Welcome to CrossDock,
In this issue, we trace the history of tariffs in the United States, exploring how they have shaped U.S. trade policy over time. We dive into the US-China tariff war, examining the impact of tariffs under President Trump and Biden. Finally, we weigh in on the ongoing debate: are tariffs ultimately beneficial or harmful to the economy?
Tale of Tariffs 💰
Image credit: Bloomberg
Tariffs have been around since the very beginning of trade. Rulers along ancient, bustling trade routes would impose tariffs on passing goods, build their wealth, and control commerce. For centuries, tariffs have been wielded as tools of economic influence and protection, shaping markets and safeguarding wealth.
For example, in ancient Greece, around 400 BCE, Athens imposed tariffs on imported goods arriving at major ports like Piraeus. These tariffs generated revenue for the city’s coffers and made foreign goods pricier.
Similarly, the Roman Empire relied on customs duties at its borders to generate income for the state and maintain its vast realm.
Cut to present. If there’s one thing Donald Trump absolutely loves, it’s tariffs. “To me, the most beautiful word in the dictionary is tariff. It’s my favorite word,” he declared, drawing applause from over 600 attendees at the Economic Club of Chicago during a Bloomberg interview. In this fiercely contested presidential race, tariffs have become a key talking point, with Trump asserting they could transform American industry.
In both his current and previous campaigns, Trump has emphasized that “Tariffs helped build America in the past.”
So, is there truth to this claim? Yes, there is some historical basis for it. To understand it better, let’s explore America’s longstanding relationship with tariffs and their impact.
Tariff and America
In the late 18th century, America was a young country surrounded by economic giants, especially Britain, whose industrial-strength threatened to overwhelm its fragile industries.
Alexander Hamilton, then Secretary of the Treasury, saw tariffs as a way to protect American manufacturers and allow them to grow without the constant pressure of cheaper imports from abroad. His vision wasn’t just about economics; it was about securing independence for a nation learning to stand on its own. By the early 1800s, tariffs made up about 90% of federal revenue, cementing them as a pillar of U.S. policy.
Image credit: UMY Journal
All was going well with tariffs. Protecting American industries and funding government revenue—until the Smoot-Hawley Tariff Act of 1930 turned things upside down. Signed at the onset of the Great Depression, this act raised tariffs on over 20,000 imported goods by about 20% in an attempt to shield American farmers and manufacturers from foreign competition.
However, rather than stabilizing the economy, it sparked a global backlash. In 1932, U.S. tariffs reached 59.1% of the value of taxed imports, the highest level since 1830.
Many nations launched their own retaliatory tariffs on American exports. Major trade partners, including Canada and several European countries, were quick to impose counter-tariffs on U.S. goods, effectively reducing demand for American exports and pushing American industries into deeper economic distress. This tit-for-tat escalation triggered a severe contraction in global trade networks that were already weakened by the onset of the Great Depression.
The impact was profound: international trade declined by an estimated 66% from 1929 to 1934, crippling not only the American economy but also economies around the world. Smoot-Hawley’s protectionist approach aimed to protect American jobs and industries, but the backlash led to widespread isolationism, creating a chain reaction that worsened the global depression.
The reduced export market forced American manufacturers to scale back production, cut jobs, and contribute to rising unemployment rates, further stalling any hopes of economic recovery in the U.S.
The devastating impact of Smoot-Hawley pushed the U.S. to rethink its approach to trade. America immediately shifted away from aggressive protectionism toward a more cooperative and free-trade-focused policy. The first major step in this new direction was the Reciprocal Trade Agreements Act (RTAA) of 1934, signed by President Franklin D. Roosevelt. This act was groundbreaking because it allowed the president to negotiate bilateral trade agreements with other countries, reducing tariffs in exchange for similar concessions.
And in 1947, under the leadership of the United States, the General Agreement on Tariffs and Trade (GATT) was established, setting international rules for reducing tariffs and trade barriers – a move that made the United States a torchbearer of free trade.
Since then, America had one of the lowest tariff rates in the world and used tariffs to selectively protect certain industries and assert economic leverage. One of the classic examples of this involves chickens and trucks!
Until 2018, US tariffs were among the lowest
The Chicken Tax
In the early 1960s, West Germans had developed a taste for American chicken. In 1961, they were importing an impressive $30 million worth of U.S. poultry annually, making American chicken a staple in West German households. This growing preference for affordable, imported chicken sparked frustration among local German poultry farmers and the European Economic Community (the forerunner of the EU), who saw American imports as a threat to their domestic industry.
