Episode 4: Tariffs: The Good, the Bad, and the Ugly

WEBVTT

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The Trade Act of 1974, which I'm signing into law today,

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demonstrates our deep commitment to an open world economic order and interdependence

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as essential conditions of mutual economic health.

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Imposing such tariffs or trade barriers and restrictions of any kind are steps

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that I am loathe to take, that over the long run, such trade barriers hurt every

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American worker and consumer.

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In a few moments, I will sign a historic executive order instituting reciprocal

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tariffs on countries throughout the world.

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The Supreme Court struck down most of President Trump's global tariffs today

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in a 6-3 decision that is a major blow to his economic agenda. Tariffs.

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What are they and why are they such a big political issue?

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What's the purpose of tariffs and do they work?

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What does the Constitution actually say on the issue? tariffs the good the bad

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and the ugly on this episode of history you can use.

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Welcome to History You Can Use. I'm Brian Thomas. Tariffs.

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I'm willing to bet most Americans, and maybe many of our friends overseas,

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never thought much about them until January of 2025.

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That's when President Donald Trump began implementing them, or more accurately,

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increasing them, seemingly at will shortly after he took office.

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But what exactly are they, and what's their purpose?

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Do they help or hurt the economy?

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Is it possible they do both? Were tariffs even a consideration by the framers

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when they wrote the Constitution?

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Our search for answers begins in the colonial era and in the revolutionary powder

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keg of Boston, Massachusetts.

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Welcome to the Boston Tea Party. It's a story that's embedded in American lore.

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Patriots, or at least soon-to-be Patriots, boarded three ships one night in

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Boston Harbor and dumped over 340 chests of tea into the chilly waters.

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The ruined tea was worth more than 18,000 pounds, roughly $3 million today.

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And yes, some of the rioters did dress up as American Indians,

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but it was mostly to conceal their own identities.

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They didn't actually think the British would believe American Indians were the culprits.

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Nonetheless, the organizers and participants were well known throughout the city of only 15,000.

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It was a very poorly guarded secret.

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But why did they target T.

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Well, for a few reasons. As you probably know, the British, still to this day,

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love their tea. Do you fancy a cup of tea?

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And the colonists were British subjects who likewise enjoyed their tea.

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In short, there was a market for it. Also, while previously imposed taxes,

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such as the Stamp Act, had been repealed by the British in response to colonial

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protests, tea was a special case.

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In 1773, the government in London imposed the Tea Act, which,

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among other things, required a duty to be paid any time tea was offloaded in the colonies.

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In other words, importers who brought the tea into the colonies were required

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to pay a fee to the government for the privilege of unloading that tea and bringing it to market.

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This is the definition of a tariff.

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Now, the reason for the Tea Act was that Britain's East India Company was in

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financial trouble because of a huge stockpile of unsold tea.

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You can think of the East India Company as the British government's semi-official

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business arm that directly benefited the government and personally enriched many of its ministers.

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The Tea Act also granted the East India Company an exclusive monopoly for tea trade in the colonies,

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removing other suppliers, and allowed them to appoint their own middlemen instead

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of dealing with wealthy and powerful colonial merchants like John Hancock.

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So according to the British Crown, colonists could only buy tea from the East India Company,

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who used their own people to import it into the colonies and then paid the British

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government a tariff when their people offloaded the tea at colonial harbors.

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Of course, the cost of paying the tariff would be passed along to the tea-drinking

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consumer when they purchased the tea as a way for the East India Company to

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recoup the cost of the tariffs.

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Did you follow that? a portion of the money colonists paid to purchase the tea

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was passed on to the British government.

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In other words, the tariff was effectively a tax on the people.

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It's not hard to see that everyone from the common tea-drinking colonists to

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the wealthy merchant being cut out of the tea trade hated the Tea Act,

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and they weren't about to take this lying down.

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Thanks to those powerful merchants and angry citizens, many ships arriving in

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North American harbors with imported

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tea never unloaded their cargo and therefore never paid the tariff.

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They sat docked in port cities for days and sometimes weeks before sailing back to London.

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In December 1773, one of those three ships in Boston Harbor had been stranded

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for weeks as Samuel Adams, John Hancock, and other Sons of Liberty organized

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to effectively block its unloading. Loading.

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Nonetheless, the royal governor of Massachusetts, who personally benefited from

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the tariffs, attempted to force the ship's captain to pay the tariff before

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allowing his still fully loaded ship to leave the harbor.

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As a dramatic act of defiance against the governor and, by extension,

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the British crown, well, you know the rest, the Bostonians had a party.

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The Boston Tea Party set in motion a string of events.

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For one, American colonists began exploring a suitable alternative to tea,

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another hot brown beverage with a distinctive taste that wasn't subject to the Tea Act, coffee.

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That's right, Starbucks lovers, you can thank the Tea Act of 1773 in an indirect

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way for the American love affair with coffee and that iced caramel macchiato.

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The rise of coffee was aided by a concerted effort to boycott East India Company Tea,

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a form of protest that became more prominent after Britain imposed the Coercive

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Acts of 1774, or what the colonists called the Intolerable Acts.

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This series of laws was designed to coerce the wayward New England colonies

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into submission and force them to pay the full cost of the ruined tea from the Boston Tea Party.

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Instead, they led directly to open revolt within a year, a revolt that spread

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to the other colonies and is now remembered to history as the American Revolution.

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In a way, American independence has at least part of its roots in a protest

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against a government-imposed tariff.

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The Articles of Confederation that loosely bound together the original 13 states

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were, let's just say, less than ideal.

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The national government, embodied by the Continental Congress,

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which led the nation through the revolution, had incurred debts throughout the

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war, including loans from foreign countries.

