Robert W. Merry, longtime Washington, D.C. journalist and publishing executive, is editor of The American Conservative. His latest book, President McKinley: Architect of the American Century, was released in September.
America’s Tumultuous History With Tariffs
America’s first great protectionist political figure was Alexander Hamilton, George Washington’s treasury secretary. And compared to later mercantilist politicians in our history, Hamilton wasn’t even that much of a protectionist. His original U.S. tariff bill imposed an average taxation level of just 8.5 percent on imported goods. And Hamilton argued that any protection encompassed in those duties, as opposed to revenue requirements, should be discontinued as soon as protected industries established themselves in the American economy.
Hamilton’s opponents, the early American free traders, feared he had created a monster, while northeastern industrialists, particularly in Pennsylvania, predictably argued that protection should be substantial and permanent to ensure national prosperity.
Therein lay the first stirrings of the great trade debate that has reverberated through our history, down to our own time and to President Trump’s announcement last week that he intends to slap protective tariffs on imported steel and aluminum. Thus do we have the first president since Herbert Hoover who has explicitly placed protectionist sentiments at the heart of his economic philosophy.
Whether Trump’s tariff policy is the right medicine for what ails the American economy is an open question. But it certainly shines a spotlight on the hollowing out of America’s industrial base and the consequent powerful hit absorbed by the country’s working classes. In 1965, manufacturing represented 53 percent of the U.S. economy; by 1988 that was down to 39 percent; by 2004 it had fallen below 10 percent. In the 1970s, according to The Economist, manufacturing employment constituted 25 percent of U.S. jobs; today it is less than 10 percent. These trends reveal serious hardship, particularly in the old industrial heartland of the Midwest, and that translates into frustration and anger. Trump’s emerging trade outlook is designed in part to address these powerful political sentiments.
The protectionists of the country’s early decades—Hamilton and his ideological heirs—advocated centralized executive power wielded by elites in the service of economic expansion and national greatness. They favored federal-level projects and policies—particularly a powerful national bank and protective tariffs to help budding manufacturers and finance federal action—to pull up the nation from above. This was the model later embraced by Henry Clay and his Whigs, who crafted a philosophy of government—called the “American System”—that included federal public works such as roads, bridges, and canals. And always there was the call for high tariffs to pay for civic programs and boost industrial expansion.
No one abhorred this governmental philosophy more ardently than Thomas Jefferson, who opposed high levels of governmental intrusiveness into the private economy. Such policies, he argued, would inevitably lead to special privileges for the favored few. He wanted to keep tax levels as low as possible and reduce federal interference so the people could build up the nation from below. Jefferson’s arguments were later taken up in powerful ways by Andrew Jackson.
The Hamilton-Clay forces won the first round in the tariff wars, with passage during the John Quincy Adams administration of legislation that slapped high duties on iron, molasses, distilled spirits, flax, and various finished goods. Northerners loved it, while Southerners hated it, because it raised prices on necessities not produced in the South and because it crimped Britain’s ability to purchase Southern cotton by squeezing the importation of British goods. Southerners called Adams’s import tax the “Tariff of Abominations.”
Whereas before the Adams presidency average tariff payments generally fluctuated between 16 and 26 percent, afterward the levies typically reached 50 percent. Following Andrew Jackson’s attempt to allay Southern anger with some modest tariff reforms, average tariff rates hovered around 35 percent.
Then came James K. Polk to the presidency in 1845. Polk, probably the greatest free-trade president of our history, reduced average tariff rates to between 20 and 28 percent. Those rates generally held until the Civil War, when revenue needs eviscerated free-trade arguments. After the war, the Republican Party, the party of burgeoning industry, continued the high-tariff cry as a means of maintaining the industrial expansion. Average tariff rates hovered around 40 percent in the postwar years.
Democrats didn’t have much leverage in those decades, but they did manage to elevate Grover Cleveland to the presidency in 1884 and 1892. During Cleveland’s first term, he managed to get a tariff-reduction bill through the House, but the Republican-controlled Senate boxed it in. Then two things happened to break the deadlock: Benjamin Harrison was elected president in 1888, and William McKinley, congressman from Ohio, became chairman of the House Ways and Means Committee.
With Harrison’s blessing, McKinley set about crafting the most comprehensive tariff bill the country had ever seen up to that time, encompassing some four thousand separate items. So earnest was McKinley in supporting protectionism that the famous progressive writer Ida Tarbell resorted to ridicule in describing him. He had an advantage, she said, “which few of his colleagues enjoyed—that of believing with childlike faith that all he claimed for protection was true.” McKinley even sought to raise tariff rates on some items to preclude any importation of them at all, including woolens, higher-grade cottons, cotton knits, linens, stockings, earthen and china ware, and all iron, steel, and metal products. He also placed duties for the first time on agricultural products. “This bill is an American bill,” said McKinley. “It is made for the American people and American interests.”