In response, Germany and the EEC imposed a tariff on U.S. chicken imports, driving prices up significantly. Chicken that once cost around $1.50 in West Germany suddenly approached $3. This tariff was intended to level the playing field for local farmers, making American chicken less competitive and encouraging West Germans to buy domestically produced poultry instead.
Excerpt from President Lyndon B. Johnson’s Proclamation
Back home, the tariff on American chickens wasn’t taken lightly. The U.S. government decided to retaliate, targeting German imports in an area that would sting—vehicles. In 1964, the U.S. imposed a 25% tariff on light trucks, a measure known as the Chicken Tax. This tariff, directly aimed at popular German models like Volkswagen vans, caused German truck sales in the U.S. to plummet. While initially a counterstrike in a short-lived trade dispute, the Chicken Tax left a long-term mark on the American auto industry.
Over time, this tariff reshaped how foreign automakers approached the U.S. market. Companies like Toyota and Nissan saw that to compete in the American light truck segment, they’d need to find a workaround. These automakers began establishing manufacturing plants in the U.S. to bypass the Chicken Tax, creating jobs domestically and solidifying their position in the American market.
For the next several decades, tariffs were not central to the US economic policy or foreign policy, but all that changed when Donald Trump was elected the president of the United States.
Trump Card
The U.S.-China trade war became the centerpiece of President Trump’s tariff policies, and it quickly escalated into one of the most significant economic standoffs in recent history.
It all began in 2018, when Trump initiated tariffs on $50 billion worth of Chinese goods, primarily targeting electronics and machinery, with the intent to curb practices he viewed as unfair.
For decades, the U.S. had accumulated a staggering trade deficit with China, reaching $419 billion in 2018. Trump argued that China’s alleged intellectual property theft, forced technology transfers, and government subsidies to key industries were costing American jobs and giving Chinese companies an unfair advantage.
Furthermore, President Trump frequently alleged that Chinese companies flooded U.S. markets with inexpensive products that made it difficult for American companies to compete, impacting manufacturing jobs and leading to a reliance on Chinese imports.
The tariffs, which eventually covered $360 billion in imports, started at 10% but soon increased to 25% on many items, marking a significant increase in costs for U.S. companies reliant on Chinese manufacturing.
As tensions with China heated up, Trump also imposed tariffs on other products to protect American industries. In 2018, tariffs on steel (25%) and aluminum (10%) were implemented, citing national security concerns under Section 232 of the Trade Expansion Act. This move targeted global oversupply, especially from China, which had flooded the market with cheap steel, affecting U.S. producers. The steel and aluminum tariffs aimed to stabilize domestic industries and secure essential materials for national defense.
In the background, Trump targeted imports on a smaller scale as well. He levied 30% tariffs on imported solar panels and up to 50% on washing machines, aimed at curbing low-cost imports from Asia that had undercut U.S. manufacturers.
Another key issue the Trump administration focused on was the surge of counterfeit goods entering the U.S. from China, often through e-commerce platforms. Counterfeit items, including electronics, luxury goods, and even prescription drugs, posed safety risks and impacted small American businesses, making it harder for them to compete with the low prices of fake goods flooding the market.
In 2020, Trump issued an executive order directing U.S. agencies, including the Department of Homeland Security, to increase scrutiny on platforms like Alibaba and Amazon to prevent these products from reaching consumers.
The key question to ask here is whether the rise in tariffs achieved its intended goals. Did it successfully bring manufacturing back to America, create jobs, and ultimately strengthen the U.S. economy? Let’s dive in and find out.
Success Rate
When the tariffs were implemented in 2019, the U.S. government collected approximately $79 billion in tariff revenue—nearly double the amount from two years earlier. Despite these substantial tariffs, inflation rates remained relatively stable during the Trump administration.
In 2018, inflation was at 1.9%. It reached up to 2.3% in 2019 as tariffs expanded. However, in 2020, inflation fell back to 1.4%.
According to economists, the tariffs primarily targeted Chinese goods, amounted to over $300 billion in imports, and had a limited immediate impact on overall consumer prices – hence, no drastic increase in inflation.
But, the tariffs had other shortcomings.
When President Trump introduced tariffs on imports, his vision was to revive American manufacturing by reducing foreign competition. For example, the 25% tariff on steel and 10% on aluminum were aimed at strengthening U.S. production shielding industries from cheaper imports, primarily from China.
Initially, there was a modest uptick in sectors like steel, where companies reported increased demand due to reduced competition. Some domestic steel manufacturers even expanded, adding jobs to meet new demand. The tariffs reduced steel imports by 24%. However, according to a US Trade Commission report on Section 232, the tariffs ultimately increased the price of steel products in the United States by 2.4 percent and increased U.S. production of steel products by just 1.9 percent.