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But the Articles did not give the Continental Congress the power to levy taxes,

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and they had to rely on the states to willfully pay their part of the national expenses.

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And I emphasize the word willfully.

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There was simply no way to compel the individual states to pony up their share.

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Some states did, and some didn't. Some paid

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the full amount charged While others paid only a part of what was due And there

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was no central authority Directing the nation's economy Each individual state

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Had its own economic resources and needs Meaning They each had their own economic

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goals And developed policies to achieve those goals,

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Included within those states' rights Was the ability to regulate commerce And

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to handle trade relationships tips.

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The tariff became one of the best tools available to the states in regulating

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foreign trade. Take, for instance, the iron industry.

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By the time the U.S. achieved its independence, Britain was in the boom of their

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industrial revolution.

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They produced some of the world's finest iron products and could produce them

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at scale in their foundries.

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During the colonial era, Britain had restricted the development of such facilities

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in North America to protect their efforts back home, meaning American forges

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simply were not as developed and did not have the capacity to compete.

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As a result, Britain was able to offer those products at far cheaper rates.

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The price on British iron products threatened to stunt the development of the

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American iron industry.

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I mean, who's going to get into this business if people are more likely to buy

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from a competitor whose product was of a high quality and cheaper?

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The solution, impose a tariff that increased the cost of British products,

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which might then give American producers the upper hand or at least level the playing field.

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That's right. The explicit goal of these tariffs was to raise the price for

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consumers, your average American, on foreign products to protect American companies.

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Of course, the Continental Congress recognized that implementing a nationwide

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tariff might generate revenue for the national government and was one potential

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solution to the country's financial problems.

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But an effort in 1781 to allow the Continental Congress to enact a tariff failed miserably.

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States were simply not willing to surrender this power to the national government.

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Some states, such as Massachusetts and Pennsylvania, had enacted their own tariffs

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and their revenue went straight into the state's treasuries.

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It was easy for those states, given their bustling harbors. For other states,

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however, it wasn't that easy.

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Name a vital port city in either North Carolina or Delaware.

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Yeah, for those states, a tariff on imported goods wasn't going to do much.

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Sorry, North Carolina and Delaware, but you have to find other ways to raise revenue.

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Given that Britain did its best to restrict the development of the new country's

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economy, hoping still yet to break the young confederation, pitting the states

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against each other in the world

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of international commerce was just good strategy. And the states obliged.

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Not only did they impose tariffs on each other, but they also frequently changed

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their rates in attempts to undercut lower rates from other states.

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In 1786, you could import shoes into New Hampshire and pay a tariff of only

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2.5%. But next door in Massachusetts, the tariff on shoes was 5%.

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While farther south in Rhode Island, it was a whopping 20%.

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As another example, let's take a look at, oh, how about beer?

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New Hampshire had a very sensible tariff of only 5% on beer.

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While in Rhode Island, it was 10%. And in Massachusetts, it was tough to be

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a beer importer with a duty rate of a staggering 22.5%.

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Three New England states with wildly different tariff rates.

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You can see how having 13 different approaches to economic development wasn't

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going to work very well for the nation as a whole.

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Throughout the 1780s, the national economy was growing slowly,

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but the perception by many was that the economy was stagnant.

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Debt was not being retired and the young country was failing.

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A new form of government was needed.

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The Articles of Confederation resulted in several problems, but economics was

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one of the most pronounced, and the framers of the new Constitution sought to address this concern.

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The first Article of the Constitution deals with the construction and power

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of the legislative branch, which the framers intended to be the most powerful of the three branches.

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Section 8 of Article 1 clearly states, and I quote, The Congress shall have

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the power to lay and collect taxes, duties,

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imposts, and excises, to pay the debts and provide for the common defense and

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general welfare of the United States.

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But all duties, imposts, and excises shall be uniform throughout the United States. End quote.

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Although the word tariff does not appear in that section, The phrase,

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all duties, imposts, and excises, captures practically all forms of taxation, including tariffs.

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Trying to keep straight all these different forms of taxes and fees can make your head spin.

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Suffice to say, the framers used broad terms to be more encompassing of the

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different types of taxes, whereas tariff is a term that's more specific,

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though clearly contained within the terms used by the framers.

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Alexander Hamilton, who focused his efforts on the new country's economic system,

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spearheaded the financial aspects of the Constitution.

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He justified giving this new power to the federal government and consequently

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stripping it from state governments.

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Money is with propriety considered as the vital principle of the body politic,

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as that which sustains its life in motion and enables it to perform its most

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essential functions. Translation?

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Governments can't function without money.

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Therefore, the federal government must be given a way to raise revenue.

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Hamilton goes on to directly identify the type of taxation powers he sought

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to give to the federal government, and took a backhanded swing at his rivals in the process.

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The more intelligent adversaries of the new constitution admit the force of

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this reasoning, but they qualify their admission by a distinction between what

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they call internal and external taxation.

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The former they would reserve to the state governments. The latter,

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which they explain into commercial imposts or rather duties on imported articles,

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they declare themselves willing to concede to the federal head.

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Hamilton's reference to more intelligent adversaries was meant to dismiss those

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who outright opposed the new constitution by saying they weren't very smart.

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You have to admire the way these guys threw insults.

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The rest of his comments were meant to distinguish taxes raised on activities

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occurring strictly within the country,

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or internal taxation, and what he called duties on imported articles, or external taxation.

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This form of external taxation is the tariff, and Hamilton suggests that the

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more intelligent adversaries concede that the ability to enact tariffs should

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lay with the federal government.

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The new Constitution, complete with its provisions giving Congress the power

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to levy and collect tariffs at a uniform rate across the states,

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was ratified in June of 1788 and the first Congress met in March of 1789.

