Trump Was Wrong About Tariffs Being Great in the Late 19th Century

Now that Donald Trump is the President-Elect for the upcoming term, we have to brace ourselves for the ramifications of a Trump presidency, both good and bad. One thing that Trump made clear during his campaign is that he would like to raise tariffs even more so than his first term. Trump made statements that he would like to raise tariffs on China at least to 60 percent, as well as 10 percent on all other countries, including allies. As I brought up last month, that would harm small business and the everyday working American because it would cost jobs, decrease personal income, lower the GDP, and make consumer goods more expensive.

Shortly before the election, Trump interviewed with the famous podcaster Joe Rogan. In this interview, Trump floated the idea of eliminating the income tax in favor of tariffs. Trump referred to President William McKinley as "The Tariff King" and posited that the United States was so rich in the late 19th century. There is one minor detail with that assertion - it is historically inaccurate. 

Earlier this month, economists from the University of Sussex and University of California-Davis released a research paper on the National Bureau of Economic Research (NBER) entitled Did Tariffs Make American Manufacturing Great? New Evidence from the Gilded Age (Klein and Meissner, 2024). The economists matched tariff data from 8,300 products with state-level manufacturing from 1870 to 1909. They then used price changes and tariff rates to determine efficacy. Guess what they found? 

The United States was a manufacturing powerhouse in spite of the tariffs, not because of the tariffs. The paper found that industries with higher tariffs had lower productivity, not higher productivity. Furthermore, the tariffs did raise the number of firms, but did so by protecting smaller, less productive firms. As a result, it kept laborers trapped in a job with little to no future. The tariffs of that era increased consumer prices, which lowered living standards for the everyday American. If that were not enough, here is the punch line and bottom line finding of the paper: 

"[We] can, with great certainty, rule out the idea that high tariffs played a strong role in boosting labor productivity in American manufacturing. American productivity leadership, emblematic of this period, was almost certainly not a function of U.S. trade policy and tariffs." 

I am glad to see robust research showing how the protectionist narrative does not withstand scrutiny, but the findings are hardly surprising. The George W. Bush steel tariffs cost the country 200,000 jobs and $4 billion in lost wages. The tariffs from Trump's first term cost the economy $51 billion annually, not to mention reducing wages by 0.14 percent and reducing employment by 166,000 jobs. And then there is the matter of the Smoot-Hawley Tariff Act that hurled the United States into the Great Depression. In its October 2024 World Economic Outlook, the International Monetary Fund (IMF) calculated that global tariffs could reduce the GDP by 0.4 percent in 2025 and 0.6 percent in 2026. If successful, Trump's tariffs would mean increased costs, lower employment, and lower wages for Americans. For all of our sakes, I hope Trump's tariff proposals were nothing more than blustering pandering to win votes.