The United States has a long history with tariffs—taxes placed on imported goods.
In 1789, George Washington signed a bill establishing a five percent tariff on a wide range of imported goods. The tariff became the primary source of federal revenue and also served to protect the country’s “infant” manufacturing base. Historians and economists largely view this legislation as sound and necessary governance.
Within the first few months under the US Constitution, however, this Tariff Act of 1789 offered hints at the trouble to come. With much of American industry found in the free states of the North, support for tariffs was strong. In the South, agricultural products such as tobacco and cotton were often exported so these commodities were subjected to tariffs from importing countries. Many wealthy slave owners also preferred the higher quality industrial goods of Britain so they were forced to pay higher prices due to American tariffs. The result is that the slave states tended to oppose tariffs.
In short, tariffs can divide people.
The tariffs of 1828 and 1832 raised tariffs so high, South Carolina claimed the right to nullify them. President Andrew Jackson threatened to send in the military to force compliance. A compromise was eventually reached in 1833. This early conflict over tariffs mirrored the states’ rights argument that would lead to the American Civil War. The lesson here, if you haven’t been warned of it lately, is that tariffs can be bad, really bad.
At the onset of the Civil War in 1861, tariffs rose precipitously to near 50% on many goods and remained high until 1913. During this Gilded Age of 1870-1900, heavily protected American industry flourished.
President Trump favorably cites the Gilded Age in defense of his tariff program today… if we can call it a “program.” While the president undoubtedly admires this era’s thin layer of gold, much of this late-nineteenth century wealth was generated by only a handful of monopolistic robber barons on the backs of the poor; many of them newly-arrived immigrants and their children. Others fled the drudgery of farm life to pursue jobs in rapidly growing cities. The conditions during this period of massive urbanization were abhorrent. Families were crammed into crowded tenement buildings overflowing with filth. Food went unregulated allowing no means to determine what was actually being consumed. The factories were unsafe and injured workers were dismissed without compensation; quickly replaced with new arrivals. The air and water were polluted; streets ran with the manure and urine of omnipresent horses. (New York City alone was home to upwards of 200,000 horses. That number makes my nose hurt.)
Eventually, tariffs on a wide range of consumer goods contributed to massive inflation. During the Panic of 1893, for instance, businesses failed, banks closed, the stock market crashed, unemployment skyrocketed and people lined up for meals at soup kitchens. By the way, the president of the United States during the Panic of 1893 was Grover Cleveland, serving in the first year of his second non-consecutive term. Does this sound familiar to anyone? As you might have guessed, Grover’s not headed for Mount Rushmore, either.
When the income tax was authorized by the Sixteenth Amendment to the Constitution in 1913, tariffs were no longer as crucial for federal funding. The tariffs that remained served primarily to protect specific American industries from foreign competition. It is widely believed among economists that temporary targeted tariffs are an effective way to prop up American business, especially when faced with the nefarious activity of foreign manufacturers. Almost every economist today, on the other hand, knows that President Trump’s blanket tariffs are ridiculously and unnecessarily destructive.
Speaking of economic and socio-economic destruction, seven months after the stock market crash of 1929, and against the advice of many economists, President Herbert Hoover signed into law the Smoot-Hawley Tariff Act. Much like today’s tariff-talk emanating from the White House, Smoot-Hawley was intended to protect American industry during the Great Depression. Although, before Trump made his curtain call to the Pennsylvania Avenue stage, the economy seemed to be zipping along rather nicely. By the way, Smoot-Hawley didn’t work and is viewed by many as an economic disaster which only served to exacerbate the Great Depression. Herbert Hoover believed in “rugged individualism” and once ordered General Douglas MacArthur to attack hungry World War I veterans camped out in Washington, DC. Herbert’s not on Mount Rushmore either.
World War II set the stage for the United States to become the most powerful nation the planet has ever seen. Its signature economic achievement following the war was to establish a new world order based upon free trade. This is the beginning of the world in which we live today; well, the one we recently lived in anyway.
In The End of the World is Just the Beginning: Mapping the Collapse of Globalization (2022), geopolitical strategist Peter Zeihan argues forcefully that we are on the cusp of the end of that world.
Let’s set that bone-crushing title aside for a moment while we reminisce about what it is exactly that we’re losing.