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Solving those pesky economic problems was at the top of the agenda for the new government.

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The tariff became one of the first tools wielded by the Congress.

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The Tariff Act of 1789, the first major piece of legislation passed by the U.S.

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Congress, was signed into law by President George Washington on the 4th of July,

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a date specifically chosen for its symbolic importance.

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I guess you could say tariffs were viewed as patriotic, or maybe it was just

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the pride of having a functioning national government.

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The bill's quick passage doesn't mean it wasn't controversial.

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Everyone agreed it was needed, but the devil was in the details.

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James Madison, who was steering the bill in the House of Representatives,

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proposed higher rates be applied to Britain than to France.

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Part of the reason was that Britain already charged high rates on American goods,

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and so turnabout's fair play.

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Perhaps raising a high tariff would provoke a trade war with Britain and force

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a trade agreement between the two countries that would ultimately be a positive

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development for the American economy.

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But Madison was not to have his way.

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Alexander Hamilton emphasized that Britain was the United States' most important

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trade partner, and a trade war would devastate the developing American economy.

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The Senate refused to allow the differential tariff rates, removed them from

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the bill, and sent it back to the House where it was passed.

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The first section of the Tariff Act of 1789 explicitly defined the purpose of

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the act as, quote, the discharge of the debts of the United States and the encouragement

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and protection of manufacturers, end quote.

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Several different goods and the rates associated with their importation were explicitly listed.

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Wine, beer, and spirits ranged from 5 to 18 cents per gallon.

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Iron products were taxed at 7.5% of their value, and we could go on.

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The rates differed because Congress wanted to, quote-unquote,

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encourage and protect manufacturers, and some American industries needed more

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protection than others.

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But then there's that other listed purpose of the tariff, the discharge of the

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debts of the United States.

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Put another way, the act was meant to raise funds for the national government.

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But remember what we said earlier about who actually pays the cost of the tariffs.

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The American merchant who purchased that Madeira wine, pair of shoes,

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or pound of tea, was forced to pay the tariff to the government to offload it from the ships.

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And then the price of that tariff was factored into the cost of doing business,

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which directly impacted the price consumers paid at the market.

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In the days before income taxes, the U.S.

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Government essentially extracted tax revenue from the American public indirectly through tariffs.

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It was an effective approach and almost single-handedly funded the federal government.

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By 1800, 94%, yes, 94% of all federal revenue was collected from tariffs.

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But the tariff burden didn't fall equally on all parts of the country,

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and arguments about who bore the brunt of tariffs was going to test the strength of national unity.

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Tariff rates tended to fluctuate over the next few decades based on various

00:20:07.677 --> 00:20:11.077
developments with the national economy and global events.

00:20:11.697 --> 00:20:16.417
The important thing to remember for this next discussion is just how diverse

00:20:16.417 --> 00:20:19.097
and regional the American economy was.

00:20:19.877 --> 00:20:24.277
In New England, textiles and manufacturing were becoming big business.

00:20:24.717 --> 00:20:29.917
In the mid-Atlantic states, like New York, commerce and trade emerged as a primary

00:20:29.917 --> 00:20:31.757
driver of the local economy.

00:20:32.157 --> 00:20:37.457
And in the southern states, slave-reliant agriculture, primarily cotton,

00:20:38.057 --> 00:20:40.037
dominated political decision-making.

00:20:40.937 --> 00:20:44.717
This economic diversity was both a blessing and a curse.

00:20:45.197 --> 00:20:49.617
The country was capable of producing for itself many of its needed goods and

00:20:49.617 --> 00:20:54.437
crops, but federal policy, established by the politicians in Washington,

00:20:55.317 --> 00:20:59.737
had to consider multiple and sometimes competing regional interests.

00:21:00.177 --> 00:21:05.097
During the War of 1812, when trade with Britain practically ceased,

00:21:05.357 --> 00:21:10.857
given we were fighting a war against them, the American economy became more self-reliant.

00:21:11.217 --> 00:21:15.897
For example, cotton producers in the South were forced to send most of their

00:21:15.897 --> 00:21:20.777
crop to New England for the textile mills, reducing both exports of cotton to

00:21:20.777 --> 00:21:23.637
Britain and imports of British clothing.

00:21:24.608 --> 00:21:29.128
When the war was over, Britain attempted to reassert its economic dominance

00:21:29.128 --> 00:21:32.228
by offering lower-cost products in the U.S.

00:21:32.608 --> 00:21:35.688
In response, the Tariff of 1816.

00:21:36.188 --> 00:21:40.808
It was decidedly protectionist, raising the duty on imported cotton,

00:21:41.008 --> 00:21:44.608
which protected the South by preventing a drop in cotton prices.

00:21:44.928 --> 00:21:49.908
It also increased the tariff on iron and clothing, protecting New England manufacturing.

00:21:50.828 --> 00:21:56.508
The tariff effectively prevented Britain from undercutting the price of American goods and crops.

00:21:57.088 --> 00:22:00.968
Over the course of the next decade, though, things changed.

00:22:01.528 --> 00:22:05.228
Remember, the impact of tariffs is a two-way street.

00:22:06.148 --> 00:22:09.168
They keep the prices of goods higher than they might be without them,

00:22:09.368 --> 00:22:11.648
which benefits the businesses and producers.

00:22:12.128 --> 00:22:16.168
But it also means consumers are paying more money at the stores.

00:22:16.988 --> 00:22:22.508
Throughout the 1820s, attempts to broker trade deals with Britain largely failed,

00:22:22.568 --> 00:22:25.008
and when tariffs imposed by the U.S.

00:22:25.128 --> 00:22:30.048
Expired, New England again began feeling the effects of cheaply priced British

00:22:30.048 --> 00:22:35.868
goods flowing in, resulting in Washington reinstating and increasing tariff rates.

