Tariff of 1816
United States tariff
The Tariff of 1816, also known as the Dallas Tariff, is notable as the first tariff passed by Congress with an explicit function of protecting U.S. manufactured items from overseas competition. Prior to the War of 1812, tariffs had primarily served to raise revenues to operate the national government. Another unique aspect of the tariff was the strong support it received from Southern states.
The bill was conceived as part of a solution to the purely domestic matter of avoiding a projected federal deficit reported by Secretary of the Treasury Alexander J. Dallas. International developments added key facts to the debate; in 1816 there was widespread concern among Americans that war with the United Kingdom might be rekindled over economic and territorial issues. A tariff on manufactured goods, including war industry products, was deemed essential in the interests of national defense.
The tariff was approved on April 27, 1816, as a temporary measure, authorized for only three years (until June 1820). Northern efforts to establish permanent protection in 1820, after tensions with Britain had eased, provoked a backlash among Southern legislators. The South consistently opposed protective tariffs during the remainder of the antebellum period.
US manufacturing advances in the Napoleonic Era.
The trade restrictions imposed by Britain and France during the Napoleonic Wars, the US Embargo Act of 1807 and non-intercourse policies, as well as the War of 1812: all these crises led Americans to develop domestic manufactures to provide goods formerly supplied by Europe. Through necessity American domestic industries had grown and diversified significantly, especially cotton and woolen textiles, and iron production.
Sectional characteristics of the country were also taking shape: the Northeast was transitioning from trade and shipping towards industrial enterprises; the Deep South concentrating on cotton cultivation, and the West seeking transportation routes to market their agricultural goods.
Despite these sectional developments, America emerged from the War of 1812 as a young nation-state, with a renewed sense of self-reliance and common identity.
Post-War European threats and the rise of US economic nationalism.
The Treaty of Ghent in December 1814 did not resolve US–British boundary and territorial disputes in Louisiana and Spanish Florida. The frontier remained a flashpoint for international strife. In addition, tensions between British and American manufacturers continued to exist. In a move to recapture American markets, British manufacturers proceeded to systematically flood the US markets with superior manufactured items at cut-rate prices, which caused their American counterparts, particularly those in the Northeast, to rapidly lose business.

These geostrategic and economic tensions led to a shift in American domestic policy. The strict constructionist ideologists of the dominant Jeffersonian Republican Party – though averse to concentrating power into the hands of the federal government – recognized the expediency of nationalizing certain institutions and projects as a means of achieving national growth and economic security.
In his Seventh Annual Message to the Fourteenth Congress on December 5, 1815, President James Madison suggested legislation to create 1) a national bank with regulatory powers 2) a program of federally funded internal improvements for roads and canals, and 3) a protective tariff to shelter emerging American manufacturing from the advanced industries in Europe.
The Federal deficit and the tariff debate.
In December 1815, Treasury Secretary Alexander J. Dallas presented a federal budget report to Congress projecting a substantial government deficit by the end of 1816. Though his budget figures were not in dispute, the means of raising the funds were, and proposals for direct or excise taxes were generally unpopular. Secretary Dallas called for a limited protective tariff on manufactures to forestall the deficit. His proposal provoked opposition from two economic sectors: commerce and agriculture.
Commercial maritime centers in New England and the Mid-Atlantic states had anticipated a lucrative import and export exchange with the post-war reopening of European and global markets. A protective tariff might provoke retaliatory measures, impeding free trade and profits.
Agrarians in most regions of the US were also advocates of open markets. Northerners, like most Southerners, were still farmers (84% for the whole country). The North, however, was increasingly industrial, with 20 percent of its workforce engaged in manufacturing, compared to 8 percent in the South. Southerner planters, committed to a pastoral slave-based culture and economy, were net consumers of manufactured goods – goods which would cost more under a tariff regime. The South expressed hostility to the measure throughout the debates, but a substantial number ultimately were compelled to consider its protective advantages.
Support for the duties was strongest in manufacturing centers, the immediate beneficiaries of the protection, particularly in Pennsylvania and New York. The tariff was also popular in Kentucky, among those who hoped to develop new textile industries weaving locally grown hemp. Economic interests aside, "both protectionists and freetraders were in agreement that the country needed more revenue"
The reasons for Southern support of the tariff.
The tariff of 1816 was the first – and last – protective tariff that received significant Southern support during the "thirty-year tariff war" from 1816 to 1846. A number of historical factors were important in shaping Southern perceptions of the legislation. Acknowledging the need to provide sufficient government funding, and with no adequate alternative propositions, the South felt compelled to consider protection. Southern support of the tariff was not demonstrably linked to any significant trend towards industry in the South, or to the existence of textile mills in the Congressional districts of Southern representatives.
Southern legislators were keenly aware of the effect that British merchants were having on the US economy and emerging American industries by flooding manufactured goods onto the US market. A group of Southern politicians known as the War Hawks had been some of the most strident foes of confrontation with Britain and fierce champions of the national government; among these statesmen were Speaker of the House Henry Clay of Kentucky, Henry St. George Tucker, Sr. of Virginia and Alexander C. Hanson of Maryland, all supporting the tariff as a war measure.
There were fears among Americans that economic tensions with Britain would lead to a resumption of armed conflict. In that event, a healthy US manufacturing base – including war industries – were vital to the American economy. Rejecting doctrinaire anti-Federalism, Representative John C. Calhoun of South Carolina called for national unity through interdependence of trade, agriculture and manufacturing. Recalling how poorly prepared the United States had been for war in 1812, he demanded that American factories be provided protection. John Quincy Adams, as US minister to Great Britain, concurred with Calhoun, discerning a deep hostility from the capitols of Europe towards the fledgling United States.
Old Republicans (also known as "tertium quids"), such as Representative John Randolph of Virginia, were marginal figures in this struggle, where strict constructionists were at their nadir. This faction of the Jeffersonian Republican Party remained adamant in upholding the principles of state sovereignty and limited government, rejecting any protection whatsoever as an assault upon "poor men and on slaveholders". Among more moderate Southern leaders who remained skeptical about supporting an openly protectionist tariff, there were four additional considerations:
First, the tariff was understood to be a temporary expedient to deal with clear and present dangers. The duties would be lowered in three years (June 1819) by which time the strife would likely have subsided.
Second, the tariff would only be applied to cotton and woolen products, and iron; the bulk of imported goods the South regularly bought from foreign countries would not be affected.
Third, the agrarian South was economically prosperous at the time of the debates, easing concerns about the financial burden the tariff would impose. Those who backed tariffs believed that the economic benefits that would accrue to the North and the West were in the national interest, and that the South could absorb a mild and temporary increase in the cost of imported goods.
Finally, Jeffersonian Republicans, emerging from the War of 1812 with the opposition Federalist Party in disgrace, felt sufficiently in control of the political landscape to permit an experiment in centralizing policies.
The passage of the tariff.
As a protective measure, the tariff legislation was very temperate. It placed a duty of twenty-five percent on cottons and woolens for a period of three years (until June 1819), at which time it would drop to twenty percent. A duty of thirty percent was placed on iron, leather, hats, writing paper and cabinet ware, as well as three cents on a pound of sugar. (Iron duties were further increased in 1818 as a defense measure.)
Low grade printed fabrics from British India, however cheaply they were priced, were accessed at a fixed rate of twenty-five cents per square yard. This was the only overtly protective feature of the legislation, and served to exclude these foreign textiles altogether from US markets.
The bill – requiring a simple majority for passage – passed 88 yeas to 54 nays in the House (62% to 38%). Both parties were divided, with Republicans voting nationwide 63 yeas to 31 nays, and the Federalists voting 25 yeas to 23 nays.
