The United States has a long history of utilizing tariffs, dating back to its founding in the 18th century. Historically, tariffs served as a primary source of federal revenue, especially between the Civil War and the Great Depression. During this period, they accounted for about 90% or more of federal income. However, the landscape of tariff usage has evolved significantly over the years, especially with President Donald Trump's recent approach to tariffs, which marks a departure from historical norms.
Tariffs were initially crucial for the U.S. economy, generating approximately half of federal revenue from 1860 until the inception of the income tax in 1913. The reliance on tariffs diminished as other forms of taxation, such as excise taxes, emerged, reducing the nation's dependency on tariff-generated income. This shift was further solidified by global trade agreements like the General Agreement on Tariffs and Trade (GATT) in 1948, which paved the way for a new era of trade governed by low tariffs and reciprocity.
Historically, the U.S. implemented tariffs to achieve three main objectives: revenue generation, restriction of imports to protect domestic industries, and reciprocity in trade. The Tariff Act of 1930, known as the Smoot-Hawley Tariff, exemplified the use of tariffs as a protective measure. It imposed levies on about 800 to 900 types of goods, accounting for roughly 25% of all imports into the U.S. This period also saw a significant expansion in government scale due to New Deal programs and defense spending during World War II and the Cold War.
In more recent history, presidents like George W. Bush, Ronald Reagan, and Richard Nixon have used tariffs to shield domestic industries, such as steel manufacturing. The average duty on goods subject to tariffs was relatively low at about 2% to 4% in the 2010s before Trump's first term. This was consistent with the post-World War II era's focus on trade reciprocity and adherence to global trade norms.
However, President Trump's approach to tariffs has sparked considerable discussion among economists and historians. His use of import duties is seen as a significant deviation from established practices.
"What's unusual about Trump is, he's not just picking out particular industries that he thinks are of strategic importance, but he's blocking imports across the board almost with some of these countries." – Irwin
This broad application of tariffs contrasts sharply with previous administrations' more targeted use.
"No president in recent memory has really used tariffs across the board or in a broad-brush way to achieve various objectives," – Irwin
Trump's unilateral tariff announcements have been particularly noteworthy for their scope and impact on international trade dynamics. The U.S.'s participation in global trade agreements like the United States-Mexico-Canada Agreement underscores its commitment to resolving trade disputes through established mechanisms rather than unilateral actions.
"They've sort of adhered to the rule that we belong to the WTO. That means we keep our tariffs low as long as other countries keep their tariffs low." – Irwin
The reciprocal nature of these agreements has generally fostered a cooperative international trade environment. Yet, Trump's tariffs challenge this balance by introducing unpredictability into trade relations.
The use of tariffs as a bargaining chip is not new; however, Trump's approach is seen as unprecedented in its breadth and execution.
"I can't think of any precedent for that," – Cohen
The implications of this strategy are complex, as it is challenging to simultaneously achieve revenue generation, import restriction, and reciprocity through tariffs alone.
"You can't really achieve all three objectives at the same time," – Irwin
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