00:22:36.108 --> 00:22:38.968
The South, however, was in a bad spot.

00:22:39.308 --> 00:22:43.228
Importing manufactured goods, including iron products from Britain,

00:22:43.228 --> 00:22:47.848
were often cheaper than buying them domestically from their countrymen in New England.

00:22:48.168 --> 00:22:51.768
Therefore, the tariffs raised costs for southern planters.

00:22:52.208 --> 00:22:56.888
Plus, the South was starting to produce more cotton than New England could use,

00:22:57.048 --> 00:23:02.168
and continuing to impose the tariffs on British products practically eliminated

00:23:02.168 --> 00:23:07.188
any hope of convincing Britain to lower their already high tariffs that reduced

00:23:07.188 --> 00:23:09.468
the overseas market for American cotton.

00:23:10.538 --> 00:23:14.838
Even foreign observers could see that tariffs were straining the Union.

00:23:15.758 --> 00:23:19.558
Celebrated French writer Alexei de Tocqueville, who traveled the U.S.

00:23:19.598 --> 00:23:25.198
In 1831, said of tariffs, The North attributed a great portion of its prosperity,

00:23:25.438 --> 00:23:28.618
and the South all its sufferings, to this system,

00:23:28.998 --> 00:23:32.918
insomuch that for a long time the tariff was the sole source of the political

00:23:32.918 --> 00:23:35.498
animosities which agitated the Union.

00:23:35.818 --> 00:23:39.318
Okay, Tocqueville uses a certain level of embellishment.

00:23:39.918 --> 00:23:43.178
Tariffs certainly weren't the sole source of political animosities,

00:23:43.478 --> 00:23:46.738
but the point is well taken that they were one of the most obvious.

00:23:47.418 --> 00:23:51.958
Shortly before the Frenchman's arrival, tariffs led to one of the first major

00:23:51.958 --> 00:23:53.998
crises for the still young country.

00:23:54.438 --> 00:24:00.538
For reasons we won't go into here, a proposed tariff in 1828 was a political

00:24:00.538 --> 00:24:04.838
scheme to damage President John Quincy Adams in the hopes of helping Andrew

00:24:04.838 --> 00:24:09.078
Jackson win the upcoming presidential election, which it did.

00:24:09.971 --> 00:24:16.431
The tariff rate in the bill was so high, at 45% for some imported raw materials,

00:24:16.791 --> 00:24:20.971
that the original supporters believed it had no chance of passing Congress.

00:24:21.571 --> 00:24:25.771
To their surprise, however, it passed and was signed into law.

00:24:26.271 --> 00:24:31.011
The Mid-Atlantic and New England states smiled as it protected manufacturing

00:24:31.011 --> 00:24:32.891
and was good for the commercial centers.

00:24:33.231 --> 00:24:38.811
But southern states fumed. They nicknamed it the Tariff of Abominations.

00:24:39.651 --> 00:24:44.211
Jackson's vice president and prominent South Carolinian, John C.

00:24:44.351 --> 00:24:48.891
Calhoun, railed against it and came up with an interesting idea.

00:24:49.111 --> 00:24:53.691
The sovereign powers delegated are divided between the general and state governments,

00:24:53.971 --> 00:24:58.191
and that the latter hold their portion by the same tenure as the former.

00:24:58.511 --> 00:25:03.451
It would seem impossible to deny to the states the right of deciding on the

00:25:03.451 --> 00:25:08.151
infractions of their powers and the proper remedy to be applied for their correction.

00:25:08.151 --> 00:25:14.731
Calhoun is saying that states and the federal government both hold sovereignty and in equal measure.

00:25:15.051 --> 00:25:20.011
In other words, states retain the right to determine for themselves whether

00:25:20.011 --> 00:25:22.571
to follow laws passed in Washington.

00:25:23.191 --> 00:25:28.231
Because if states did not retain that right, then they did not retain their sovereignty.

00:25:29.091 --> 00:25:34.111
Calhoun is arguing that individual states have a constitutional right to nullify

00:25:34.111 --> 00:25:39.491
or cancel out any federal law they feel is damaging to them.

00:25:39.971 --> 00:25:45.811
Therefore, South Carolina had no obligation to collect tariffs at their ports.

00:25:47.429 --> 00:25:51.609
His argument picked up traction in the Palmetto State, and in 1832,

00:25:52.109 --> 00:25:58.069
after the passing of another tariff bill, South Carolina held a nullification convention.

00:25:59.289 --> 00:26:04.429
The delegates declared, quote, it shall not be lawful to enforce payment of

00:26:04.429 --> 00:26:09.329
duties imposed by the said acts within the limits of the state, end quote.

00:26:09.989 --> 00:26:13.829
Yeah, they weren't going to collect the federal tariffs anymore.

00:26:14.709 --> 00:26:20.289
What's more, their declaration stated in clear terms That if the federal government

00:26:20.289 --> 00:26:25.989
attempted to force them to collect the tariffs South Carolina would secede from

00:26:25.989 --> 00:26:29.149
the Union You see where this is going now?

00:26:29.809 --> 00:26:34.969
President Andrew Jackson reinforced federal forts in Charleston Harbor Deployed

00:26:34.969 --> 00:26:39.369
naval ships to the state and ordered the Army to begin military preparations.

00:26:40.409 --> 00:26:44.809
South Carolina looked to their fellow southern states for help but none came.

00:26:45.289 --> 00:26:51.829
Other states criticized South Carolina for creating what was called the nullification crisis.

00:26:52.489 --> 00:26:56.469
The situation was diffused when Congress passed two laws.