The influence of détente on support for protection.
A gradual easing of British-American territorial and economic disputes commenced shortly after the passage of the Dallas tariff.
The Rush–Bagot Treaty of 1817 demilitarized the Great Lakes regions and the following year the Treaty of 1818 drew the forty-ninth parallel from the Lake of the Woods west to the Rocky Mountains. With this, Britain tacitly acknowledged the legitimacy of US claims to the vast Louisiana territory.
Another potentially volatile international development – General Andrew Jackson's military incursion into Spanish Florida and his summary execution of two British citizens – failed to incite British retaliation, diplomatically or militarily. The Adams–Onís Treaty of 1819 transferred all of Florida into US hands, ending Spain's attempts to enlist British help in recovering Louisiana from the United States. By 1820, US–British diplomatic relations had significantly improved.
British mercantilist policies and trade monopolies also weakened during this period. Britain recognized that its prosperity was inextricably connected to the industrial growth and territorial expansion of the United States. British–American trade wars had virtually vanished by 1820 and with it the argument that protectionist tariffs were necessary to sustain war industries.
In the three years following the passage of the Dallas tariff, the issues that prompted appeals for protection – trade wars, geostrategic disputes and the federal deficit – had largely been resolved.
The Panic of 1819 and the end of Southern protectionism.
The tariff of 1816 supplied comfortable federal surpluses from 1817 to 1819; even with the scheduled reduction in duty rates for 1819, the tariff was expected to provide sufficient revenue.
The Panic of 1819 caused an alarming, but temporary drop in the projected federal revenue for 1820. Manufacturers and other protectionists, as well as agrarian anti-protectionists, agreed that the existing tariff of 1816 would perform adequately during the economic recovery. Secretary Dallas warned that any increase in customs on cotton, wool and iron during the economic crisis would actually depress revenues further.
Protectionists were eager to distance themselves from the revenue issue – if revenues were adequate, they could hardly argue for an increase in duties. Manufacturers sought a new argument to support higher tariffs – economic distress due to the downturn. In reality, the Panic had benefited manufacturing by causing a drop in the price of raw materials; even as the retail sales of the cotton goods plummeted, so did the wholesale cost of raw cotton – textile producers could still turn a profit. The primary producers in the agricultural South, however, saw the value of their goods decline and sell at a loss.
By 1820, the support for higher tariffs was less an argument for government revenue, than an effort by Western and Northern interests to establish protection as a principle of economic national well-being. Unlike the tariff in 1816, the tariff legislation in 1820 included higher duties and a long list of new items, and the duties were to be permanent. No longer a mere expedient, this tariff reflected the new loose constructionist principles of the National Republicans, deviating from the strict constructionist requirements of the Democratic-Republican wing of the party. This the Southern agrarians could not abide, when no external threat to the nation at large remained.
Historian Norris W. Preyer summarized the shift in Southern opinion this way:
By 1820 the South realized that the earlier arguments and appeals of protectionism were no longer valid. In 1816 it was not a desire for manufacturing, but a combination of prosperity, patriotism, and promises that had swayed Southerners. None of these factors now existed to influence them. One consideration, however, which had always been a strong influence on the thinking of Southerners still remained – the need to defend their economic interests. Now, with no other views to challenge or obscure this desire, the South turned almost unanimously against the tariff bill of 1820. The brief Southern experiment in supporting protection had come to an end, and from then on that section would consistently oppose all protective tariffs.
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Protective tariff
Tariffs aiming to make domestic products cheaper than imported alternatives
Protective tariffs are tariffs that are enacted with the aim of protecting a domestic industry. They aim to make imported goods cost more than equivalent goods produced domestically, thereby causing sales of domestically produced goods to rise, supporting local industry. Tariffs are also imposed in order to raise government revenue, or to reduce an undesirable activity (sin tax). Although a tariff can simultaneously protect domestic industry and earn government revenue, the goals of protection and revenue maximization suggest different tariff rates, entailing a tradeoff between the two aims.
How tariffs work.
A tariff is a tax added onto goods imported into a country; protective tariffs are taxes that are intended to increase the cost of an import so it is less competitive against a roughly equivalent domestic good. For example, if similar cloth for sale in America cost $4 for a version imported from Britain (including additional shipping, etc.) and $4 for a version originating in the United States, the American government may wish to impose a protective tariff to make the price of British cloth higher for Americans. The underlying goal for a protective tariff is to protect the domestic industry from foreign competition.
This political issue relies on the purchasing power parity between the currencies of countries involved, and also with the parallel currency substitution in the domestic countries.
History.
United States.
Alexander Hamilton was the first American to propose the use of protective tariffs to promote industrialization in his "Report on Manufactures". Hamilton thought that a tariff on textile imports would subsidize American efforts to establish manufacturing facilities to eventually compete with those of the British. Heeding Hamilton's advice, president George Washington signed the Tariff Act of 1790 into law, as America's second piece of legislation. He stated tariffs were necessary for national security reasons:
A free people ought not only to be armed, but disciplined; to which end a uniform and well-digested plan is requisite; and their safety and interest require that they should promote such manufactories as tend to render them independent of others for essential, particularly military, supplies.
After the War of 1812, cheap British products flooded the American market, which undercut and threatened the infantile industry of the United States. Congress set a tariff in 1816 in order to prevent some of these British goods from entering the United States, followed by another in 1824 and culminating with the controversial Tariff of Abominations in 1828.
President John Quincy Adams approved the Tariff of Abominations after it received a majority vote in the House of Representatives. This 1828 tariff's goal was to protect Northern and Western agricultural products from foreign competition, but in doing so sparked a national debate over the constitutionality of placing tariffs on imports without the intent to merely raise duty revenue. The earmarked items in this case included iron, molasses, distilled spirits, flax, and other finished goods. Opposition to this tariff came predominantly from the South since this region lacked a manufacturing sector, leaving it dependent on the North and foreign trade to supply its manufactures. In addition to artificially elevating import costs, the so-called "Tariff of Abominations" afflicted the South by hampering its cotton trade to England, the region's primary source of income. This 1828 tariff was so unpopular that it played a significant role in the failure of John Quincy Adams' reelection bid in 1828.
Starting in the Civil War, protection was the ideological cement holding the Republican coalition together. High tariffs were used to promise higher sales to business, higher wages to industrial workers, and higher demand for their crops to farmers. Democrats said it was a tax on the little man. After 1900 Progressive insurgents said it promoted monopoly. It had greatest support in the Northeast, and greatest opposition in the South and West. The Midwest was the battle ground. The tariff issue was pulling the GOP apart. Roosevelt tried to postpone the issue, but Taft had to meet it head on in 1909 with the Payne–Aldrich Tariff Act. Eastern conservatives led by Nelson W. Aldrich wanted high tariffs on manufactured goods (especially woolens), while Midwesterners called for low tariffs. Aldrich outmaneuvered them by lowering the tariff on farm products, which outraged the farmers. The great battle over the high Payne–Aldrich Tariff Act in 1910 ripped the Republicans apart and set up the realignment in favor of the Democrats.
The Democrats lowered the tariff in 1913 but the economic dislocations of the First World War made it irrelevant. When the Republicans returned to power in 1921, they again imposed a protective tariff. They raised it again in 1930 to meet the Great Depression in the United States but that made the depression worse. The Democrats promised an end to protection, and low rates dominated the debate for the rest of the 20th century. In 2017 Donald Trump proposed the use of protective tariffs as a means to improve the economy.
