Economists, generally speaking, maintain a pretty dim view of the effectiveness of tariffs — taxes on goods that are imported from another country — both in general and specifically with regards to President Donald Trump’s recent tariffs.
Tariffs have a long history in this country, dating all the way back to Alexander Hamilton — another figure from the past enjoying a resurgence in popularity — who got Congress to levy tariffs as some of the first federal taxes in 1789 as the nation’s first treasury secretary.
Given that those who don’t learn history are doomed to repeat it, a new trade war with most of our oldest allies and China means it might be time to revisit some notable examples of failed tariffs from the past.
Click through to read about 10 times that tariffs didn’t work out for the economy or the American people.
The Embargo Act
The earliest days of the country saw the U.S. caught between the major European powers during the Napoleonic Wars. Thomas Jefferson was looking for policies that could punish the English — in particular — for their policy of stopping American ships to search for British deserters — better known as impressment. The result was the Embargo Act of 1807, which barred the importation of any goods from Britain or France.
Although the act could be credited with delaying the War of 1812 until, well, 1812, it’s largely viewed as a failure. Plenty of British goods evaded the policy, the British economy was largely unaffected after they simply boosted trade with South America. Napoleon actually preferred the embargo because it supported his Continental System. Jefferson signed the bill repealing the act just before leaving office in 1809.
The Tariff of Abominations
Anything given a title that includes “of abominations” is probably not universally popular, and this tariff is no exception.
The Tariff of 1828 — as its authors might have preferred it be called — was meant to protect agricultural producers in the North and West from imported goods and signed into law by John Quincy Adams. The result was that the cost of living in the South skyrocketed even as industrialists in the North saw profits shrink.
The Embargo of 1809 might have delayed a major war by three years, but the Tariff of Abominations very nearly accelerated one by three decades. Vice President John C. Calhoun of South Carolina would write a well-publicized doctrine in response stating that a state had the right to reject federal laws within its border — prompting a constitutional crisis that very nearly blew up into the Civil War some 30 years prior to Fort Sumter.
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The Morrill Tariff
Of course, the issue of the South relying heavily on imported goods didn’t go away. In fact, the Morrill Tariff of 1861 has been cited by some historians as being a major cause of the Civil War. Although there’s plenty of opposition to that idea from other historians, it is true that the tariff was very unpopular with southerners and was even mentioned during the Secession Convention in Georgia.
Regardless of how large a role it played in sparking the Civil War, the unpopularity of the tariff and the fact that it was signed into law about a month before the conflict started certainly secures its spot in history.
The McKinley Tariff
The McKinley Tariff is named for William McKinley who worked for its passage while serving in the House. Interestingly, one of the motivations was actually to reduce tax revenues — that Republicans, at the time, felt were too high — by reducing trade. However, the four years the tariff was in existence resulted in unemployment tripling, rising prices on consumer goods and a 2 percent annual decrease in per capita GDP.
What it didn’t do, though, was end the political career of William McKinley. He would be elected to the presidency in the election of 1896 despite his commitment to protectionism.
The Payne-Aldrich Tariff
The Payne-Aldrich Tariff of 1909 represented an effort by William Howard Taft to appease the new progressive wing of the Republican Party by cutting tariff rates. Emphasis on effort, though, as protectionist senators ensured that the changes were still favorable to business by the time it left Congress. The end result was a bill that angered progressives by failing to cut rates enough — and raised them on 220 items. It resulted in the rise of the Bull Moose Party that ran Theodore Roosevelt in the 1912 election and potentially cost Taft a second term.
The Fordney-McCumber Tariff
The protectionist policies of many Republicans were still running strong in 1922 when they would pass the Fordney-McCumber Tariff to reverse the lower rates enacted under Democratic President Woodrow Wilson. The rather predictable result was that the tariffs prompted a massive trade war, with 33 general revisions to tariffs across 26 European countries from 1925 to 1929 and another 17 in Latin America.
The tariff war got so severe that the League of Nations got involved, trying and failing to negotiate a truce in 1927. The tariffs continued and did serious damage to American economic interests at home and abroad.
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The Smoot-Hawley Tariff
As failed American tariffs go, the Smoot-Hawley Act of 1930 — which would effectively end a few years after its passage — is the gold standard. Still reeling from the stock market crash in 1929 and the tailspin the economy was in, congressional Republicans would respond to a weak economy in exactly the same way they reacted to a strong one: protectionist tariffs.
Unfortunately for President Herbert Hoover and his party, having the same economic policy for good times and bad rarely works out well. The tariff both sparked a major trade war and failed to halt — or even slow — the onset of the Great Depression.
The Chicken Tax
No, that doesn’t refer to the relative courage of this tariff.
Germany imposed a tariff on chickens from American poultry farmers in the early 1960s, concerned that they were cornering the market. The so-called “Chicken Tax” was a 25 percent tariff on imported light trucks that the Lyndon B. Johnson Administration initiated in response.
Except that’s only part of the story. It’s since come to light that President Johnson was motivated by securing the support of the United Automobile Workers prior to the 1964 election and offered up the tariff in response as American automakers were concerned about the rising popularity of imported German cars. The result has been over 50 years of companies finding ways to skirt the rather dubious law.
Even today, Ford recently came under scrutiny because they avoided a quarter-billion in taxes by simply removing the rear seats to convert imported passenger vans — which are exempt from the tariff — into cargo vans as soon they would arrive in America.
Bush Steel Tariffs
A Republican president trying to salvage the American steel industry is nothing new, it actually happened just 16 years ago under President George W. Bush. That tariff was actually significantly higher than those enacted under Trump — 30 percent to Trump’s 25 — but aside from that, there are a lot of troubling similarities.
The international community reacted with outrage and threatened a series of retaliatory tariffs against American goods. After the World Trade Organization ruled against the U.S., Bush opted to withdraw the policy after just a year and a half rather than face steep taxes on American goods shipped abroad. The end result? One analysis found that about 200,000 Americans lost their jobs because of higher steel prices, 13,000 more than the steel industry employed in its entirety.
Obama Tire Tariffs
Any Democrats smugly looking at recent history and thinking their party has it figured out should probably remember that the most recent tariff failure came under President Barack Obama. After complaints from the United Steelworkers Union about job losses associated with a tripling in the size of tire imports from China from 2004 to 2008, Obama enacted a tariff on imported tires.
And although the issue was real — domestic tire production had fallen by a quarter prior to the tariff — the results were unimpressive. Obama would boast at his 2012 State of the Union that he saved over 1,000 jobs, but an analysis by the Peterson Institute would find that the increased cost in tires for consumers meant that the 1,200 jobs saved came at a cost of almost $1 million apiece.
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About the Author
Joel Anderson is a business and finance writer with over a decade of experience writing about the wide world of finance. Based in Los Angeles, he specializes in writing about the financial markets, stocks, macroeconomic concepts and focuses on helping make complex financial concepts digestible for the retail investor.