Tariffs: Why We Abandoned Them

Since the U.S. was founded, politicians debated the virtues of free trade versus protective tariffs. Historically, the industrial North manufactured goods and advocated the imposition of protective tariffs to make products made in Europe more expensive than our own. On the other hand, the agricultural South desired reciprocal free trade, because they had no industry to protect, and wanted to export cotton and tobacco, without facing retaliatory tariffs.

Alexander Hamilton argued infant American industries needed protection to give them time to develop and compete against more established European companies. After the American Revolution, President Washington approved a Congressional Act that placed tariffs on foreign goods (1789). Presidents Madison, Monroe, and John Q. Adams, also signed laws protecting American industries.

Southern Democrats were able to lower tariffs, at least before the Civil War. Andrew Jackson was the first President to openly support free trade (1828) and Presidents Tyler (1841-45), Polk (1846), and Buchanan (1857), vetoed and reduced them.

President Lincoln, an Illinois Republican, promoted industrial growth, and favored tariffs in the 1860 election, causing the South to secede, and triggering the American Civil War (1861-65).

After the war, tariffs became the norm in U.S. trade for the next seven decades. President Harrison, a Northern Republican, raised them to new highs, under the McKinley Act (1890). Ohio Republicans, Taft (1909) and Harding (1922) also increased them.

Following the 1929 Stock Market crash, President Hoover, an Iowa Republican, believed more protection was the answer, as he signed the Smoot-Hawley Tariff Act (1930), raising U.S. import duties 60%, to an all-time high. This caused foreigners to impose retaliatory duties, reduced international trade, and exacerbated the Great Depression. When it became clear high tariffs were making the depression even worse, policy makers turned to free trade economists for answers.

Economists explained that tariffs on imported goods caused retail prices to rise, as they were simply added to the cost of the goods sold. Consumers, not foreign manufacturers, ultimately ended up paying tariffs. Economists argued they created a net societal loss.

They also explained that when nations use tariffs, other countries respond by enacting retaliatory tariffs, which negatively affect exports. If for example the U.S. placed tariffs on French wine, and France retaliated by imposing duties on the import of U.S. autos, the export industries in both nations would lose.

Since the Great Depression, the U.S. has been involved in a long march away from protective tariffs and towards free trade. President Franklin Roosevelt set the U.S. on a new course, by signing the Reciprocal Trade Agreements Act (1934), which delegated to him the authority to lower tariffs, product by product.

For the past 75 years, both political parties have embraced free trade, because they fear tariffs decrease international trade, harm national export industries, and hurt domestic consumers, with higher prices. What they have ignored is the other side of the coin. The abandonment of tariffs also explains why U.S. factories have been closing, and why American workers are losing their jobs.