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Protectionism in the United States

Protectionism in the United States is protectionist economic policy that erects tariffs and other barriers on imported goods. This policy was most prevalent in the 19th century. At that time, it was mainly used to protect Northern industries and was opposed by Southern states that wanted free trade to expand cotton and other agricultural exports. Protectionist measures included tariffs and quotas on imported goods, along with subsidies and other means, to restrain the free movement of imported goods, thus encouraging local industry.
There was a general lessening of protectionist measures from the 1930s onwards, culminating in the free trade period that followed the Second World War. After the war, the United States promoted the General Agreement on Tariffs and Trade (GATT), to liberalize trade among all capitalist countries. In 1995, GATT became the World Trade Organization (WTO), and with the collapse of Communism its open markets/low tariff ideology became dominant worldwide. Protectionism has increased in popularity since the election of Donald Trump in 2016.
History.
Britain was the first country to successfully use a large-scale infant industry promotion strategy. However, its most ardent user was the U.S. Economic historian Paul Bairoch once called it "the homeland and bastion of modern protectionism" "(Economics and World History: Myths and Paradoxes, Bairoch)".
Britain initially did not want to industrialize the American colonies, and implemented policies to that effect. For example, banning high value-added manufacturing activities. Thus, the American Revolution was, to some extent, a war against this policy, in which the commercial elite of the colonies rebelled against being forced to play a lesser role in the emerging Atlantic economy. This explains why, after independence, the Tariff Act of 1789 was the second bill of the Republic signed by President Washington allowing Congress to impose a fixed tariff of 5% on all imports, with a few exceptions.
Most American intellectuals and politicians during the country's catching-up period felt that the free trade theory advocated by British classical economists was not suited to their country. The US went against the advice of economists like Adam Smith, Ricardo and Jean Baptiste Say and tried to protect its industries.
Alexander Hamilton, the first Secretary of the Treasury of the United States (1789–1795) and economist Daniel Raymond were the first theorists to present the argument of the emerging industry, not the German economist Friedrich List. List started out as a free trade advocate and only converted to the infant industry argument following his exile in the U.S (1825–1830).
Hamilton feared that Britain's policy towards the colonies would condemn the United States to be only producers of agricultural products and raw materials. Washington and Hamilton believed that political independence was predicated upon economic independence. Increasing the domestic supply of manufactured goods, particularly war materials, was seen as an issue of national security. In his Reports, Hamilton argued that the competition from abroad and the "forces of habit" would mean that new industries that could soon become internationally competitive ("infant industries") would not be started in the United States, unless the initial losses were guaranteed by government aid.
According to him, this aid could take the form of import duties or, in rare cases, prohibition of imports. He called for customs barriers to allow American industrial development and to help protect infant industries, including bounties (subsidies) derived in part from those tariffs. He also believed that duties on raw materials should be generally low. Hamilton explained that despite an initial "increase of price" caused by regulations that control foreign competition, once a "domestic manufacture has attained to perfection ... it invariably becomes cheaper".
In 1789, Congress passed a tariff act , imposing a 5% flat rate tariff on all imports. Between 1792 and the war with Britain in 1812, the average tariff level remained around 12.5%. In 1812, all tariffs were doubled to an average of 25%, in order to cope with the increase in public expenditure due to the war.
In 1816, a new law was introduced to keep the tariff level close to the wartime level—especially protected were cotton, woolen, and iron goods. The American industrial interests that had blossomed because of the tariff lobbied to keep it, and had it raised to 35 percent in 1816. The public approved, and by 1820, America's average tariff was up to 40 percent.
According to Michael Lind, protectionism was America's de facto policy from the passage of the Tariff of 1816 to World War II, "switching to free trade only in 1945".
There was a brief episode of free trade from 1846, coinciding with the zenith of classical liberalism in Europe, during which American tariffs were lowered.
In the 19th century, statesmen such as Senator Henry Clay continued Hamilton's themes within the Whig Party under the name the "American System".
The American Civil War (1861–1865) was fought over the issue of slavery as well as tariff disputes. At the time of independence, the agrarian interests of the South were opposed to any protection, while the manufacturing interests of the North wanted to maintain it.
The fledgling Republican Party led by Abraham Lincoln, who called himself a "Henry Clay tariff Whig", strongly opposed free trade, and implemented a 44-percent tariff during the Civil War—in part to pay for railroad subsidies and for the war effort, and to protect favored industries.
From 1871 to 1913, "the average U.S. tariff on dutiable imports never fell below 38 percent [and] gross national product (GNP) grew 4.3 percent annually, twice the pace in free trade Britain and well above the U.S. average in the 20th century," notes Alfred Eckes Jr, chairman of the U.S. International Trade Commission under President Reagan notes.
In 1896, the GOP pledged a platform of "renewing and emphasizing our allegiance to the policy of protection, as the bulwark of American industrial independence, and the foundation of development and prosperity. This true American policy taxes foreign products and encourages home industry. It puts the burden of revenue on foreign goods; it secures the American market for the American producer. It upholds the American standard of wages for the American workingman".
After the First World War, the GOP was baffled when the restoration of higher tariff rates with the Fordney–McCumber Tariff in 1922 did not prevent an economic crash. The second attempt to raise tariffs with the Smoot-Hawley Tariff Act of 1930 also backfired. A stark reduction in international trade and retaliatory actions from Canada, Britain, Germany and other industrial nations exacerbated the devastating effects of the Great Depression on the American population. During the Second World War, the interest in tariffs waned, recent American economic policies were supportive of free trade, while never reaching the heights of British freedom of trade in the mid-nineteenth century.
Southern states.
Historically, slave-holding states had little perceived need for mechanization because of the low cost of manual slave labor. They supplied raw cotton to Britain, which supported free trade.
Northern states.
Northern states sought to develop manufacturing industries and sought protections to allow nascent Northern manufacturers to compete with their more sophisticated British competitors. Throughout the 19th century, leading US politicians, including Senator Henry Clay, supported Hamilton's approach within the Whig Party under the name "American System."
The opposed Southern Democratic Party contested elections throughout the 1830s, 1840s and 1850s in part over the issue of protection of industry. However, Southern Democrats were never as strong in the U.S. House of Representatives as the more populous North. The Northern Whigs achieved higher protective tariffs over the South's bitter resistance. One Southern state precipitated what came to be called the Nullification Crisis, over the issue of tariffs, arguing that states had the right to ignore federal laws.
Mostly over the issue of abolition and other scandals, the Whigs collapsed, leaving a void which the fledgling Republican Party, led by Abraham Lincoln filled. Lincoln, who called himself a "Henry Clay tariff Whig", strongly opposed free trade. He implemented a 44% tariff during the American Civil War in part to pay for the building of the Union Pacific Railroad, the war effort and to protect American industry.
By President Lincoln's term, the northern manufacturing states had ten times the GDP of the South. With this advantage, the North was able to starve the South of weapons through a near total blockade, while supplying its own army with everything from heavy artillery to Henry repeating rifles.
With the Northern victory, Republican dominance was assured. Republicans continued to dominate American politics until the early 20th century.
President Ulysses S. Grant stated:
For centuries England has relied on protection, has carried it to extremes and has obtained satisfactory results from it. There is no doubt that it is to this system that it owes its present strength. After two centuries, England has found it convenient to adopt free trade because it thinks that protection can no longer offer it anything. Very well then, Gentlemen, my knowledge of our country leads me to believe that within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free trade.
Southern Democrats gradually rebuilt their party and allied themselves with Northern Progressives. They had many differences, but both opposed the corporate trusts that had emerged. This marriage of convenience to face a common enemy reinvigorated the Democratic Party, catapulting them to power.
Colonial Era to 1789.
