History of Tariffs

March 14, 2025 | , , , , ,

The last two weeks have been shaky for the financial markets as the unknown and misunderstood effects of tariffs frighten investors. Tariffs have been a hot topic of late, yet they are not new. In fact, they often become a focal point during election cycles. During President Trump’s campaign, tariffs were portrayed in conflicting ways—some claimed they were the ultimate solution to protecting American jobs, while others warned they would destroy the economy. Misrepresentations ranged from oversimplifying their effect to ignoring the potential consequences of retaliatory trade policies. The reality is far more nuanced. Let’s cut through the political noise and consider a clear, factual understanding of tariffs—their history, economic effects, and how they have shaped many sectors in our economy. The auto industry is a great example. 

The History of Tariffs in the United States: Economic Impact and Key Moments 

Tariffs, taxes imposed on imported goods, have played a significant role in U.S. economic policy since the nation’s founding. While often framed as a tool for protecting domestic industries, tariffs have also been a source of revenue, a means of economic leverage, and a policy tool with benefits and unintended consequences. Throughout history, many U.S. presidents have used tariffs aggressively, with mixed results. Some of the most effective tariffs have shaped industries, employment, and even international relations. 

The Early Use of Tariffs in the U.S. Economy 

The first major tariff policy in the United States was signed into law by President George Washington in 1789. The primary goal at the time was revenue generation, as the young nation lacked a solid taxation system. However, tariffs soon became a tool for protecting domestic manufacturers from foreign competition, especially against Great Britain. 

Throughout the 19th century, tariffs were a major source of government revenue, funding everything from infrastructure to military expansion. The Tariff of 1828, also called the “Tariff of Abominations,” set high duties on European goods, leading to economic tensions between the industrial North, which benefited, and the agrarian South, which depended on imports. The backlash was so severe that South Carolina attempted to nullify the law, setting the stage for future conflicts over states’ rights. 

The High-Tariff Era: The Late 19th and Early 20th Century 

One of the most aggressive tariffs came during the presidency of William McKinley (1897–1901), a strong advocate for protectionism. The McKinley Tariff of 1890 raised duties on imported goods to nearly 50%, shielding U.S. industries from foreign competition. His successor, Theodore Roosevelt, was less aggressive but maintained many protectionist policies, arguing they supported American workers. 

The Smoot-Hawley Tariff Act of 1930, signed by President Herbert Hoover, remains one of U.S. history’s most infamous tariff policies. Enacted during the early days of the Great Depression, it significantly raised tariffs on over 20,000 imported goods. While intended to protect American farmers and manufacturers, it led to retaliation from major trading partners, worsening global trade conditions and deepening the economic downturn. 

The Shift Toward Free Trade and Selective Protectionism 

By the mid-20th century, U.S. policy shifted away from high tariffs. After World War II, the U.S. helped establish the General Agreement on Tariffs and Trade (GATT) in 1947, which later evolved into the World Trade Organization (WTO). These agreements encouraged lower trade barriers, fueling globalization and expanding markets for American businesses. What seemed like a great solution was the beginning of a transmutation in the United States; offshoring manufacturing to become a service economy. Many economists and other experts often say, “you can’t have a growing economy if you produce nothing”. Still, some industries continued to receive protection. In the 1980s, President Ronald Reagan imposed tariffs on Japanese motorcycles to protect Harley-Davidson and implemented voluntary export restraints on Japanese car manufacturers to protect the U.S. auto industry. 

Tariffs and the U.S. Auto Industry: The Toyota Example 

One of the most interesting examples of how tariffs influenced the economy is Toyota’s decision to build manufacturing plants in the U.S. Instead of paying the “Chicken Tax”, a 25% tariff imposed on imported light trucks in 1964, Toyota and other foreign automakers began producing their trucks domestically. Toyota established its truck manufacturing plants in the U.S., directly creating American jobs and boosting local economies. This demonstrates how tariffs can lead to positive investment within U.S. borders rather than only restricting imports as many news outlets would have you believe. 

The Return of Tariffs under U.S. President: Donald Trump 

While many presidents have used tariffs strategically, Donald Trump (2017–2021) implemented the most significant tariff policies in modern history. His administration imposed tariffs on Chinese goods, steel, aluminium, and European imports, aiming to protect American manufacturers and reduce trade deficits. The tariffs led to retaliatory measures from China and other countries, impacting U.S. agriculture and manufacturing. However, they also forced some companies to re-evaluate supply chains and bring production back to the U.S.  

