The Tariff Act of 1789, signed by President George Washington on July 4, sought to solve two problems of the early United States. This legislation, which called for import duties on foreign produced products, first and foremost, provided a revenue stream for the federal government. For instance, in 1790, 99.9 percent of federal revenue came from the recently instituted tariffs. Second, tariffs were viewed as a mechanism that would allow the young America to build an industrial base with reduced competition from foreign companies.
With the ratification of the Sixteenth Amendment in 1913, which generated government revenue through the collection of income taxes, one of the original motivations for tariffs diminished. Similarly, as the global economy has increasingly embraced notions of free trade; tariffs, which restrict the flow of goods across the world, are seen as counterproductive. Especially since they have the potential to trigger destructive trade wars.
Another historical and contemporary reality is that tariffs do not benefit consumers. During the nineteenth century, industrial interests applauded the existence of high tariffs because it minimized their competition and maximized their ability to set prices. Conversely, these same tariffs raised the cost of living for many Americans. In this context, President Trump’s calls for tariffs against China and Mexico would likely result in U.S. shoppers paying a steep price for this component of the “Make America Great Again” agenda.
