Arguably the biggest economic topic in the news right now is tariffs.  Over the last few months we have touched base on trade wars, but we thought it would be interesting to look back at the history of tariffs.

It’s hard to think about a time when the United States wasn’t a world leader but obviously that hasn’t always been the case.  After the Revolutionary War, the then United Colonies of America struggled to find the right balance after gaining their independence from Great Britain.  It wasn’t until the Constitution was ratified in 1787 that the United States as we know them came into existence.  Still frightened of the superpowers in Europe the US adopted policies of Isolationism and Protectionism. Through Isolationism the US sought to focus on domestic affairs and through Protectionism they attempted to build the economic independence by restricting imports, primarily through tariffs. 

One of George Washington’s first bills was the Tariff Act of 1789.  Most goods were subject to a 5% tariff, but in some cases, they went as high as 50%.  The act was designed to raise money for the new federal government and to protect American industries from foreign competition, especially whilst recovering from the aftermath of the war.  This was the first of many tariffs passed by congress over the next 150 years.  They have always been a controversial topic though.  Leading up to the Civil War the North continued to prefer higher tariffs to protect budding industries while the South opposed them. Eventually the discord played a part in two sides going to war.  In order to continue to fund the war efforts Lincoln ratcheted up tariffs.

Tariffs were crucially important during those 120 plus years because it was the main source of revenue for the federal government, but after the passing the Revenue Act of 1913 the government had a new source of income… income tax.  Tariffs started to become less and less a staple of the US economy until the Great Depression, when as a “Hail Mary” to right the economy, the government passed the Smoot Hawley Tariff in 1930.  Unfortunately, this only exacerbated the global depression.  After World War Two the government had all but abandoned their policies of Isolationism and Protectionism.  The US was no longer the little brother, but a world power in its own right.  The economy had become a juggernaut and American companies dominated the international stage. Over the next 60 years the US pushed to lower trade barriers and promote global trade through actions like the North American Free Trade Agreement or NAFTA which removes all tariffs on goods exchanged between the US, Canada and Mexico.

After such a long time of promoting free trade, using tariffs again to steer the economy may seem a dramatic move. However, looking at the history of their role in our nation’s economic past can help put today’s policies in perspective.  I know this probably wasn’t what you were expecting from a Word on Tariffs and you surely didn’t sign up for a history lesson, but I had a lot of fun writing this. As some of you may know my original passion was history and becoming a history teacher was dream job.  So I hope you enjoy this at least a little bit.