In the colonial era, before 1775, nearly every colony levied its own tariffs, usually with lower rates for British products. There were taxes on ships (on a tonnage basis), import taxes on slaves, export taxes on tobacco, and import taxes on alcoholic beverages. The London government insisted on a policy of mercantilism whereby only British ships could trade in the colonies. In defiance, some American merchants engaged in smuggling.
During the Revolution, the British blockade from 1775 to 1783 largely ended foreign trade. In the 1783–89 Confederation Period, each state set up its own trade rules, often imposing tariffs or restrictions on neighboring states. The new Constitution, which went into effect in 1789, banned interstate tariffs or trade restrictions, as well as state taxes on exports.
Early National period, 1789–1828.
The framers of the United States Constitution gave the federal government authority to tax, stating that Congress has the power to "... lay and collect taxes, duties, imposts and excises, pay the debts and provide for the common defense and general welfare of the United States." and also "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." Tariffs between states is prohibited by the U.S. Constitution, and all domestically made products can be imported or shipped to another state tax-free.
Responding to an urgent need for revenue and a trade imbalance with England that was fast destroying the infant American industries and draining the nation of its currency, the First United States Congress passed, and President George Washington signed, the Hamilton Tariff of 1789, which authorized the collection of duties on imported goods. Customs duties as set by tariff rates up to 1860 were usually about 80–95% of all federal revenue. Having just fought a war over taxation (among other things) the U.S. Congress wanted a reliable source of income that was relatively unobtrusive and easy to collect. It also sought to protect the infant industries that had developed during the war but which were now threatened by cheaper imports, especially from England.
Tariffs and excise taxes were authorized by the United States Constitution and recommended by the first United States Secretary of the Treasury, Alexander Hamilton in 1789 to tax foreign imports and set up low excise taxes on whiskey and a few other products to provide the Federal Government with enough money to pay its operating expenses and to redeem at full value U.S. Federal debts and the debts the states had accumulated during the Revolutionary War. The Congress set low excise taxes on only a few goods, such as, whiskey, rum, tobacco, snuff and refined sugar. The tax on whiskey was highly controversial and set of massive protests by Western Farmers in the Whiskey Rebellion of 1794, which was suppressed by General Washington at the head of an army. The whiskey excise tax collected so little and was so despised it was abolished by President Thomas Jefferson in 1802.
All tariffs were on a long list of goods (dutiable goods) with different customs rates and some goods on a "free" list. Congress spent enormous amounts of time figuring out these tariff import tax schedules.
With tariffs providing the basic federal revenue, an embargo on trade, or an enemy blockade, would threaten havoc. This happened in connection with the American economic warfare against Britain in the 1807–15 period. In 1807 imports dropped by more than half and some products became much more expensive or unobtainable. Congress passed the Embargo Act of 1807 and the Non-Intercourse Act (1809) to punish British and French governments for their actions; unfortunately their main effect was to reduce imports even more. The War of 1812 brought a similar set of problems as U.S. trade was again restricted by British naval blockades. The fiscal crisis was made much worse by the abolition of the First Bank of the U.S., which was the national bank. It was reestablished right after the war.
The lack of imported goods relatively quickly gave very strong incentives to start building several U.S. industries in the Northeast. Textiles and machinery especially grew. Many new industries were set up and run profitably during the wars and about half of them failed after hostilities ceased and normal imports resumed. Industry in the U.S. was advancing up the skill set, innovation knowledge and organization curve.
The Tariff Act of 1789 imposed the first national source of revenue for the newly formed United States. The new U.S. Constitution ratified in 1789, allowed only the federal government to levy uniform tariffs. Only the federal government could set tariff rates (customs), so the old system of separate state rates disappeared. The new law taxed all imports at rates from 5 to 15 percent. These rates were primarily designed to generate revenue to pay the annual expenses of the federal government and the national debt and the debts the states had accumulated during the American War of Independence and to also promote manufactures and independence from foreign nations, especially for defense needs.
Hamilton believed that all Revolutionary War debt should be paid in full to establish and keep U.S. financial credibility. In addition to income in his Report on Manufactures Treasury Secretary Alexander Hamilton proposed a far-reaching plan to use protective tariffs as a lever for rapid industrialization. In the late 18th century the industrial age was just starting and the United States had little or no textile industry—the heart of the early Industrial Revolution. The British government having just lost the Revolutionary War tried to maintain their near monopoly on cheap and efficient textile manufacturing by prohibiting the export of textile machines, machine models or the emigration of people familiar with these machines.
Clothing in the early United States was nearly all hand made by a very time-consuming and expensive process—just like it had been made for centuries before. The new textile manufacturing techniques in Britain were often over thirty times cheaper as well as being easier to use, more efficient and productive. Hamilton believed that a stiff tariff on imports would not only raise income but "protect" and help subsidize early efforts at setting up manufacturing facilities that could compete with British products.
In 1789, Samuel Slater emigrated illegally, since he was familiar with textile manufacturing in Britain. Looking for opportunities he heard of the failing attempts at making cotton mills in Pawtucket, Rhode Island. Contacting the owners he promised to see if he could fix their mills—they offered him a full partnership if he succeeded. Declaring their early attempts unworkable he proceeded from January 1790 to December 1790 to build the first operational textile manufacturing facility in the United States. The Industrial Revolution was off and running in the United States. Initially the cost of their textiles was slightly higher than the cost of equivalent British goods but the tariff helped protect their early start-up industry.
The high protectionism tariffs Hamilton originally called for were not adopted until after the War of 1812, when nationalists such as Henry Clay and John C. Calhoun saw the need for more federal income and more industry. In wartime, they declared, having a home industry was a necessity to avoid shortages. Likewise owners of the small new factories that were springing up in the northeast to mass-produce boots, hats, nails and other common items wanted higher tariffs that would significantly protect them for a time from more efficient British producers. A 10% discount on the customs tax was offered on items imported in American ships, so that the American merchant marine would be supported.
Once industrialization and mass production started, the demand for higher and higher tariffs came from manufacturers and factory workers. They believed that their businesses should be protected from the lower wages and more efficient factories of Britain and the rest of Europe. Nearly every northern Congressman was eager to logroll a higher tariff rate for his local industry. Senator Daniel Webster, formerly a spokesperson for Boston's merchants who imported goods (and wanted low tariffs), switched dramatically to represent the manufacturing interests in the Tariff of 1824. Rates were especially high for bolts of cloth and for bar iron, of which Britain was a low-cost producer.
The culmination came in the Tariff of 1828, ridiculed by free traders as the "Tariff of Abominations", with import custom duties averaging over 25 percent. Intense political opposition to higher tariffs came from Southern Democrats and plantation owners in South Carolina who had little manufacturing industry and imported some products with high tariffs. They would have to pay more for imports. They claimed their economic interest was being unfairly injured. They attempted to "nullify" the federal tariff and spoke of secession from the Union (see the Nullification Crisis). President Andrew Jackson let it be known he would use the U.S. Army to enforce the law, and no state supported the South Carolina call for nullification. A compromise ended the crisis included a lowering of the average tariff rate over ten years to a rate of 15% to 20%.
Second Party System, 1829–1859.
Tariffs soon became a major political issue as the Whigs (1832–1852) and after 1854 the Republicans wanted to protect their mostly northern industries and constituents by voting for higher tariffs and the Southern Democrats, which had very little industry but imported many goods voted for lower tariffs. Each party as it came into power voted to raise or lower tariffs under the constraints that the Federal Government always needed a certain level of revenues. The United States public debt was paid off in 1834 and President Andrew Jackson, a strong Southern Democrat, oversaw the cutting of the tariff rates roughly in half and eliminating nearly all federal excise taxes in about 1835.
