The Truth About Tariffs: Why the Historical Rationale Falls Short

“Unilateral economic surrender”—that is what the US has been doing far too long, according to President Donald J. Trump. The US has, in his worldview, allowed other countries to exploit its economic system at the expense of US trade and geopolitical heft. Truthfully, the US has not only been the top economic power of the last century, but has also carried significant international clout. It controls the world’s reserve currency, is by far the most prosperous well-populated country, and is unequivocally the largest cultural trendsetter. 

So, what’s the president's deal? Well, “surrender” is apparently his defeatist name for a global order we’ve enjoyed for the better part of the last 100 years—a global order in which the world’s economies specialise and collaborate to produce the goods and services it needs, as efficiently as the market can manage, and free from barriers. With rose-colored glasses, Trump looks in a retro-nostalgic way at the prosperity brought to his country from 19th-century protectionism—a time when economic growth surged as many manufacturing sectors transitioned from their infancy stages alongside the Industrial Revolution. At that time, effective tariffs (taxes on imported goods) of almost 60% worked in tandem with a budding economic engine to create newfound prosperity to most every American. 

But times have changed.

The 21st century is not the 19th century. A unique set of circumstances were presented to politicians in the 1800s. Firstly, Britain’s highly productive but “socially deleterious” living conditions during its Industrial Revolution were seen as a warning sign to US economists like Henry Carey, especially as anti-UK ideology permeated the country. The view of his proponents was that banishing cheap foreign labourers—who had skills which were leagues ahead of what American industry workers had developed—would give American workers more fair and equal wages. Alongside a sense of collective unity against the English, protectionist philosophies began to boom, with legitimate ideological backing. Cutthroat competition and likely nauseating living conditions or measured economic growth that put the peoples’ quality of life first? It was an easy decision. With horror stories of 14 hour work days and labourers being fed foul oat cakes for breakfast, lunch, and dinner from Britain, the American public did not need much convincing. I know that would not be my ideal diet.

The US needing to protect its local industries was a tricky economic spot to be in, but not one primarily of its own making. The British monarchy, which had just lost the Revolutionary War against the Americans, treated their new rival fiercely. They were likely involved in the Panic of 1819, the US’s first real economic crisis, when Britons purportedly “[dumped] cheap English [pottery]” at various American ports, squashing emerging local industry and impoverishing workers. This backdrop formed not only perfect grounds for the public to be moved by the “home market” argument (favouring a closed economy) but also reinforced anti-UK sentiment in the US. Combining anglophobic sentiment, protectionism, and patriotism, Carey convinced Americans that with tariffs, they could be given a fair chance to build up their own industries without cheaper and more developed products muddying the competitive waters. To add the cherry on top, Carey managed to get to the root of US nationalism, “[touting] the U.S. as the only nation capable of true economic self-sufficiency.” 

So, as the US skyrocketed in manufacturing strength throughout the 19th and early 20th century, we can point to protectionism as the golden lever for boosting the economy and self-reliance. But this effect depended on the specific circumstances the US found itself in from the early 1800s. Before having to compete against the best in a fierce international market, of course the US needed a bit of a boost to allow its industry to develop to the standards of Europe’s best, something that would be plain silly to argue for today. Right?

Well, to be fair, we do see a few parallels between that era and today—most notably, modern-day America’s US-first ideology that is sceptical of international cooperation is similar to the 1800s. The US, for example, refused to sign the Kyoto Protocol (a 2005 agreement among industrialised countries to reduce greenhouse gases significantly) and recently pulled out of the Paris Agreement, citing risks of it unfairly burdening the US economy (despite almost every other country having signed or ratified it.) Under Obama, trade deal negotiations with major East Asian industry hubs like Vietnam and Japan were eventually abandoned. They faced massive backlash from labour unions and political heavyweights for abandoning US-first manufacturing and sovereignty (around labour standards and environmental policies.) The explosiveness of increasingly high-tech manufacturing in China does also echo 19th century American politicians’ concerns that international competition jeopardises domestic living standards. Patriotism and unease over ‘unfair’ foreign advantages (like international emissions standards or Chinese manufacturing subsidies) remain very popular areas of discourse today. However, today’s economic circumstances are vastly different, so slapping tariffs on an international trade system designed around a barrier-free exchange of goods is misguided and doesn’t reach Trump’s stated aims. It is far, today, from being a golden lever to save US working conditions or compensate for fierce economic treatment from the US’s global competitors like a couple of centuries ago. 

The one fundamental flaw in modern protectionism then? Our already globalised economy. Among some of the US’s largest manufacturing sectors (electronics, machinery, and autos), around 1/5 to 1/4 of inputs are foreign-made with 10% of all other manufacturing inputs being imported on average. Even for some of the domestically manufactured products considered quintessentially American, such as the Ford F-150 (the best-selling vehicle in the US for nearly the past 50 years), core components cross borders numerous times before ending up in a US assembly plant. An F-150’s transmission, for example, crosses national boundaries 7 times, 3 of which go into the US, and are now subject to the new tariffs (25% in this case). As a result, even if Trump were attempting to improve prospects of a US manufacturing comeback, getting in the way of economic systems which have developed to be as efficient as possible (a transmission housing is cast most cheaply in Mexico and a torque converter is manufactured masterfully and precisely in Canada for example) hurts domestic manufacturing and forces corporations to pass higher costs onto consumers. 

The US was once very disadvantaged, with the British being a better part of a century ahead of the US economically and intentionally subverting American progress, leaving room for Americans to give their economy a little boost to not be squashed by the ferocious competition. But today, the US benefits massively from international manufacturing that supplies its highly specialised production, far more cheaply than it could dream of offering for itself. 

One frequent argument for Trump’s protectionist policies is by instituting tariffs, he’s courting his sour rural voters who have lost manufacturing and mining jobs by the millions in recent decades. The thought is that he’s playing the long game by instituting tariffs, and that more corporations will set up factories in the US and bring back jobs. While that is true in a few isolated instances, Trump’s term is only 4 years long. Odds aren’t that his successor will keep up his approach. So, while the US is as America-first as ever, it risks undermining its own economic stability by clinging to outdated protectionism. On the net, the US far from “unilaterally surrenders”—if anything, it is surrendering itself by tariffing itself away from economic stability and any semblance of price competitiveness.