00:26:56.869 --> 00:27:01.529
The first granted Jackson the right to use naval vessels to collect the tariffs

00:27:01.529 --> 00:27:06.449
at sea before the cargo ships entered Charleston Harbor, thus rendering South

00:27:06.449 --> 00:27:09.409
Carolina's refusal to collect the tariffs irrelevant.

00:27:10.429 --> 00:27:15.169
The second was a negotiated tariff bill that cut the duty rate in half.

00:27:16.149 --> 00:27:21.649
South Carolina backed down, declared victory, and a potential secession crisis passed.

00:27:22.309 --> 00:27:24.669
Historian Daniel Walker Howe

00:27:24.669 --> 00:27:29.469
nicely characterized the long-term effect of the nullification crisis.

00:27:29.749 --> 00:27:37.549
Quote, Never again would Calhoun's theory of nullification be taken seriously enough to be tried.

00:27:37.989 --> 00:27:43.669
Instead, the doctrine of secession lived on. End quote.

00:27:44.810 --> 00:27:49.470
To finish out this story, South Carolina went on to be the first state to secede

00:27:49.470 --> 00:27:53.530
from the Union in 1860, following the election of Abraham Lincoln.

00:27:54.050 --> 00:27:59.170
By the time Lincoln took office in April of 1861, six other states,

00:27:59.350 --> 00:28:02.170
all in the Deep South, had already left the Union.

00:28:02.930 --> 00:28:06.170
Nonetheless, two days before Lincoln took office,

00:28:06.870 --> 00:28:11.410
outgoing President James Buchanan signed the Morrill Tariff of 1861,

00:28:11.410 --> 00:28:15.930
which again increased the tariff rate, primarily benefiting New England and

00:28:15.930 --> 00:28:20.150
Mid-Atlantic states at the perceived expense of the southern states.

00:28:20.750 --> 00:28:24.450
After the moral tariff, four additional states seceded.

00:28:25.350 --> 00:28:31.590
It's debatable just how much tariffs contributed to secession and the onset of the Civil War.

00:28:31.810 --> 00:28:37.170
What's not debated, though, is that tariffs were one of the issues that divided

00:28:37.170 --> 00:28:42.550
the northern and southern states, and that secession was first raised as a possibility

00:28:42.550 --> 00:28:44.790
during the nullification crisis,

00:28:45.190 --> 00:28:48.150
which was directly the result of terrorism.

00:29:03.041 --> 00:29:08.521
After the end of the Civil War, the United States entered its second industrial revolution.

00:29:09.361 --> 00:29:13.301
Electricity, steel, oil, the expansion of railroads, and banking.

00:29:14.201 --> 00:29:18.521
Within a few short decades, the American economy was transformed.

00:29:19.021 --> 00:29:24.081
Men like Andrew Carnegie, John D. Rockefeller, and John Pierpont Morgan came

00:29:24.081 --> 00:29:26.121
to dominate their respective markets,

00:29:26.121 --> 00:29:30.721
pushing competitors out of business and consolidating their businesses into

00:29:30.721 --> 00:29:34.941
trusts that held monopolies over large sectors of the economy.

00:29:35.201 --> 00:29:40.481
A string of presidents and congresses helped establish these business empires

00:29:40.481 --> 00:29:45.681
by passing a slew of pro-business laws, viewing their emergence as a positive

00:29:45.681 --> 00:29:49.541
step in the economic development and prowess of the country.

00:29:49.821 --> 00:29:52.781
One of the tools they used was the tariff.

00:29:53.541 --> 00:29:58.541
Increasing the price on imported goods encouraged Americans to buy from American

00:29:58.541 --> 00:30:04.361
companies, which kept the raw capital at home and expanded the profits of American businesses.

00:30:04.821 --> 00:30:09.821
Also, those high tariff rates continued to be a boon for the federal government.

00:30:10.181 --> 00:30:15.441
By the end of the 1880s, the country was running a budget surplus of nearly

00:30:15.441 --> 00:30:22.941
$140 million per year, or roughly $4.5 billion today. Thank you.

00:30:23.691 --> 00:30:28.811
Those financially prosperous times were not evenly distributed across American society.

00:30:29.151 --> 00:30:33.711
This was the era before workplace safety regulations, the minimum wage,

00:30:33.851 --> 00:30:35.971
or the enforcement of antitrust laws.

00:30:36.531 --> 00:30:40.911
Workers often toiled in dangerous working conditions for meager pay.

00:30:41.111 --> 00:30:44.911
When they fought against the system, including through worker strikes,

00:30:45.291 --> 00:30:48.911
the federal government typically responded by helping the businesses,

00:30:49.411 --> 00:30:52.971
including by sending in troops to put down the strikes and protests.

00:30:52.971 --> 00:30:58.391
Which often turned violent and deadly as happened in the Great Railroad Strike

00:30:58.391 --> 00:31:04.431
of 1877 and during a later railroad strike against the Pullman Company in 1894.

00:31:08.271 --> 00:31:12.691
In addition to all these challenges, the prices on goods were exceptionally

00:31:12.691 --> 00:31:16.991
high for the common person and that was directly tied to the tariff.

00:31:17.311 --> 00:31:19.451
Let me give you an example of how this worked.

00:31:20.071 --> 00:31:24.951
Let's say an American company produces a coat and sells it for $10,

00:31:25.511 --> 00:31:30.711
while a European company is able to bring a similar coat to the market for $9,

00:31:31.511 --> 00:31:34.811
you're more likely to buy the European coat, right?

00:31:35.311 --> 00:31:40.591
So to protect the American company, Congress passes and the president signs

00:31:40.591 --> 00:31:47.751
a tariff bill that increases the tariff on that European coat 33%, or about $3.