Henry Clay and his Whig Party, envisioning a rapid modernization based on highly productive factories, sought a high tariff. Their key argument was that startup factories, or "infant industries", would at first be less efficient than European (British) producers. Furthermore, American factory workers were paid higher wages than their European competitors. The arguments proved highly persuasive in industrial districts. Clay's position was adopted in the 1828 and 1832 Tariff Acts.
The Nullification Crisis forced a partial abandonment of the Whig position. When the Whigs won victories in the 1840 and 1842 elections, taking control of Congress, they re-instituted higher tariffs with the Tariff of 1842. In examining these debates Moore finds that they were not precursors to Civil War. Instead they looked backward and continued the old debate whether foreign trade policy should embrace free trade or protectionism.
Walker Tariff.
The Democrats won in 1844, electing James K. Polk as president. Polk succeeded in passing the Walker tariff of 1846 by uniting the rural and agricultural factions of the entire country for lower tariffs. They sought a level of a "tariff for revenue only" that would pay the cost of government but not show favoritism to one section or economic sector at the expense of another. The Walker Tariff actually increased trade with Britain and others and brought in more revenue to the federal treasury than the higher tariff. The average tariff on the Walker Tariff was about 25%. While protectionists in Pennsylvania and neighboring states were angered, the South achieved its goal of setting low tariff rates before the Civil War.
Low tariff of 1857.
The Walker Tariff remained in place until 1857, when a nonpartisan coalition lowered them again with the Tariff of 1857 to 18%. This was in response to the British repeal of their protectionist "Corn Laws".
The Democrats in Congress, dominated by Southern Democrats, wrote and passed the tariff laws in the 1830s, 1840s, and 1850s, and kept reducing rates, so that the 1857 rates were down to about 15%, a move that boosted trade so overwhelmingly that revenues actually increased, from just over $20 million in 1840 ($ billion in 2023 dollars), to more than $80 million by 1856 ($ billion). The South had almost no complaints but the low rates angered many Northern industrialists and factory workers, especially in Pennsylvania, who demanded protection for their growing iron industry. The Republican Party replaced the Whigs in 1854 and also favored high tariffs to stimulate industrial growth. This was part of the 1860 Republican platform.
The Morrill Tariff significantly raising tariff rates became possible only after the Southern Senators walked out of Congress when their states left the Union, leaving a Republican majority. It was signed by Democratic President James Buchanan in early March 1861 shortly before President Abraham Lincoln took office. Pennsylvania iron mills and New England woolen mills mobilized businessmen and workers to call for high tariffs, but Republican merchants wanted low tariffs. The high tariff advocates lost in 1857, but stepped up their campaign by blaming the economic recession of 1857 on the lower rates. Economist Henry Charles Carey of Philadelphia was the most outspoken advocate, along with Horace Greeley and his influential newspaper, the "New-York Tribune". Increases were enacted in February 1861 after Southerners resigned their seats in Congress on the eve of the Civil War.
Some historians in recent decades have minimized the tariff issue as a cause of the war, noting that few people in 1860–61 said it was of central importance to them. Compromises were proposed in 1860–61 to save the Union, but they did not involve the tariff. Arguably, the effects of a tariff enacted in March 1861 could have made little impact upon any delegation which met prior to its signing. It is indicative of the Northern industrial supported and anti-agrarian position of that 1861 Republican controlled congress. Some secessionist documents do mention a tariff issue, though not nearly as often as the preservation of the impactful economic institution of slavery. However, a few libertarian economists place more importance on the tariff issue.
1860–1912.
Civil War.
During the war far more revenue was needed, so the rates were raised again and again, along with many other taxes such as excise taxes on luxuries and income taxes on the rich. By far most of the wartime government revenue came from bonds and loans ($2.6 billion), not taxes ($357 million) or tariffs ($305 million).
The Morrill Tariff took effect a few weeks before the war began on April 12, 1861, and was not collected in the South. The Confederate States of America (CSA) passed its own tariff of about 15% on most items, including many items that previously were duty-free from the North. Previously tariffs between states were prohibited. The Confederates believed that they could finance their government by tariffs. The anticipated tariff revenue never appeared as the Union Navy blockaded their ports and the Union army restricted their trade with the Northern states. The Confederacy collected a mere $3.5 million in tariff revenue from the Civil War start to end and had to resort to inflation and confiscation instead for revenue.
Reconstruction era.
Historian Howard K. Beale argued that high tariffs were needed during the Civil War, but were retained after the war for the benefit of Northern industrialists, who would otherwise lose markets and profits. To keep political control of Congress, Beale argued, Northern Industrialists worked through the Republican Party and supported Reconstruction policies that kept low-tariff Southern whites out of power. The Beale thesis was widely disseminated by the influential survey of Charles A. Beard, "The Rise of American Civilization" (1927).
In the late 1950s historians rejected the Beale–Beard thesis by showing that Northern businessmen were evenly divided on the tariff, and were not using Reconstruction policies to support it.
Politics of protection.
The iron and steel industry, and the wool industry, were the well-organized interests groups that demanded, and usually obtained, high tariffs through support of the Republican Party. Industrial workers had much higher wages than their European counterparts, and they credited it to the tariff and voted Republican.
Democrats were divided on the issue, in large part because of pro-tariff elements in the Pennsylvania party who wanted to protect the growing iron industry, as well as pockets of high tariff support in nearby industrializing states. However President Grover Cleveland made low tariffs the centerpiece of Democratic Party policies in the late 1880s. His argument is that high tariffs were an unnecessary and unfair tax on consumers. The South and West generally supported low tariffs, and the industrial East high tariffs. Republican William McKinley was the outstanding spokesman for high tariffs, promising it would bring prosperity for all groups.
After the Civil War, high tariffs remained as the Republican Party remained in office and the Southern Democrats were restricted from office. Advocates insisted that tariffs brought prosperity to the nation as a whole and no one was really injured. As industrialization proceeded apace throughout the Northeast, some Democrats, especially Pennsylvanians, became high tariff advocates.
Farmers and wool.
The Republican high tariff advocates appealed to farmers with the theme that high-wage factory workers would pay premium prices for foodstuffs. This was the "home market" idea, and it won over most farmers in the Northeast, but it had little relevance to the southern and western farmers who exported most of their cotton, tobacco and wheat. In the late 1860s the wool manufacturers, based near Boston and Philadelphia, formed the first national lobby, and cut deals with wool-growing farmers in several states. Their challenge was that fastidious wool producers in Britain and Australia marketed a higher quality fleece than the Americans, and that British manufacturers had costs as low as the American mills. The result was a wool tariff that helped the farmers by a high rate on imported wool—a tariff the American manufacturers had to pay—together with a high tariff on finished woolens and worsted goods.
U.S. industrial output.
Apart from wool and woolens, American industry and agriculture—and industrial workers—had become the most efficient in the world by the 1880s as they took the lead in the worldwide Industrial Revolution. They were not at risk from cheap imports. No other country had the industrial capacity, large market, the high efficiency and low costs, or the complex distribution system needed to compete in the vast American market. Indeed, it was the British who watched in stunned horror as cheaper American products flooded their home islands. Wailed the "London Daily Mail" in 1900,We have lost to the American manufacturer electrical machinery, locomotives, steel rails, sugar-producing and agricultural machinery, and latterly even stationary engines, the pride and backbone of the British engineering industry.
Some American manufacturers and union workers demanded the high tariff be maintained. The tariff represented a complex balance of forces. Railroads, for example, consumed vast quantities of steel. To the extent tariffs raised steel prices, they paid much more, making possible the U.S steel industry's massive investment to expand capacity and switch to the Bessemer process and later to the open hearth furnace. Between 1867 and 1900, U.S. steel production increased more than 500 times from 22,000 tons to 11,400,000 tons. Bessemer steel rails, first made in the U.S, lasted 18 years under heavy traffic, replaced the old wrought iron rail that lasted two years under light service.
