Phil Gramm and Donald Boudreaux explore the political implications of President Donald Trump’s tariff policy.
The Trump administration is looking for an exit strategy from the most destructive parts of its trade war. The uncertainty is heightening the risk of a recession. Millions of business supply chains have been dismantled. The postwar trading system, responsible for 80 years of peace and prosperity, is in tatters. Some of the damage is irreversible. But if history is any guide, the latest protectionist experiment will soon be over.
While protectionists portray the 18th and 19th centuries as a happy period when Americans prospered behind tariff protections, nothing is further from the truth. Americans have historically hated high tariffs and never suffered them for long. Almost 300 years ago American colonists revolted against repeated British efforts to impose tariffs on American imports. Colonists defied the 1733 Molasses Tariff with widespread smuggling. Crying “taxation without representation,” they mounted a crusade against the 1767-68 Townshend Acts that forced Parliament to repeal them. The Tea Act of 1773 sparked the Boston Tea Party and was effectively repealed at Lexington and Concord.
Under the Articles of Confederation and the Constitution, the U.S. government had no power to tax income until 1913. Throughout the 19th century tariffs supplied 50% to 95% of federal revenue, but government was small and its revenue demands modest.
While Alexander Hamilton wanted to promote manufacturing with subsidies, which Congress opposed, he was skeptical of high tariffs. No revenue is collected on goods that aren’t legally imported, and Hamilton feared that tariffs would encourage domestic inefficiency. The rising demand for revenue to fund public works and a political effort to protect U.S. producers led to the “Tariff of Abominations” in 1828, which imposed an all-time high average tariff rate of 57.3%. In the following elections tariff supporters suffered devastating electoral defeats as Andrew Jackson and the Democrats were swept into power.