Shortly after the D-Day invasion in June of 1944, with the free world giddy that Hitler’s Atlantic Wall had crumbled, the Allies met at The Bretton Woods Conference in New Hampshire. As Zeihan writes, “America offered their wartime allies a deal. The Americans would use their navy—the only navy of size [that would] survive the war—to patrol the global oceans and protect the commerce of all. The Americans would open their market—the only market of size [that would] survive the war—to allied exports so that all could export their way back to wealth. The Americans would extend a strategic blanket over all, so that no friend of America need ever fear invasion again.”
“There was just one catch. You had to pick sides in the Americans’ brewing Cold War. You could be safe and rich and develop your economy and culture however you wanted, but you had to stand with (technically, stand in front of) the Americans versus the Soviets.” By establishing the International Monetary Fund and the World Bank, Bretton Woods laid the groundwork for “the longest and deepest period of economic growth and stability in human history.” Peter Zeihan refers to this era as the American Order or simply the Order.
The “Order triggered a change in condition. By shifting the rules of the game,” he adds, “economics [systems were] transformed on a global basis. A national basis. A local basis. Every local basis. That change of condition generated the world that we know. The world of advanced transport and finance, of ever-present food and energy, of never-ending improvements and mind-bending speed.”
Over the next few years, the Bretton Woods agreement ushered in a staggering wave of worldwide industrialization and urbanization. Connected to this global trade network, nations could now put their energies towards producing the products that they produced best. The wealth generated by this revolution improved the health and life expectancy of nations around the world. Birth rates soared. Life’s modern conveniences like electricity reached all over the globe.
“During the past seven decades, as a percent of the population,” Zeihan continues, “fewer people have died in fewer wars and fewer occupations and fewer disease outbreaks than since the dawn of recorded history. Historically speaking, we live in an embarrassment of riches and peace.”
And the United States made it all possible.
The overwhelming characteristic of this unprecedented era of prosperity is low tariffs on goods exported to America. By 1950, tariffs on total imports to the United States fell below 10%. By 1980, this number fell to under 5% where it has remained ever since… until, well, you know. Low tariffs, and America as guarantor of global security, have been the backbone of global free trade.
Raising tariffs across the board today makes no sense whatsoever.
Conservative President Ronald Reagan—a hero of Trump fans everywhere—knew the harsh realities of high tariffs. In a radio address given in 1987, Reagan spoke of the damaging effects of tariffs.* He said, “over the long run such trade barriers hurt every American worker and consumer.” He added that “our commitment to free trade is also our commitment to fair trade.” He also noted that the Smoot-Hawley Tariff Act of 1930 “greatly deepened the Depression and prevented economic recovery.” He said that temporary targeted tariffs may work for a short time. He also said that “homegrown industries start relying on government protection… stop competing” and “innovating.” Tariffs also “lead to retaliation” that result in “fierce trade wars.” Due to “prices made artificially high by tariffs that subsidize inefficiency and poor management, people stop buying… markets shrink… business and industry shut down, and millions of people lose their jobs.”
The Gipper is now rolling over in his grave.*
As America withdraws from the world stage—tariffs, “America First,” the dissolution of USAID, withdrawal from the World Health Organization, threatening China, backing off support for Ukraine and NATO—the world is losing its means of security. As Zeihan warns, “No one else has the military capacity to support global security, and from that, global trade.”
“Thirty years on from the Cold War’s end, the Americans have gone home.” Without American markets for the goods of countries around the world and without the American Navy to protect the world’s trade routes, much of the world is in for a rough stretch. “The American-led Order,” Zeihan adds gloomily, “is giving way to Disorder.”
Clear evidence of Zeihan’s prediction is the outrageous tariff rates being defended by the Trump administration today. While these tariff proposals are certainly disruptive, reading Zeihan’s book has me wondering whether they should be considered more a symptom of our changing world rather than a cause of it. For now, I see them as a likely catalyst for what Peter Zeihan describes as the inevitable end to globalization, Trump or no Trump.
This is the crux of Zeihan’s book and the certainty with which he writes: Local infrastructure around the world is completely dependent on globalization. As global trade comes to an end, larger populations are living in local areas geographically incapable of producing enough food, they lack the energy resources to support the modern world they have built, and will be forced to adapt. Demographics and geography do not lie. I’ll share some of his more specific and regionally diverse predictions next time.
*President Ronald Reagan Radio Address April 25, 1987
**Former actor Ronald Reagan is known as “The Gipper” after he portrayed Notre Dame football player George Gipp in Knute Rockne: All American, a 1940 movie about legendary Notre Dame football coach Knute Rockne.