00:31:48.791 --> 00:31:55.291
Now that European coat costs $12, so clearly you're going to buy the American-made

00:31:55.291 --> 00:31:57.791
product at the cheaper $10 rate.

00:31:58.651 --> 00:32:05.551
Ah, but hold on. The American company sees there is a $2 difference in price,

00:32:06.131 --> 00:32:08.151
and there's more money to be made.

00:32:08.671 --> 00:32:14.151
They raise the price to $11, which means it's still cheaper than the European

00:32:14.151 --> 00:32:18.811
one, and you're more likely to buy it. but they'll turn a larger profit.

00:32:19.211 --> 00:32:26.511
The loser here is you, or me, or in the 1880s, that worker who is already strapped

00:32:26.511 --> 00:32:28.251
for cash because of their low pay.

00:32:29.462 --> 00:32:34.762
Tariffs were popular with the businesses, but not so popular with the common working person.

00:32:35.002 --> 00:32:37.902
And remember that massive federal budget surplus?

00:32:38.342 --> 00:32:44.042
A large chunk of that money still came from tariffs, which means it was raised

00:32:44.042 --> 00:32:46.142
largely on the back of the common worker.

00:32:47.222 --> 00:32:52.602
In 1888, President Grover Cleveland decided he wanted to correct this imbalance

00:32:52.602 --> 00:32:57.702
in the federal budget, cut the tariff rate, and ease the burden on the working class.

00:32:58.522 --> 00:33:02.102
Well, that didn't make the capitalists happy and they mobilized against him,

00:33:02.462 --> 00:33:06.622
donating a considerable amount of money to secure the election of his competitor,

00:33:07.102 --> 00:33:09.622
Benjamin Harrison, and that's exactly what happened.

00:33:10.142 --> 00:33:14.262
Over in the Congress, the emboldened representative, William McKinley,

00:33:14.902 --> 00:33:17.662
yes, future President William McKinley,

00:33:18.422 --> 00:33:22.562
steered through passage of a tariff bill that President Harrison signed that

00:33:22.562 --> 00:33:29.182
raised the tariff rate to a minimum 50%, and even higher on textiles and metal products.

00:33:29.782 --> 00:33:35.562
The price for imported products became so high that people stopped buying them.

00:33:36.362 --> 00:33:41.482
The American business trusts were happy, but the American people were not as

00:33:41.482 --> 00:33:43.322
prices continued to go up.

00:33:44.082 --> 00:33:49.082
McKinley lost his re-election bid in 1890 and Grover Cleveland was re-elected

00:33:49.082 --> 00:33:51.262
to the presidency in 1892.

00:33:51.702 --> 00:33:56.762
By that point, however, the American economy was in a very different place.

00:33:57.802 --> 00:34:02.022
Since people had significantly reduced their purchasing of foreign products,

00:34:02.242 --> 00:34:05.902
the amount of revenue collected from tariffs plummeted.

00:34:06.122 --> 00:34:11.562
That large budget surplus that President Cleveland had when he left office had

00:34:11.562 --> 00:34:14.782
turned into a deficit when he returned four years later.

00:34:15.042 --> 00:34:20.382
The financial impact of the McKinley tariff, combined with several other factors,

00:34:20.382 --> 00:34:25.142
led to a panic, or depression, in 1893.

00:34:26.202 --> 00:34:32.782
An overzealous and overly protectionist tariff policy undermined the American economy.

00:34:34.152 --> 00:34:38.692
Exceptionally high tariffs contributed to the onset of an economic depression.

00:34:39.052 --> 00:34:43.572
But might they be the answer to getting a country out of a depression if it

00:34:43.572 --> 00:34:45.112
was already slipping into one?

00:34:45.572 --> 00:34:51.292
By the end of 1929, the stock market had already crashed and the global economy

00:34:51.292 --> 00:34:53.732
was showing signs of entering a depression.

00:34:54.512 --> 00:34:59.332
Thanks to a still high tariff rate, the U.S. economy was more self-reliant than

00:34:59.332 --> 00:35:01.252
those of many European countries.

00:35:02.012 --> 00:35:06.752
Nonetheless, the worsening economic conditions made the government fear for

00:35:06.752 --> 00:35:12.552
American jobs and a potential collapse of prices for American agricultural products.

00:35:12.832 --> 00:35:19.392
The response was tariffs, embodied in the Smoot-Hawley Tariff Act of 1930,

00:35:19.892 --> 00:35:23.072
named for the two members of Congress who wrote and championed it.

00:35:23.880 --> 00:35:27.680
The act raised tariff prices to the highest in American history.

00:35:28.680 --> 00:35:32.980
Other countries protested. Some responded with tariffs of their own on American

00:35:32.980 --> 00:35:37.540
products, and the number of American exports sharply decreased.

00:35:38.520 --> 00:35:42.460
Unemployment nearly doubled, and with money tight for countless families,

00:35:42.880 --> 00:35:47.220
the demand for American products declined both at home and abroad,

00:35:47.780 --> 00:35:49.820
leading to further unemployment.

00:35:50.640 --> 00:35:54.640
Economists debate whether the Smoot-Hawley tariff was a direct cause of the

00:35:54.640 --> 00:35:57.360
Great Depression or only worsened its effects.

00:35:57.400 --> 00:36:02.280
But they generally agree that it was exactly the wrong response by the federal

00:36:02.280 --> 00:36:06.820
government, and it became a cautionary tale for federal tariff policy.

00:36:15.420 --> 00:36:19.080
The Great Depression led to the rise of President Franklin D.

00:36:19.220 --> 00:36:23.580
Roosevelt, and his New Deal approach to American society and economics.

