© Provided by American Institute for Economic Research
The Tariff of 1824 was a “bill of bargains, to enrich a pecuniary aristocracy,” Virginia Senator John Taylor of Caroline warned his fellow senators in debate that year. “This aristocracy is a polygamist, and is, by this bill, courting a number of local interests with a design to marry them for the sake of their fortunes.”
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Such wheeling, dealing, and logrolling typified the manner whereby the United States crafted trade policy from 1816 until recently. During that period, as a general matter, protectionism ruled. The global free trade that American businesses and consumers now enjoy emerged only after World War II. While, typically, early Americans governed with far fewer regulations, their trade policy was far less open and free than today’s. In the post-war era, American leadership in such international fora as the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) has driven down trade barriers. Even the Republican Party, the traditional friend of protectionism, pulled to support relatively unimpeded international commerce.
Then the 2016 election happened. Since then, Presidents Donald Trump and Joe Biden have each mounted a frontal assault on free trade. Too many politicians in their respective parties have endorsed their efforts fully.
Trump rekindled the GOP’s long-held affection for tariffs shortly after taking office. This protectionism resonates well with the blue-collar voters in today’s populist Republicans circles. The former President predicated a charcuterie board of tariffs on bogus national security claims. These tariffs stymied American industry. Further, the primary casualties of his vaunted trade war with China proved to be American businesses, hit by friendly fire from their own government.
Consider Trump’s taste for invoking Section 232, the law that allows the President to unilaterally impose tariffs for reasons of national security. “In less than four years of Section 232’s 58-year existence…the Trump administration was responsible for 24 percent of all investigations, 40 percent of all affirmative national security findings, and 25 percent of all actions,” the Cato Institute’s Scott Lincicome and Inu Manak observed shortly after Trump left office. What’s more, while “past actions took the form of quotas, license fees, and embargoes on a narrow range of products,” they write, Trump “was the first to use tariffs as a remedy.”
Biden’s policies have proved largely consistent with his predecessor’s. However, while Biden’s protectionism encompasses Trump’s tariffs, it also introduces a healthy environmentalist streak, which is often manifested in non-tariff trade barriers. For example, in the Inflation Reduction Act (IRA), Biden and congressional Democrats limited eligibility for electric-vehicle (EV) subsidies to domestically manufactured vehicles only. He has, moreover, championed so-called “Buy American” requirements for federally funded projects.
Protectionism is no panacea for prosperity as its advocates suppose. Merely taxes by another name, tariffs inflate prices paid by domestic consumers as well as industries downstream in the supply chain. They also severely burden American exporters. “The tariffs imposed under the Trump administration and remaining in place under the Biden administration will reduce long-run GDP by 0.22 percent ($55.7 billion) and wages by 0.14 percent and eliminate 173,000 full-time equivalent jobs,” writes the Tax Foundation’s Erica York. “Other countries imposed retaliatory tariffs on US exports, which we estimate will further reduce US GDP by 0.04 percent ($9.4 billion) and eliminate 29,000 full-time equivalent jobs.”
Both Trump’s and Biden’s protectionism violate America’s freely made trade obligations at the WTO. To avoid scrutiny, however, both Presidents blocked the installation of new members to the WTO’s Appellate Body. This obstructionism functionally eliminates the organization’s adjudicatory power. Consequently, it shields US noncompliance – including Trump’s metal tariffs and Biden’s domestic-manufacturing requirements for EV subsidies – from any accountability.
Already, America has exploited this self-made gridlock. In 2018, Trump enacted steel and aluminum tariffs of 25 percent and 10 percent respectively. These duties clearly violated WTO obligations with several countries lodging complaints. The organization in 2022 ruled against the tariffs, but Biden announced an appeal to the decision in January. US efforts to neutralize the Appellate Body will almost certainly prevent this appeal’s final resolution, effectively rubber-stamping American lawlessness.
To appreciate the gravity of America’s recent pivot to protectionism, one must examine the import of its post-war embrace of free trade – and the magnitude of that departure from historical trade policy.
Much of American history takes on a decidedly protectionist hue as generations of politicians placated localized economic interests at the expense of everybody else. Policymakers’ voting habits have generally corresponded tightly to their constituents’ economic interests. Correspondingly, the Republicans (and their predecessors, the Whigs) historically represented the industrialized North and advocated protectionism. Democrats – historically hailing from the agrarian, exporting South – preferred free trade. To varying degrees, America held fast to protectionism from the early 19th century to the middle of the 20th.
In the pre–Civil War period, a coalition of the manufacturing North and the infrastructure-hungry West rammed through a barrage of tariffs. Most notably, the Whigs’ protectionist fervor, and a poor political gamble by Democrats, uncaged the Tariff of Abominations in 1828. This soon ignited a constitutional crisis. Congress avoided catastrophe only by the efforts of the Great Compromiser, Sen. Henry Clay of Kentucky.
After a brief free-trade lull – inaugurated by the Walker Tariff of 1846 – and a devastating Civil War, America returned to protectionism. The GOP then capitalized on its Reconstruction-era political dominance to keep tariff schedules high. The ensuing decades saw cyclical rounds of sparring between successively ascendant coalitions of high-tariff Republicans and low-tariff Democrats. Through it all, robust protectionism remained U.S. policy.
A seismic change began under President Warren G. Harding. Article I, Section 8 of the US Constitution vests in Congress the powers to tax and to regulate commerce. But in the Fordney-McCumber tariff of 1922, Congress delegated to the President modest authority to adjust the tariff schedule. In the depths of the Great Depression – exacerbated by the disastrous Smoot-Hawley tariff of 1930 – Congress further infused the presidency with trade powers. In coming years, Congress handed off still more authority in several installments.
Presidentially led tariff negotiations proved revolutionary in advancing free trade. Far better than Congress, the presidency has resisted the political pressure of protectionist lobbyists. Particularly since 1947 and the birth of GATT, America’s Article II trade negotiators have built a multilateral policy scaffold that today supports unprecedented levels of free exchange worldwide. US leadership at the GATT, and the WTO, has done much to cause member nations to trade far more freely, bringing global commerce and prosperity to unprecedented heights. Indeed, such globalization has helped generate previously unknown wealth – and health – in rich and poor nations alike. As evidenced by Trump and Biden, a President may use his unilateral tariff authority for ill. Further, as the Constitution provides, Congress rightfully holds the authority to set trade policy. That Presidents achieved much in the 20th century ought not discourage Congress from reasserting itself and protecting free trade in the current century.