those enactments (which, as it turns out, was the Democratic Party in all four instances). Notably, peaks in US revenue from tariffs were not in those years but in 1826 (2.7 percent of GDP) and 1871 (again 2.7 percent of GDP), during years of comparatively lower tariff rates. Tariff revenue rose after 1842’s enactment but fell after 1828 (from $23 million to $22 million in 1830), after 1890 (from $229 million to $177 million in 1892), and after 1930 (from $587 million to $327 million in 1932).
This suggests tariff rates in the range of the 1828, 1842, 1890, and 1930 enactments may be on the right side of the Laffer Curve, reducing revenue as rates get higher due to the negative economic effects of the high tariff rates. If this is the case, the tariff rate that produces the maximum revenue for the government is below where these laws set it (and below the level set by the April 2 announcement).