Annie Lowrey: The Costs of Trump’s Trade War

The trouble with tariffs started soon after the nation's founding. When Congress convened for the first time in the spring of 1789, James Madison implored his colleagues to resolve "the deficiency in our Treasury" by establishing import duties. In addition to raising revenue, the original tariffs were also designed to "protect our infant manufactures" from more mature and efficient industries in Europe.

The congressmen agreed on the need for tariffs, but they differed on how the duties should be apportioned. Every state had local industries to protect. Virginia sought a tariff to protect hemp farmers in its western territory. But New Yorkers feared higher hemp prices would bankrupt their rope makers, so they insisted that the rope tariff be increased in proportion to the hemp tariff. Massachusetts objected to tariffs on rope or hemp, complaining that higher rope prices would harm its shipbuilders. South Carolina, which had little industry, objected to all the protective tariffs on manufactured goods and called for a straight 5 percent revenue tariff across the board.

As the quarrels and deliberations extended into summer, the government sank deeper into debt. At last, on July 4, 1789, Congress passed “an Act for laying a Duty on Goods, Wares, and Merchandises imported into the United States.” It included duties on 76 items, beginning with rum and ending with horse carriages, each taxed according to its importance to the congressmen and senators who had assembled at Federal Hall that summer. Everything else was taxed at 5 percent.

Despite this compromise, tariff policy continued to divide the country. Congress kept the duties on raw materials low while steadily increasing duties on finished goods, which helped Northern manufacturers control costs while raising prices. By contrast, Southern farmers had to pay more for farm equipment and other manufactured products, yet received little protection for their crops. The simmering tensions erupted after Congress passed a heavily protectionist tariff bill in 1828. South Carolina's government denounced the "Tariff of Abominations" and claimed the right to nullify the law, provoking a constitutional crisis. Once again, Congress eventually found a compromise, but resentment over the issue continued to stoke North-South tensions leading into the Civil War.

By the late 1800s, American manufacturers no longer needed protection from Europe, but powerful industrialists manipulated the political system to drive tariffs ever higher. The Tariff Act of 1897 filled 70 pages and enumerated 705 categories of merchandise from aluminum and peppermint to feather dusters and “toothpicks of wood or other vegetable substance.” Many duties were exquisitely designed to benefit specific corporations, known as trusts, whose lobbyists drafted parts of the bill. Small businesses, unable to compete with the politically-connected trusts, folded or sold out. Southern and Midwestern farmers, squeezed by falling produce prices and rising costs for shipping and equipment, struggled to keep their land.