Upon taking office in January 2021, President Joe Biden faced the challenge of addressing the extensive tariffs imposed by the previous administration. Despite initial expectations of a shift towards free trade, the Biden administration maintained many of the Trump tariffs, particularly those targeting Chinese imports. This decision aligned with a broader strategy to adopt a “worker-centered trade policy,” aiming to protect American jobs and industries from unfair foreign competition. It seems by this logic that Trump was right, even if President Biden didn’t say it.  

In May 2024, the administration escalated trade measures by increasing tariffs on specific Chinese goods. Notably, tariffs on solar cells were doubled, and those on lithium-ion electric vehicle batteries were more than tripled. Additionally, imports of Chinese steel, aluminium, and medical equipment experienced significant tariff hikes. These actions underscored a continued commitment to safeguarding domestic industries and addressing persistent trade imbalances. 

Recent Tariff Actions Under the 45th and 47th President, Donald J. Trump 

In the initial weeks of 2025, President Donald J. Trump enacted significant tariff measures affecting major U.S. trading partners. On February 1, 2025, he signed executive orders imposing a 25% tariff on all imports from Canada and Mexico, with a reduced 10% tariff specifically on Canadian energy exports, including oil and natural gas. Additionally, a 10% tariff was levied on all Chinese imports, supplementing existing tariffs of up to 25% on certain Chinese goods. These tariffs were initially set to take effect on February 4th, but were postponed for one month following negotiations, during which Canada and Mexico agreed to enhance border security measures to combat illegal drug trafficking into the United States. Consequently, the tariffs were implemented on March 4, 2025. In retaliation, Canada announced 25% tariffs on $30 billion worth of U.S. goods, with plans to extend these measures to an additional $125 billion in the following weeks. Mexico also indicated intentions to impose reciprocal tariffs, with detailed measures expected to be announced on March 9, 2025. These developments have escalated trade tensions, raising concerns about potential disruptions to North American supply chains and increased consumer prices across the continent. 

The Economic effect of Tariffs: Pros and Cons 

The effects of tariffs are complex and depend on various factors, including the industry, economic conditions, and international responses. 

Potential Benefits: 

  • Protects Domestic Jobs: Tariffs can shield U.S. industries from foreign competition, preserving jobs in manufacturing and production. 
  • Encourages Domestic Investment: Companies may build factories in the U.S. (as Toyota did) rather than pay high tariffs. 
  • Generates Government Revenue: Tariffs provide a stream of income that can be used for infrastructure, or other national priorities. 

Potential Downsides: 

  • Higher Consumer Prices: Tariffs increase costs for imported goods, which can lead to inflation. 
  • Retaliation from Trade Partners: Other countries often respond with their own tariffs, harming U.S. exporters (e.g., farmers losing access to foreign markets). 
  • Supply Chain Disruptions: Global companies may move production to avoid tariffs, leading to inefficiencies and uncertainty. 

Conclusion 

Tariffs have been a central tool in U.S. economic policy for over two centuries, shaping industries, employment, and global trade. While they have sometimes protected American workers and driven domestic investment—such as Toyota’s U.S. truck production—they have also led to trade conflicts and economic disruptions. Understanding tariffs requires balancing their benefits and consequences. History reminds us that tariffs depend on implementation and the response of our trading partners. 

References 

  • Bloomberg (2025). “Trump Imposes New Tariffs on Canada, Mexico, and China.” 
  • Economic Policy Institute (2022). “Biden’s Trade Policy: A Worker-Centered Approach.” 
  • Irwin, D. (2017). Clashing Over Commerce: A History of U.S. Trade Policy. 
  • Lutz, B. (2019). “How the ‘Chicken Tax’ Changed the Auto Industry.” 
  • U.S. Department of Commerce (1986). “Trade Restrictions and Domestic Industry.” 
  • U.S. International Trade Commission (2019). “The Smoot-Hawley Tariff and the Great Depression.” 
  • U.S. Trade Representative (2019). “Trump’s Trade War: A Policy Review.” 
  • White House (2024). “Biden Expands Tariffs on Chinese Imports.” 
  • World Trade Organization (2021). “The Evolution of Global Trade Agreements.”