A Brief History of Tariffs The debate over tariffs is nothing new. In fact, it's as old as the country itself. A look at how the debate began.
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A Brief History of Tariffs

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A Brief History of Tariffs

A Brief History of Tariffs

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STACEY VANEK SMITH, HOST:

On all cider, beer, ale or porter in bottles, per dozen 20 cents.

CARDIFF GARCIA, HOST:

Canes, walking sticks and whips, 10 cents.

VANEK SMITH: Playing cards, per pack 10 cents.

GARCIA: On all nails and spikes, per pound 1 cent.

VANEK SMITH: On all shoes, slippers or galoshes made of leather, prepare 7 cents.

GARCIA: Galoshes.

VANEK SMITH: (Laughter) On galoshes, I know.

GARCIA: Yikes.

VANEK SMITH: So what we're listing off here are tariffs, which are taxes on imported goods. These are in fact from one of the first official documents in our government's history. These tariffs are part of an act that was the second act Congress ever passed.

GARCIA: Just after creating the oaths of office, the first thing Congress did was lay down the Tariff Act of 1789. And that is today's indicator - 1789. And even back then tariffs were causing debate among the Founding Fathers. Alexander Hamilton, for example, said tariffs were a good idea.

VANEK SMITH: Thomas Jefferson said tariffs would harm our young country.

DOUGLAS IRWIN: You know, the debates in the first congresses are not verbatim, but they're very similar to the debates we're having today.

VANEK SMITH: This is THE INDICATOR. I'm Stacey Vanek Smith.

GARCIA: I'm Cardiff Garcia. And today on the show, a brief history of tariffs.

VANEK SMITH: The tariff debate hasn't changed, but pretty much everything else has.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

VANEK SMITH: In 1789, the U.S. was a new country with a developing economy. Douglas Irwin is an economist at Dartmouth and author of "Clashing Over Commerce: A History Of U.S. Trade Policy."

IRWIN: Estimates are that about 90 percent of the labor force in the country was in agriculture, mainly small farms, a few large plantations down in the South for big cash crops such as cotton, which was coming on, but certainly rice and tobacco.

GARCIA: At the time, the U.S. economy was heavily reliant on other countries. We needed England and the rest of Europe to buy our rice, tobacco and cotton. And we also needed them to sell us their textiles, shoes, nails and walking sticks.

VANEK SMITH: Also, the brand-new American government was totally broke. There was no income tax, and there was a ton of debt from the Revolutionary War. Taxing imports was the main way the government could make money. So that was one big reason that Alexander Hamilton supported tariffs. But there was another reason.

IRWIN: And he thought that we should really diversify the economy. And we should have some manufacturing as well. And it was unlikely these manufacturers would develop, he thought, without the assisting hand of government.

VANEK SMITH: Manufacturing. The U.S. had this tiny, fragile, little manufacturing sector.

IRWIN: Mainly textiles in Massachusetts and Rhode Island, some iron goods in the Philadelphia area - a pretty small part of the economy, but rapidly growing.

GARCIA: Hamilton wanted manufacturing to be a bigger part of the economy. He thought it would make us wealthier. It would make our economy more advanced. And he thought tariffs could help. If the U.S. government would tax textiles and iron from overseas, it would give U.S.-made textiles and iron an advantage. They would be less expensive than their foreign competitors. So tariffs would raise money and they would help manufacturing. Sounds like win-win.

VANEK SMITH: Thomas Jefferson, though, did not agree with this. First, he did not like the idea of the federal government getting a bunch of money from anywhere. Jefferson wanted the central government to stay small and broke and leave the states with the money and power. But also, he said tariffs would hurt farmers. If the U.S. taxed goods from other countries, those countries would turn around and tax goods from the U.S. Rice, cotton and tobacco from the U.S. would be more expensive in other countries. And it would be harder for U.S. farmers to sell their goods overseas.

IRWIN: It's the government sort of picking certain sectors of the economy and helping them out, giving them a privilege over other sectors of the economy. And they - Jefferson and others wanted a small, not very powerful national government, certainly not one that would be - redirect more sources towards the North, where most of the manufacturing industries of the time were.

GARCIA: So the tariff debate soon became a regional debate. The farming economy in the South did not want tariffs. The manufacturing economy in the North did very much want tariffs.

VANEK SMITH: After the Civil War, the North had most of the political power in the country, and Congress passed thousands of tariffs over the next 60 years.

GARCIA: And then in the 1930s, the Great Depression hit, and it started to intensify. And all of the tariffs made things worse. It was harder for the U.S. to sell its goods abroad. They were really expensive for people in other countries to buy. And the tariffs made products in the U.S. more expensive, too, for Americans.

VANEK SMITH: When Franklin Delano Roosevelt came to power in 1933, one of the first things he did was address the free trade issue.

(SOUNDBITE OF ARCHIVED RECORDING)

FRANKLIN DELANO ROOSEVELT: American industry has searched the outside world to find new markets. It needs the reduction of trade barriers to improve its foreign markets.

GARCIA: To do this, the Democrats moved the power to impose tariffs away from Congress and gave the president more authority to set trade policy. And ever since then, more or less the U.S. has moved in the direction of more open trade with some hiccups.

VANEK SMITH: But President Trump has talked a lot about trade recently, specifically about making trade less free.

(SOUNDBITE OF ARCHIVED RECORDING)

PRESIDENT DONALD TRUMP: Today I'm defending America's national security by placing tariffs on foreign imports of steel and aluminum.

VANEK SMITH: Tariffs are back.

GARCIA: And the debate about them is pretty much the same as it was back in 1789. But Doug says what's different today is our economy. Back when Hamilton was pushing for tariffs, the United States was a developing country. The manufacturing sector was tiny, and it needed help. But now we have one of the strongest economies in the world, maybe the strongest.

VANEK SMITH: Do you think that Hamilton would be pro-tariff in 2018?

IRWIN: Obviously it's clearly speculation. I tend to think that he would say we are a major manufacturing producer. We're a financial powerhouse in the world economy. We export still a lot of very sophisticated, high-technology products - Boeing aircraft, farm machinery. And so we should be taking advantage of the opportunity that trade provides.

VANEK SMITH: Today, says Doug, tariffs make less economic sense for the U.S. We are making all of these sophisticated things like airplanes and tractors and iPhones, and free trade helps us get raw materials for those things more cheaply. Tariffs will hurt manufacturers of those things.

GARCIA: Of course the steel industry does benefit from steel tariffs. And Doug says that's the thing about tariffs. They may not make overall economic sense, but tariffs can help some individual parts of the economy even as they hurt other parts of the economy.

VANEK SMITH: But since the U.S. is such a huge and diversified economy, this debate keeps coming up.

IRWIN: We're not nearly as dependent on trade as, say, the Netherlands or Taiwan. These other countries, they don't really have much of a choice. To maintain their standards of living, they have to be engaged in the world economy and trading a lot.

VANEK SMITH: So we can actually afford to be a little protectionist.

IRWIN: That's right.

VANEK SMITH: Doug is an economist. And like most economists, he says free trade is just better for a developed economy like ours. Protectionism will hurt us. But because of our size and our resources, we have the luxury of a debate.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

VANEK SMITH: For just, like, a flat tariff, pickled fish, per barrel 75 cents.

GARCIA: Oh, no.

VANEK SMITH: I know. That's a - that's pretty big.

GARCIA: It's getting too expensive to import pickled fish. The Swedes are going to be pissed when they find out about this.

VANEK SMITH: I know.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

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