In 1881, British steel rails sold for $31 a ton, and if Americans imported them they paid a $28/ton tariff, giving $59/ton for an imported ton of rails. American mills charged $61 a ton—and made a huge profit, which was then reinvested into increased capacity, higher quality steels and more efficient production. By 1897, the American steel rail price had dropped to $19.60 per ton compared to the British price at $21.00—not including the $7.84 duty charge—demonstrating that the tariff had performed its purpose of giving the industry time to become competitive.
The U.S. steel industry became an exporter of steel rail to England selling below the British price and during WW I would become the largest supplier of steel to the allies. From 1915 to 1918, the largest American steel company, U.S. Steel, alone delivered more steel each year than Germany and Austria-Hungary combined, totalling 99,700,000 tons during WW I. The Republicans became masters of negotiating exceedingly complex arrangements so that inside each of their congressional districts there were more satisfied "winners" than disgruntled "losers". The tariff after 1880 was an ideological relic that no longer had any economic rationale.
Cleveland tariff policy.
Democratic President Grover Cleveland redefined the issue in 1887, with his stunning attack on the tariff as inherently corrupt, opposed to true republicanism, and inefficient to boot: "When we consider that the theory of our institutions guarantees to every citizen the full enjoyment of all the fruits of his industry and enterprise ... it is plain that the exaction of more than [minimal taxes] is indefensible extortion and a culpable betrayal of American fairness and justice." The election of 1888 was fought primarily over the tariff issue, and Cleveland lost. Republican Congressman William McKinley argued,
Free foreign trade gives our money, our manufactures, and our markets to other nations to the injury of our labor, our tradespeople, and our farmers. Protection keeps money, markets, and manufactures at home for the benefit of our own people.
Democrats campaigned energetically against the high McKinley Tariff of 1890, and scored sweeping gains that year; they restored Cleveland to the White House in 1892. The severe depression that started in 1893 ripped apart the Democratic party. Cleveland and the pro-business Bourbon Democrats insisted on a much lower tariff. His problem was that Democratic electoral successes had brought in Democratic congressmen from industrial districts who were willing to raise rates to benefit their constituents. The Wilson–Gorman Tariff Act of 1894 lowered overall rates from 50 percent to 42 percent, but contained so many concessions to protectionism that Cleveland refused to sign it. It later became law.
McKinley tariff policy.
McKinley campaigned heavily in 1896 on the high tariff as a positive solution to depression. Promising protection and prosperity to every economic sector, he won a smashing victory. The Republicans rushed through the Dingley Tariff in 1897, boosting rates back to the 50 percent level. Democrats responded that the high rates created government sponsored "trusts" (monopolies) and led to higher consumer prices. McKinley won reelection by an even bigger landslide and started talking about a post-tariff era of reciprocal trade agreements. Reciprocity went nowhere; McKinley's vision was a half century too early.
The Republicans split bitterly on the Payne–Aldrich Tariff of 1909. Republican President Theodore Roosevelt (1901–1909) saw the tariff issue was ripping his party apart, so he postponed any consideration of it. The delicate balance flew apart on under Republican William Howard Taft. He campaigned for president in 1908 for tariff "reform", which everyone assumed meant lower rates. The House lowered rates with the Payne Bill, then sent it to the Senate where Nelson Wilmarth Aldrich mobilized high-rate Senators.
Aldrich was a New England businessman and a master of the complexities of the tariff, the Midwestern Republican insurgents were rhetoricians and lawyers who distrusted the special interests and assumed the tariff was "sheer robbery" at the expense of the ordinary consumer. Rural America believed that its superior morality deserved special protection, while the immorality of the trusts—and cities generally—merited financial punishment. Aldrich baited them. His Payne–Aldrich Tariff Act of 1909 lowered the protection on Midwestern farm products, while raising rates favorable to his Northeast.
By 1913 with the new income tax generating revenue, the Democrats in Congress were able to reduce rates with the Underwood Tariff. The outbreak of war in 1914 made the impact of tariffs of much less importance compared to war contracts. When the Republicans returned to power the returned the rates to a high level in the Fordney–McCumber Tariff of 1922. The next raise came with the Smoot–Hawley Tariff Act of 1930 at the start of the Great Depression.
Tariff with Canada.
The Canadian–American Reciprocity Treaty increased trade between 1855 and its ending in 1866. When it ended, Canada turned to tariffs. The National Policy was a Canadian economic program introduced by John A. Macdonald's Conservative Party in 1879 after it returned to power. It had been an official policy, however, since 1876. It was based on high tariffs to protect Canada's manufacturing industry. Macdonald campaigned on the policy in the 1878 election, and handily beat the Liberal Party, which supported free trade.
Efforts to restore free trade with Canada collapsed when Canada rejected a proposed reciprocity treaty in fear of American imperialism in the 1911 federal election. Taft negotiated a reciprocity agreement with Canada, that had the effect of sharply lowering tariffs. Democrats supported the plan but Midwestern Republicans bitterly opposed it. Barnstorming the country for his agreement, Taft undiplomatically pointed to the inevitable integration of the North American economy, and suggested that Canada should come to a "parting of the ways" with Britain. Canada's Conservative Party, under the leadership of Robert Borden, now had an issue to regain power from the low-tariff Liberals. After a surge of pro-imperial anti-Americanism, the Conservatives won.
Ottawa rejected reciprocity, reasserted the National Policy and went to London first for new financial and trade deals. The Payne Aldrich Tariff of 1909 actually changed little and had slight economic impact one way or the other, but the political impact was enormous. The insurgents felt tricked and defeated and swore vengeance against Wall Street and its minions Taft and Aldrich. The insurgency led to a fatal split down the middle in 1912 as the GOP lost its balance wheel.
1913 to present.
Woodrow Wilson made a drastic lowering of tariff rates a major priority for his presidency. The 1913 Underwood Tariff cut rates, but the coming of World War I in 1914 radically revised trade patterns. Reduced trade and, especially, the new revenues generated by the federal income tax (bolstered by the ratification of the Sixteenth Amendment in 1913) made tariffs much less important in terms of economic impact and political rhetoric.
The Wilson administration desired a 'revamping' of the current banking system, "...so that the banks may be the instruments, not the masters, of business and of individual enterprise and initiative.". President Wilson achieved this in the Federal Reserve Act of 1913. Working with the bullish Senator Aldrich and former presidential candidate William Jennings Bryan, he perfected a way to centralize the banking system to allow Congress to closely allocate paper money production. The Federal Reserve Act, with the Sixteenth Amendment of the Constitution, would create a trend of new forms of government funding.
When the Republicans regained power after the war they restored the usual high rates, with the Fordney–McCumber Tariff of 1922. When the Great Depression hit, international trade shrank drastically. The crisis baffled the GOP, and it tried to raise tariffs again with the Smoot–Hawley Tariff Act of 1930. This time it backfired, as Canada, Britain, Germany, France and other industrial countries retaliated with their own tariffs and special, bilateral trade deals.
American imports and exports both went into a tailspin. Franklin D. Roosevelt and the New Dealers made promises about lowering tariffs on a reciprocal country-by-country basis, which they did, hoping this would expand foreign trade, which it did not. Frustrated, they gave much more attention to domestic remedies for the depression. By 1936 the tariff issue had faded from politics, and the revenue it raised was small. In World War II, both tariffs and reciprocity were insignificant compared to trade channeled through Lend-Lease.
Tariffs and Great Depression.