The crusty Representative Roger Mills of Texas, however, rejected the idea that market constrictions could generate prosperity. International trade, he argued, was like any other human transaction. To get something you must give something. So it was with the foreigner who wants to sell his products: “Let in his cotton, woolens, wool, ores, coal, pig-iron, fruits, sugar, coffee, tea—let all these things come into the country, because when you do that something has to go out to pay for them…. That will create a demand for that American product.”
But McKinley and the Republicans had the votes, and the so-called McKinley Tariff became law. When Cleveland got elected a second time, he promptly brought down the McKinley rates, but McKinley prevailed at the next presidential election and promptly restored them to their previous levels.
Then an interesting thing happened to McKinley the Protectionist. He began to see that America’s industrial and agricultural productivity was outstripping American markets. Ongoing prosperity would require more and more foreign markets, whose emergence would be constricted by protectionism. As President McKinley embraced a new doctrine designed to foster international trade where, in his view, domestic manufacturers were not harmed. He dubbed the new approach “reciprocity” and defined it as an extensive series of negotiated tariff-reduction deals with other countries. The goal was to eliminate unnecessary trade barriers on both sides of trade deals—without generating fears of resulting trade wars.
McKinley outlined this heady new concept in September 1901 at the Pan-American Exposition in Buffalo. “Reciprocity,” he said, “is the natural outgrowth of our wonderful industrial development.” In another passage, he said, “Isolation is no longer possible or desirable.” The next day he was assassinated.
His successor, Theodore Roosevelt, abandoned reciprocity in favor of traditional Republican protectionism. But the fluctuations in trade policy would continue, with Woodrow Wilson building a consensus for reduced rates that would last through the heady post-World War I period. Then came the Great Depression and the disastrous Smoot-Hawley Tariff of 1930, which raised duties on some 20,000 imported goods, in some instances to record levels. Many economic historians believe this legislation deepened and lengthened the Great Depression.
If so, it also contributed to the political eclipse of the Republican Party and its traditional protectionism. With Democrats now enjoying a commanding position in American politics, tariff rates began a steady decline that would last for decades. A free-trade consensus prevailed, even among Republicans. The General Agreement on Tariffs and Trade (GATT) was established in 1947 to reduce trade barriers and promote unfettered trade among capitalist nations. In 1995, that organization became the World Trade Organization. This regimen of open markets and low tariffs dominated worldwide commerce through the postwar era, including the period following the collapse of Soviet communism.
But protectionist sentiments bubbled up from time to time, most notably in the 1980s when Japanese industrial production battered various American manufacturers, starting with electronic appliances and eventually slamming U.S. automakers and their workers. It was a serious matter, both politically and economically. U.S. factories were being shut down, workers laid off, industrial towns and cities devastated. Labor unions clamored for some kind of protection.
President Reagan, far more deft on far more issues than he has received credit for, crafted an approach that precluded the blunt instrument of the old-fashioned tariff. Instead he worked towards voluntary restrictions based on import quotas arrived at through diplomatic agreements (not unlike McKinley’s reciprocity concept). As the Wall Street Journal’s Holman W. Jenkins Jr. wrote the other day, Reagan “slapped import quotas on cars, motorcycles, forklifts, memory chips, color TVs, machine tools, textiles, steel, Canadian lumber and mushrooms. There was no market meltdown.” There also were no trade wars.
That was before, as Jenkins notes, the rise of China (far more ominous than Japan’s industrial emergence in the 1970s and ‘80s) and before “the globalization of the world’s assembly line.” But Reagan’s approach reflected an appreciation for the sensitive nature of the trade issue and the need to mesh the imperatives of international commerce with the requirement of assuaging domestic political anger. That required finesse.
The fluctuating history of U.S. trade policy demonstrates that, while this issue may seem settled for extended periods, it will never remain under control indefinitely. The decline of industrial America, and the devastation it has wreaked in so many heartland areas of the country, has spawned a powerful backlash that contributed to the election of Donald Trump.
Whether Trump’s old-fashioned tariff approach can reverse that devastation and revive America’s industrial capacity remains an open question. But it seems clear that, if he can’t find a way to incorporate some of the reciprocity thinking of William McKinley and Ronald Reagan, he will almost surely fail.