The American people have long demonstrated antipathy toward tariffs and duty fees. In Boston on Dec. 16, 1773, in response to increasing tariffs on tea under the monopoly control of Great Britain, American colonists disguised as native Americans boarded the Dartmouth, a British ship owned by the East India Tea company, and dumped 342 chests of tea imported from China into Boston Harbor.
The self-labeled Sons of Liberty would later famously proclaim: “No taxation without representation!”
Later, President Theodore “Teddy” Roosevelt broke up a number of large monopoly industries and trusts, while substantially reducing tariffs, which were a large source of federal tax revenue at the time, and in part setting the stage for the creation and implementation of the federal income tax in 1913.
Post World War I, the costs of the Great War, in lives and government treasuries, caused many nations of the world to consider nationalist and protectionist policies, in part to isolate themselves in the event of another future global conflict.
The United States was among those countries considering such an internal- facing economic turn.
The League of Nations, a precursor to the United Nations, was formed in Paris in 1920 to promote world peace. It was headquartered in Geneva, Switzerland, and President Woodrow Wilson was a primary advocate for the creation of the League, though the U.S. never became a member.
Wilson was a Democrat, and the Republican Party of that day opposed the growing trend of free trade as well as the League of Nations.
Thanks in part to the Industrial Revolution, the U.S. had a strong trade surplus, while there were beliefs in 1929 that foreign trade was stealing American jobs as the country headed into a recession.
In October of 1929, the stock market crashed, rippling across global finance markets. U.S.
Senator Reed Smoot, a Morman “prophet,” businessman and chair of the Senate Finance Committee, proposed a series of high tariffs and duties on a list of 20,000 durable goods being imported into the United States.
Working with House Ways and Means Chairman Congressman Willis Hawley, the pair crafted the Smoot-Hawley Tariffs Act of 1930, which went into effect in June that year. Duties on some popular imports quadrupled. As the bill headed to President Herbert Hoover’s desk for his signature, nearly 1,000 of the nation’s leading economists wrote a letter asking the president not to sign or veto the bill.
Though Hoover previously had been critical of the bill and tariffs in general, he signed the bill into law, beginning in effect a global trade war. An outraged Canada placed a tariff of roughly 30 percent on American imports. The UK, France, and Germany immediately followed suit, either developing their own internal manufacturing capacity to replace American imports or locating alternative markets.
Global trade dried up, much of the world’s shipping fleet was mothballed, and new ship orders were cancelled.
This in turn affected numerous other U.S. profit centers and industries, including steel production, fishing, farming, and manufacturing of all kinds. Alongside the ensuing market crash and recession, the U.S. economy slid into the Great Depression.
Incoming President Franklin Delano Roosevelt faced economic meltdown and catastrophe. Speaking of the Smoot-Hawley Tariff Act, he said the U.S. had “... compelled the world to build tariff fences so high that world trade is decreasing to a vanishing point.”
From 1929 to 1933, U.S. exports plummeted by 61 percent; imports declined by 66 percent. The unemployment rate tripled from 8 percent to 25 percent.
America’s aggregate wealth was nearly cut in half.
Though the negative impacts of the tariff hikes across allies and enemies alike were almost immediate, repairing this damage would take decades, both in terms of statecraft and rebuilding trust and U.S. trade markets. Until the U.S. joined the Allies in fighting World War II, when France was occupied by German forces and London was being continually shelled, the U.S. had alienated itself from much of the rest of the world.
While I do not believe the more immediate and ever-changing Trump Administration tariffs, duties, and taxes will have as immediate or drastic an impact, if the deal-makerin- chief cannot produce results quickly, the tariffs will become a net drag on the U.S. economy and consumer spending. And U.S. exports markets will shrink.
Time and again in our nation we have been able to find the best path ahead in part by looking at what did not work well in our past. The data is still there ... and at this point it’s not yet “s’moot.”