Most economists hold the opinion that the tariff act did not greatly worsen the great depression:
Milton Friedman held the opinion that the Smoot-Hawley tariff of 1930 did not cause the Great Depression. Douglas A. Irwin writes : "most economists, both liberal and conservative, doubt that Smoot Hawley played much of a role in the subsequent contraction."
William Bernstein writes "most economic historians now believe that only a minuscule part of that huge loss of both world GDP and the United States' GDP can be ascribed to the tariff wars "because trade was only nine percent of global output, not enough to account for the seventeen percent drop in GDP following the Crash. He thinks the damage done could not possibly have exceeded 2 percent of world GDP and tariff "didn't even significantly deepen the Great Depression."
Peter Temin, explains a tariff is an expansionary policy, like a devaluation as it diverts demand from foreign to home producers. He notes that exports were 7 percent of GNP in 1929, they fell by 1.5 percent of 1929 GNP in the next two years and the fall was offset by the increase in domestic demand from tariff. He concludes that contrary the popular argument, contractionary effect of the tariff was small.
Nobel laureate Maurice Allais, thinks that tariff was rather helpful in the face of deregulation of competition in the global labor market and excessively loose credit prior to the Crash which, according to him, caused the crisis Financial and banking sectors. He notes higher trade barriers were partly a means to protect domestic demand from deflation and external disturbances. He observes domestic production in the major industrialized countries fell faster than international trade contracted.
If contraction of foreign trade had been the cause of the Depression, Allais argues, the opposite should have occurred. So, the decline in trade between 1929 and 1933 was a consequence of the Depression, not a cause. Most of the trade contraction took place between January 1930 and July 1932, before the introduction of the majority of protectionist measures, excepting limited American measures applied in the summer of 1930. It was the collapse of international liquidity that caused of the contraction of trade.
Trade liberalization.
Tariffs up to the Smoot–Hawley Tariff Act of 1930, were set by Congress after many months of testimony and negotiations. In 1934, the U.S. Congress, in a rare delegation of authority, passed the Reciprocal Tariff Act of 1934, which authorized the executive branch to negotiate bilateral tariff reduction agreements with other countries. The prevailing view then was that trade liberalization may help stimulate economic growth. However, no one country was willing to liberalize unilaterally. Between 1934 and 1945, the executive branch negotiated over 32 bilateral trade liberalization agreements with other countries.
The belief that low tariffs led to a more prosperous country are now the predominant belief with some exceptions. Multilateralism is embodied in the seven tariff reduction rounds that occurred between 1948 and 1994. In each of these "rounds", all General Agreement on Tariffs and Trade (GATT) members came together to negotiate mutually agreeable trade liberalization packages and reciprocal tariff rates. In the Uruguay round in 1994, the World Trade Organization (WTO) was established to help establish uniform tariff rates.
Presently only about 30% of all import goods are subject to tariffs in the United States, the rest are on the free list. The "average" tariffs now charged by the United States are at a historic low. The list of negotiated tariffs are listed on the Harmonized Tariff Schedule as put out by the United States International Trade Commission.
Post World War II.
After the war the U.S. promoted the General Agreement on Tariffs and Trade (GATT) established in 1947, to minimize tariffs and other restrictions, and to liberalize trade among all capitalist countries. In 1995 GATT became the World Trade Organization (WTO); with the collapse of Communism its open markets/low tariff ideology became dominant worldwide in the 1990s.
American industry and labor prospered after World War II, but hard times set in after 1970. For the first time there was stiff competition from low-cost producers around the globe. Many rust belt industries faded or collapsed, especially the manufacture of steel, TV sets, shoes, toys, textiles and clothing. Toyota and Nissan threatened the giant domestic auto industry. In the late 1970s, Detroit and the auto workers union combined to fight for protection. They obtained not high tariffs, but a voluntary restriction of exports from the Japanese government.
Quotas were two-country diplomatic agreements that had the same protective effect as high tariffs, but did not invite retaliation from third countries. By limiting the number of automobiles that could be imported into the USA from Japan, quotas inadvertently helped Japanese companies push into larger, and more expensive market segments. The Japanese producers, limited by the number of cars they could export to America, opted to increase the value of their exports to maintain revenue growth. This action threatened the American producers' historical hold on the mid- and large-size car markets.
Under the Eisenhower, Kennedy, Johnson and Nixon administrations, increasing numbers of Voluntary Export Restraint agreements were also secured with Japan, South Korea, Taiwan, Hong Kong and European countries to avert the application of trade barriers by the US. Products subjected to quotas included textiles, plywood, sewing machines, flatware, tuna, woodscrews, steel, steel and iron products, glass, footwear, and electronics.
The chicken tax was a 1964 response by President Lyndon B. Johnson to tariffs placed by Germany (then West Germany) on importation of US chicken. Beginning in 1962, during the President Kennedy administration, the US accused Europe of unfairly restricting imports of American poultry at the request of West German chicken farmers. Diplomacy failed, and in January 1964, two months after taking office, President Johnson retaliated by imposing a 25 percent tax on all imported light trucks. This directly affected the German built Volkswagen vans.
Officially, it was explained that the light trucks tax would offset the dollar amount of imports of Volkswagen vans from West Germany with the lost American sales of chickens to Europe. But audio tapes from the Johnson White House reveal that in January 1964, President Johnson was attempting to convince United Auto Workers's president Walter Reuther, not to initiate a strike just prior the 1964 election and to support the president's civil rights platform. Reuther in turn wanted Johnson to respond to Volkswagen's increased shipments to the United States.
1980s to present.
During the Reagan and George H. W. Bush administrations Republicans abandoned protectionist policies, and came out against quotas and in favor of the GATT/WTO policy of minimal economic barriers to global trade. Free trade with Canada came about as a result of the Canada–U.S. Free Trade Agreement of 1987, which led in 1994 to the North American Free Trade Agreement (NAFTA). It was based on Reagan's plan to enlarge the scope of the market for American firms to include Canada and Mexico. President Bill Clinton, with strong Republican support in 1993, pushed NAFTA through Congress over the vehement objection of labor unions.
In 2000 Clinton worked with Republicans to give China entry into WTO and "most favored nation" trading status (i.e., the same low tariffs promised to any other WTO member). NAFTA and WTO advocates promoted an optimistic vision of the future, with prosperity to be based on intellectuals skills and managerial know-how more than on routine hand labor. They promised that free trade meant lower prices for consumers.
Opposition to liberalized trade came increasingly from labor unions, who argued that this system also meant lower wages and fewer jobs for American workers who could not compete against wages of less than a dollar an hour. The shrinking size and diminished political clout of these unions repeatedly left them on the losing side. Nevertheless, John Tsang, then Hong Kong's Secretary for Commerce, Industry and Technology and chair of the Sixth Ministerial Conference of the World Trade Organization, MC6, noted in 2005 that the US spent US$20 billion per year on "trade-distorting support".
A large majority of observational studies have found that voters' economic hardships influence their support of protectionism. This was corroborated by 2016 United States presidential election, in which Donald Trump was broadly supported in the Rust Belt. However, experimental studies find that support for protectionism is not sufficiently, or even necessarily, related to an individual's economic circumstances, but instead is deeply rooted in domestic politics.
Despite overall decreases in international tariffs, some tariffs have been more resistant to change. For example, due partially to tariff pressure from the European Common Agricultural Policy, US agricultural subsidies have seen little decrease over the past few decades, even in the face of recent pressure from the WTO during the latest Doha talks.
Support among American politicians.
From 1871 to 1913, "the average U.S. tariff on dutiable imports never fell below 38 percent [and] gross national product (GNP) grew 4.3 percent annually, twice the pace in free trade Britain and well above the U.S. average in the 20th century," notes Alfred Eckes Jr., chairman of the U.S. International Trade Commission under President Reagan.