For many American companies reliant on imported raw materials, the tariffs brought higher production costs. Manufacturers of cars, appliances, and machinery—industries requiring substantial steel and aluminum—saw their expenses rise sharply.
Car manufacturers faced substantial increases in costs, often resulting in either thinner profit margins or higher vehicle prices. On average, these added expenses contributed around $7,000 to the cost of a new car, forcing consumers to shoulder the financial impact.
Another everyday item that was impacted by tariffs was washing machines. The median price of washing machines in the US rose by about $86 – or nearly 12% – after Trump imposed tariffs on foreign-made ones. Interestingly, the price of dryers – which were not impacted by tariffs also increased by 12% or about $92 per unit. Together, the price increases cost consumers more than $1.5 billion during the first year the tariffs were in place.
China also imposed its own tariffs on key U.S. exports, targeting American farmers. The hardest hit were soybeans, pork, and other agricultural products that had relied on China’s massive market. The toll was steep: according to the USDA, tariffs on U.S. agricultural goods slashed exports by nearly $26 billion, with soybeans alone accounting for a whopping 71% of that loss. This represented a 76% reduction in the value of agricultural exports to China - a big blow to American farmers.
According to experts, the most affected party in the tariff hullabaloo was the average American. The Congressional Budget Office estimated that these tariffs cost the average household between $500 and $1,500 per year due to higher consumer prices. Everyday items became more expensive as companies passed along their higher costs.
Retailers, especially those importing goods like clothing and electronics, faced a squeeze, having to choose between absorbing the added costs or raising prices—either way, the economic strain reached consumers. Economists also believe that low-income groups are often the most affected and face the adverse effects of tariffs.
Tariffs: Good or bad?
So, is the tariff strategy entirely misguided? The answer to this is not that simple. While tariffs created undeniable challenges — higher prices for consumers, strain on U.S. businesses, and trade tensions — the policy also spurred a drive for resilient, self-sufficient supply chains in critical industries.
One prominent example is the CHIPS and Science Act, signed into law in 2022 under the Biden administration. This act allocated over $52 billion to boost U.S. semiconductor manufacturing, R&D, and innovation. The policy aims to reduce America’s reliance on overseas semiconductor production, particularly from East Asia, which supplies over 70% of global semiconductors.
China, Taiwan, and South Korea produce the majority of these chips, and with tensions rising, the U.S. saw the strategic need to bring chip manufacturing closer to home. The tariff rate on semiconductors now stands at 25% and is set to increase to 50% by 2025.
By incentivizing domestic production, the act not only seeks to protect national security but also to ensure a stable supply for industries that rely on semiconductors, from smartphones to electric vehicles.
Bipartisan Consensus
Image credit: Agence France-Presse
What’s more, the Biden administration has not lifted many of Trump’s tariffs on Chinese goods—in fact, it has added new ones. Approximately 66% of Chinese exports to the U.S. remain subject to tariffs, with additional levies imposed on sectors like technology and machinery to curb China’s influence over critical industries. Biden added an extra $18 billion in tariffs to the $300 billion from the Trump administration, including the 100% tariffs on Chinese EVs.
This continuity underscores the bipartisan consensus on the need to counterbalance China’s dominance. The tariffs signal a united front in U.S. trade policy, aimed at both protecting domestic industries and incentivizing investment in American manufacturing.
Also, the Biden administration has taken a stricter approach to regulating the Section 321 and de minimis loopholes, which allow duty-free entry of imports valued under $800. Chinese e-commerce giants like Temu and Shein have used this provision to flood the U.S. market with low-cost goods, gaining significant market share over the years. By tightening these regulations, the administration seeks to curb this influx of Chinese goods entering tariff-free, reinforcing a bipartisan commitment to counter China’s influence and bolster U.S. manufacturing and industry.
What next
Image credit: Reuters
Today, tariffs have become a focal point in the economic debate between Trump and Kamala Harris. Both candidates recognize tariffs as powerful tools to counter foreign competition and protect U.S. interests, particularly with China. However, they present contrasting visions on how tariffs should be applied and what economic impacts they may bring.
Let’s accept it: American trade policy has evolved significantly over the past two decades. In today’s volatile geopolitical landscape, tariffs have become a strategic tool, allowing countries to protect sensitive sectors and counterbalance foreign influence. However, policymakers must be cautious, as tariffs can also have unintended consequences.
Poorly implemented tariffs can drive inflation, raise consumer prices, and dampen economic growth domestically, ultimately hurting consumers and businesses alike. When used judiciously, however, tariffs can help protect American industries, reduce reliance on competitors like China, and foster a more self-reliant economy.