American Tariffs, The Good, The Bad, And the Unknown

On April 2, 2025, from the White House Rose Garden, President Donald Trump announced the third era of American Tariffs. It was a much-anticipated event, with the global financial world holding its collective breath. Seemingly, no one knew the details of these new taxes on imports.

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Bloomberg reported that Trump and his Cabinet worked out many of the details that morning. This starkly contrasted with the Tariff Act of 1789, the first American Tariff, when Congress debated for over a year before delivering that new law. With Trump, the new tariffs were the result of an Executive Order, not a law.

The Good Tariff

Imagine a proposed bill written by Alexander Hamilton, the man most considered the finest economics expert of his day and the Secretary of the Treasury. It would be sponsored by an equally astute economics expert who would later become President, James Madison. After much debate, it would be signed into law by the most respected President of all time, George Washington.

From the beginning of the debate over tariffs, it was apparent that the country was divided into at least two constituencies: one that welcomed and opposed tariffs. For the factories of the North, tariffs would become the protection they needed from foreign competition.

But for the farmers of the South, tariffs were a costly burden. For years, the Southern States relied on offsetting international trade. For instance, South Carolina sold agricultural goods, chiefly tobacco, to Europe, providing finished industrial goods to South Carolina.

It took months to negotiate the necessary compromises. However, all the states reached a final agreement, and George Washington signed the Tariff Act on July 6, 1789.

The Act had three objectives:

First, protect infant American Industry from foreign competition.

Second, provide the funds needed to operate the new “Federal Government.”

Third, pay off the country’s war debt.

Objectives that still apply to our country 236 years later.

Remarkably, it all worked, creating the financial foundation of this infant nation. For well over a century, Tariffs provided the revenue needed to operate the Government while servicing the country’s debt. As a bonus, they proved the protective barrier that allowed for the development of American factories.

The Bad

That all changed in the fateful year of 1913. Anyone who has followed the debate over Trump’s tariffs will hear this discussion eerily similar. The Democrats, under President Woodrow Wilson, argued that the existing Tariffs placed an unfair burden on American consumers, who would pay higher prices on imported goods—essentially the same argument we hear today.

Instead, Wilson proposed an income tax on the “rich.” After months of debate and referendums in each of the States, the Sixteenth Amendment to the US Constitution was passed. This Amendment introduced the country to a new taxation: taxes on income.

Indeed, initially, the income tax applied to merely the top 3% of income earners. As you know, the Income Tax applies to most US citizens today.

It also marked a sea change in the financing of the Federal Government. Up until 1913, tariffs represented most of the Government’s income. After 1913, the Income Tax would become its chief revenue source.

With this background, you can readily see why the second great push for Tariffs was considered a failure. Seventeen years after the country had turned away from Tariffs, the Dust Bowl began. The Dust Bowl resulted from a tremendous drought in the rich farmland of the Midwest. Following on the heels of the Stock Market Crash of 1929, this provided a one-two punch to the nation that resulted in the Great Depression.

In Washington, two representatives recognized the suffering that the farmers were experiencing. Senator Reed Smoot and Representative Willis C. Hawley recalled the success that the early Tariffs had in protecting American Industry during the nation’s formative years.

Their Act was designed to provide the same sort of protection for American Farmers. On June 17, 1930, President Herbert Hoover signed the Smoot-Hawley Tariff Act into Law.

While their effort may have been noble, the American public did not see it that way. Like all tariffs, it raised the cost of imported goods to consumers.

Because everyone was suffering during the Depression, this new Tariff seemed like just one more burden on an overburdened country. Economists decried the new Tariff as extending the effects of the Depression, and the general public rejected the tariff outright.

It took President Franklin D. Roosevelt and the Democratic Congress of 1934 to pass the Reciprocal Trade Act, which allowed the President to negotiate Tariffs on a bilateral basis with other countries.

With the stroke of a pen, Roosevelt eliminated the higher Smoot-Hawley Tariff.

He began a trend that was followed by almost all Presidents until Trump. Roosevelt chose to appeal to the consumer rather than protect the American producer.

The Unknown

Yesterday, President Trump reversed nearly a century of moving away from Tariffs, seeking instead to impose at least “nice” reciprocal Tariffs across the globe. Many of the details have yet to be worked out, as this is more of a developing Policy than a fully enacted law.

Many questions remain over the ultimate success or failure of these new Tariffs. However, we have two different historical models: the successful Tariffs of Hamilton and Madison in 1789 and the failure of the Smoot-Hawley Tariff of 1930.

The current global integration of American Industry makes the future outcome of tariffs uncertain. But one thing is certain: like every Tariff, the cost to the consumer of foreign goods will rise.

So the question becomes: Will the American public accept new, higher prices, as we did in 1789? Or will we reject them, as we did in the 1930s?

The eventual success or failure of Trump’s New Tariffs lies with us, the American people. And perhaps that’s as it should be.

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