In 1896, the GOP platform pledged to "renew and emphasize our allegiance to the policy of protection, as the bulwark of American industrial independence, and the foundation of development and prosperity. This true American policy taxes foreign products and encourages home industry. It puts the burden of revenue on foreign goods; it secures the American market for the American producer. It upholds the American standard of wages for the American workingman."
George Washington.
"I use no porter or cheese in my family, but such as is made in America," the inaugural President George Washington wrote, boasting that these domestic products are "of an excellent quality."
One of the first acts of Congress Washington signed was a tariff among whose stated purpose was "the encouragement and protection of manufactures."
In his 1790 State of the Union Address, Washington justified his tariff policy for national security reasons:A free people ought not only to be armed, but disciplined; to which end a uniform and well-digested plan is requisite; and their safety and interest require that they should promote such manufactories as tend to render them independent of others for essential, particularly military, supplies
Thomas Jefferson.
As President Thomas Jefferson wrote in explaining why his views had evolved to favor more protectionist policies: "In so complicated a science as political economy, no one axiom can be laid down as wise and expedient for all times and circumstances, and for their contraries."
After the War of 1812, Jefferson's position began to resemble that of Washington, that some level of protection was necessary to secure the nation's political independence. He said: experience has taught me that manufactures are now as necessary to our independence as to our comfort: and if those who quote me as of a different opinion will keep pace with me in purchasing nothing foreign where an equivalent of domestic fabric can be obtained, without regard to difference of price
Henry Clay.
In 1832, then United States Senator from Kentucky, Henry Clay said about his disdain for "free traders" that "it is not free trade that they are recommending to our acceptance. It is in effect, the British colonial system that we are invited to adopt; and, if their policy prevail, it will lead substantially to the re-colonization of these States, under the commercial dominion of Great Britain."
Clay said:When gentlemen have succeeded in their design of an immediate or gradual destruction of the American System, what is their substitute? Free trade! Free trade! The call for free trade is as unavailing as the cry of a spoiled child, in its nurse's arms, for the moon, or the stars that glitter in the firmament of heaven. It never has existed; it never will exist. Trade implies, at least two parties. To be free, it should be fair, equal and reciprocal.Clay explained that "equal and reciprocal" free trade "never has existed; [and] it never will exist." He warned against practicing "romantic trade philanthropy ... which invokes us to continue to purchase the produce of foreign industry, without regard to the state or prosperity of our own." Clay made clear that he was "utterly and irreconcilably opposed" to trade which would "throw wide open our ports to foreign productions" without reciprocation.
Andrew Jackson.
Henry Clay's longtime rival and political opponent, President Andrew Jackson, in explaining his support for a tariff, wrote: We have been too long subject to the policy of the British merchants. It is time we should become a little more Americanized, and, instead of feeding the paupers and laborers of Europe, feed our own, or else, in a short time, by continuing our present policy, we shall all be paupers ourselves.
James Monroe.
In 1822, President James Monroe observed that "whatever may be the abstract doctrine in favor of unrestricted commerce," the conditions necessary for its success—reciprocity and international peace—"has never occurred and can not be expected." Monroe said, "strong reasons ... impose on us the obligation to cherish and sustain our manufactures."
Abraham Lincoln.
President Abraham Lincoln declared, "Give us a protective tariff and we will have the greatest nation on earth." Lincoln warned that "the abandonment of the protective policy by the American Government ... must produce want and ruin among our people."
Lincoln similarly said that, "if a duty amount to full protection be levied upon an article" that could be produced domestically, "at no distant day, in consequence of such duty," the domestic article "will be sold to our people cheaper than before."
Lincoln argued that based on economies of scale, any temporary increase in costs resulting from a tariff would eventually decrease as the domestic manufacturer produced more.
Lincoln did not see a tariff as a tax on low-income Americans because it would only burden the consumer according to the amount the consumer consumed. By the tariff system, the whole revenue is paid by the consumers of foreign goods ... the burthen of revenue falls almost entirely on the wealthy and luxurious few, while the substantial and laboring many who live at home, and upon home products, go entirely free.
Lincoln argued that a tariff system was less intrusive than domestic taxation: The tariff is the cheaper system, because the duties, being collected in large parcels at a few commercial points, will require comparatively few officers in their collection; while by the direct tax system, the land must be literally covered with assessors and collectors, going forth like swarms of Egyptian locusts, devouring every blade of grass and other green thing.
William McKinley.
President William McKinley supported tariffs and rejected the "cheaper is better" argument:
Under free trade the trader is the master and the producer the slave. Protection is but the law of nature, the law of self-preservation, of self-development, of securing the highest and best destiny of the race of man. [It is said] that protection is immoral. ... Why, if protection builds up and elevates 63,000,000 [the U.S. population] of people, the influence of those 63,000,000 of people elevates the rest of the world. We cannot take a step in the pathway of progress without benefiting mankind everywhere.
They [free traders] say, 'Buy where you can buy the cheapest.' That is one of their maxims ... Of course, that applies to labor as to everything else. Let me give you a maxim that is a thousand times better than that, and it is the protection maxim: 'Buy where you can pay the easiest.' And that spot of earth is where labor wins its highest rewards."They say, if you had not the Protective Tariff things would be a little cheaper. Well, whether a thing is cheap or whether it is dear depends on what we can earn by our daily labor. Free trade cheapens the product by cheapening the producer. Protection cheapens the product by elevating the producer."
"The protective tariff policy of the Republicans ... has made the lives of the masses of our countrymen sweeter and brighter, and has entered the homes of America carrying comfort and cheer and courage. It gives a premium to human energy, and awakens the noblest aspiration in the breasts of men. Our own experience shows that it is the best for our citizenship and our civilization and that it opens up a higher and better destiny for our people."
[Free trade] destroys the dignity and independence of American labor ... It will take away from the people of this country who work for a living—and the majority of them live by the sweat of their faces—it will take from them heart and home and hope. It will be self-destruction."
Theodore Roosevelt.
President Theodore Roosevelt believed that America's economic growth was due to the protective tariffs, which helped the country industrialize. He acknowledged this in his State of the Union address from 1902:The country has acquiesced in the wisdom of the protective-tariff principle. It is exceedingly undesirable that this system should be destroyed or that there should be violent and radical changes therein. Our past experience shows that great prosperity in this country has always come under a protective tariff.
Donald Trump.
Commentators and news outlets have largely called President Donald Trump's economic policies protectionist and generally opposed to free trade. In his first address to a joint session of Congress, Trump said:Currently, when we ship products out of America, many other countries make us pay very high tariffs and taxes. But when foreign companies ship their products into America, we charge them nothing, or almost nothing ... I believe strongly in free trade but it also has to be fair trade.
Public opinion on protectionism and free trade.
Opinions on trade and protectionism have fluctuated since the early 2000s. Opinions recently have decided roughly of partisan lines. In 2017, while 67% of Democrats believe free trade agreements are good for the United States, only 36% of Republicans agree. When asked if free trade has helped respondents specifically, the approval numbers for Democrats drop to 54%, however approval ratings among Republicans remain relatively unchanged at 34%.
The 2016 election marked the beginning of the trend of returning to protectionism, an ideology incorporated into Donald Trump's platform. During the Republican primary, Trump voters had a much more positive view of protectionism and "economic nationalism" than Cruz or Kasich voters. However, after the election there seems to have been a push-back against such sentiments, with an uptick in support for free trade agreements in both parties, with 72% of respondents saying international trade was an opportunity, not a threat.
Scholars, such as Michael J. Hiscox, have argued that public opinion of international trade and protectionism is particularly malleable to political framing because of the complexity of the issue. Due