00:36:23.980 --> 00:36:28.960
As it relates to tariffs, Roosevelt and his colleagues in Congress were determined

00:36:28.960 --> 00:36:30.740
to drastically cut the rates.

00:36:31.000 --> 00:36:35.680
Since other countries raised their tariff duties in reaction to the Smoot-Hawley

00:36:35.680 --> 00:36:41.000
Act, Roosevelt's approach focused on meeting with foreign nations and negotiating

00:36:41.000 --> 00:36:43.160
mutually beneficial trade deals.

00:36:43.900 --> 00:36:48.220
To make that happen, Congress passed the Reciprocal Tariff Act of 1934,

00:36:48.220 --> 00:36:52.380
which empowered the president to meet with representatives from other countries

00:36:52.380 --> 00:36:55.140
and arrange deals on the tariff rates.

00:36:55.680 --> 00:36:59.120
If Britain will cut their rate on American products, for instance,

00:36:59.800 --> 00:37:02.760
then the U.S. would cut the rate on British products in return.

00:37:04.058 --> 00:37:07.698
Any agreed-upon deals still needed to pass the Congress.

00:37:08.178 --> 00:37:12.938
Remember, the Constitution says that the power to set tariff rates belongs to

00:37:12.938 --> 00:37:14.038
the legislative branch.

00:37:14.438 --> 00:37:19.298
But trade deals became a popular way of revitalizing the American economy.

00:37:19.738 --> 00:37:25.158
The U.S. entered trade deals with 27 countries over the next 10 years.

00:37:25.858 --> 00:37:31.198
Throughout the Cold War, Western countries generally kept tariff rates low amongst

00:37:31.198 --> 00:37:37.218
themselves, and free trade, meaning either no tariffs or very low tariff rates,

00:37:37.578 --> 00:37:40.238
became a staple of the global economy.

00:37:41.318 --> 00:37:45.658
Occasionally, there was a spat between nations where one would raise a protectionist

00:37:45.658 --> 00:37:49.898
tariff and the trading partner would respond in kind, but these typically led

00:37:49.898 --> 00:37:53.678
to discussions, trade deals, and mutual lowering of the rates.

00:37:54.298 --> 00:38:00.878
In 1974, Congress passed a trade act known as the Trade Act of 1974.

00:38:01.778 --> 00:38:07.278
Creative, I know. You heard President Gerald Ford's endorsement of this act in our opening.

00:38:07.638 --> 00:38:12.378
It granted the president greater authority to negotiate trade deals and to set

00:38:12.378 --> 00:38:18.438
tariff rates when he decided another country was acting in a manner unfair to the United States.

00:38:18.818 --> 00:38:28.098
It authorized the president to unilaterally impose a tariff of no more than 15% for up to 150 days.

00:38:28.858 --> 00:38:34.578
After that time, however, Congress was required to authorize the extension of the tariff rate.

00:38:34.898 --> 00:38:40.198
In the 1980s, President Ronald Reagan became perhaps the greatest champion of

00:38:40.198 --> 00:38:41.958
free trade in American history.

00:38:42.418 --> 00:38:46.218
We included a clip of him talking about his philosophy in our opening.

00:38:47.170 --> 00:38:51.610
He dumped most of the tariffs that still remained and sought to actively eliminate

00:38:51.610 --> 00:38:56.950
international trade barriers, viewing lower prices for consumers as a positive

00:38:56.950 --> 00:38:58.450
stimulus for the economy.

00:38:58.910 --> 00:39:01.890
His successor, George H.W. Bush,

00:39:02.350 --> 00:39:06.350
employed the same approach, as did his successor, Bill Clinton,

00:39:06.610 --> 00:39:10.590
who negotiated the famous North American Free Trade Agreement,

00:39:10.830 --> 00:39:17.050
or NAFTA, with Canada and Mexico, which greatly reduced tariffs between the three countries.

00:39:17.170 --> 00:39:23.870
In short, Republicans and Democrats both seem to endorse free trade as good

00:39:23.870 --> 00:39:31.310
for the American economy But every coin has two sides While free trade may help lower prices,

00:39:31.650 --> 00:39:35.810
which is good for consumers There are many products where foreign companies

00:39:35.810 --> 00:39:40.870
are able to beat the price of those same products made domestically in the U.S.

00:39:41.330 --> 00:39:46.090
This can hurt the bottom line of American companies and if a product is not

00:39:46.090 --> 00:39:49.210
profitable, then companies don't produce it any longer.

00:39:49.590 --> 00:39:55.530
This can negatively impact the labor market and cost people jobs or stunt wage

00:39:55.530 --> 00:39:58.750
growth for people working in those less profitable industries.

00:40:00.030 --> 00:40:05.250
So, sometimes the Congress and presidents, even if they promote free trade,

00:40:05.510 --> 00:40:10.870
still see value in protecting an American industry suffering at the hands of

00:40:10.870 --> 00:40:14.610
international competition, such as when President George W.

00:40:14.810 --> 00:40:20.210
Bush led the way in raising tariffs on foreign steel in 2002 and President Barack

00:40:20.210 --> 00:40:22.950
Obama did the same thing in 2016.

00:40:24.763 --> 00:40:30.663
In 2025, when President Donald Trump returned to office, tariffs became a central

00:40:30.663 --> 00:40:32.623
aspect of his economic policy.

00:40:33.043 --> 00:40:36.403
Claiming the trade policies of other countries treated the U.S.

00:40:36.543 --> 00:40:42.403
Unfairly and hurt the American economy, he began unilaterally increasing tariffs

00:40:42.403 --> 00:40:46.843
on countries around the globe, often with widely different rates based on his

00:40:46.843 --> 00:40:51.163
assessment of how fair or unfair their trade practices were.

00:40:52.283 --> 00:40:56.383
President Trump's stated goal was that the other countries would quickly engage

00:40:56.383 --> 00:41:00.983
in trade talks and the resulting deals would ultimately be good in the long

00:41:00.983 --> 00:41:02.563
run for the United States.

00:41:02.883 --> 00:41:07.763
He claimed the authority to set such tariff rates was granted to him by the

00:41:07.763 --> 00:41:11.763
International Emergency Economic Powers Act of 1977.

00:41:12.743 --> 00:41:18.923
That act allows the president wide latitude to regulate international trade

00:41:18.923 --> 00:41:21.663
during moments of a national emergency.

00:41:22.283 --> 00:41:27.623
President Jimmy Carter invoked the act in 1979 during the Iran hostage crisis

00:41:27.623 --> 00:41:30.263
to freeze Iranian economic assets.

00:41:30.763 --> 00:41:36.143
After the terrorist attacks of September 11, 2001, President George W.

00:41:36.323 --> 00:41:42.843
Bush invoked the act to freeze the economic assets of known terrorist organizations and their supporters.

00:41:43.463 --> 00:41:48.143
So what was the national emergency that President Trump declared to give himself

00:41:48.143 --> 00:41:52.383
the power to increase tariffs against so many different countries in 2025?

00:41:53.083 --> 00:41:59.543
Well, he said that the perceived unfair trade practices by other countries constituted

00:41:59.543 --> 00:42:02.003
a national economic emergency,

00:42:02.563 --> 00:42:08.383
impacted American businesses sued, and in February 2026, the U.S.

00:42:08.563 --> 00:42:14.143
Supreme Court ruled in a 6-3 decision that the International Emergency Economic

00:42:14.143 --> 00:42:18.743
Powers Act did not grant the president the power to set tariff rates.

00:42:19.703 --> 00:42:24.623
Constitutionally That power resided with the Congress And was not granted to

00:42:24.623 --> 00:42:29.963
the President In the act In response President Trump began to argue That the

00:42:29.963 --> 00:42:36.363
Trade Act of 1974 Granted him the power to levy tariffs Remember that one?

00:42:36.523 --> 00:42:42.903
It gives the President the power To increase a tariff by only 15% For no more

00:42:42.903 --> 00:42:48.423
than 150 days Without receiving congressional approval for.

00:42:53.967 --> 00:42:57.907
Tariffs. They're a complicated and politically fraught topic.

00:42:58.247 --> 00:43:02.707
A tariff led to the Boston Tea Party, which set in motion a string of events

00:43:02.707 --> 00:43:04.627
that ultimately led to revolution.

00:43:05.067 --> 00:43:09.407
They protected American industries when the country was young and its economy

00:43:09.407 --> 00:43:10.567
was struggling to develop.

00:43:11.007 --> 00:43:15.567
They led to a crisis between state and federal rights that permanently placed

00:43:15.567 --> 00:43:21.287
the topic of secession on the table, a course of action that later resulted in a civil war.

00:43:21.747 --> 00:43:25.127
They protected trusts and monopolies as the U.S.

00:43:25.207 --> 00:43:29.567
Emerged as an industrial and economic power, while at the same time suppressing

00:43:29.567 --> 00:43:32.687
the financial well-being of the poor and working class.

00:43:32.947 --> 00:43:37.567
They've influenced the elections of presidents, senators, and congressional representatives.

00:43:37.987 --> 00:43:43.907
They contributed to and worsened several economic depressions and trade agreements

00:43:43.907 --> 00:43:47.487
that removed them became a staple of Cold War diplomacy.

00:43:48.027 --> 00:43:53.807
They've become tools to manage national emergencies and spurred Supreme Court cases.

00:43:54.387 --> 00:43:59.347
Through it all, the original intention of the framers of the Constitution that

00:43:59.347 --> 00:44:04.367
the Congress shall have the power to levy tariffs remains the law of the land,

00:44:04.567 --> 00:44:09.287
with a few time-limited, congressionally approved exceptions.

00:44:10.612 --> 00:44:14.772
Determining whether tariffs help or hurt depends on your perspective.

00:44:15.272 --> 00:44:18.032
Like I said, there's two sides to that coin.

00:44:18.592 --> 00:44:23.592
So what do you think? Is the American economy or your personal bank account

00:44:23.592 --> 00:44:28.412
better off with free trade marked by low or non-existent tariffs that result

00:44:28.412 --> 00:44:29.972
in lower costs at the store?

00:44:30.552 --> 00:44:36.812
Or better off with higher tariffs that protect American industries and increase federal revenue?

00:44:37.732 --> 00:44:41.752
Economists debate those answers, as do politicians, pundits,

00:44:41.772 --> 00:44:42.832
and most everybody else.

00:44:43.092 --> 00:44:47.892
But now you know that this debate is older than the American Republic itself,

00:44:48.412 --> 00:44:50.152
and there are no easy answers.

00:44:50.412 --> 00:44:52.732
And that's history you can use.

00:45:05.732 --> 00:45:08.352
History You Can Use is produced and hosted by me, Brian Thomas,

00:45:08.452 --> 00:45:09.892
with the assistance of various historians.

00:45:10.132 --> 00:45:13.212
Music and sound editing by Bejer Sound Design. If you think there's something

00:45:13.212 --> 00:45:16.732
we didn't get quite right, send us a message at mail at historyyoucanuse.com.

00:45:17.352 --> 00:45:19.552
Be sure to include your first name and where you're writing from,

00:45:19.592 --> 00:45:22.452
because we might just use your message in a future Talk Back episode.

00:45:22.732 --> 00:45:26.172
Have a suggestion for a future episode topic? You can drop us an email for that too.

00:45:26.392 --> 00:45:29.792
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