1. Did you know that George Washington signed the Tariff Act of 1789 on July 4th and that it was considered the Second Declaration of Independence by the people at the time?
2. The Tariff ACT of 1789 was the first major Act passed by the US government under the new Constitution. In other words the country was founded on Tariffs.
3. It also started an economic and political tension between the Northern "industrialized" states and the Southern agriculture states that would lead 72 years later to the civil war.
4. The GOP under Abraham Lincoln was anti free trade and supported the concept of the tariff. Like the USA the Republican party could be said to have been founded on tariffs among other things.
5. The heyday of the tariff was the Smoot-Hawley ACT which many people cite as a reason not to have tariffs. It is suggested that it caused the Great depression to last longer. It was passed in 1930 by a GOP congress and signed by the GOP POTUS, Hoover.
6. At its core a tariff is a tax. As we all know from the Laffer Curve if you increase taxes pass a certain point, it has a negative impact. The Smoot-Hawley Act did that. The Act itself proved more about dangers of high tax rates than anything about tariffs.
7. However, the dems under FDR used the Great depression and the Smoot-Hawley act as campaign issues in 1932 and won both the WH and Congress. As such the dems passed the Reciprocal Tariff Agreements Act in 1934.(RTAA)
8. That act gave FDR power to "liberalize" (i.e change) American trade policy. It for the first time allowed the POTUS to conduct bilateral, reciprocal trade deals with other countries. (sound familiar?)
9. This Act of 1934 ceded Congressional power over trade to the Exec branch. The GOP remained firm tariff supporters until the victory of WW2. However when the GOP won Congress in 1946 they didn't repeal the 1934 act.
10. WW2 saw the destruction of most industrialized countries. Leaving the USA as the giant left standing. Exports of our goods naturally exploded as the world rebuilt. Exporters in the USA became very politically powerful. The GOP adopted the dems position on trade.
11. After WW2 these exporters caused the political incentive to shift from raising tariffs to reducing tariffs as the USA became the exporter to the world, using reciprocal bilalteral acts to open up foreign markets for our exports into war ravaged countries.
12. This new political power was used by the leaders to sign the General Agreement on Tariffs and Trade) GATT in 1947. 23 other countries signed on to the agreement at first
13. During this time the "free trade" policy also became a foreign policy of the USA to keep it's "allies" within its sphere of influence during the cold war with the USSR. This caused more multilateral trade deals to be made.
14. Because of these three forces; the rise of the political power of exporters, the low imports from other countries and the foreign policy of containment of communist, The USA was unilaterally reducing it's tariffs and allowing war ravaged countries to import basically free.
15. With the rise of the welfare state, the nation's leaders had even less reason to protect industry within the country as those who lost jobs could go on the gov dole. As more people got payments from the government, the leaders got more power. Win-win
16. It worked great until the 70's. At that point most of the countries were rebuilt, their manufacturing had come online, Bretton Woods agreement was shot & now the USA was faced with increasing competition from those countries. By 1975 the USA was carrying a net trade deficit.
16. In answer to this change in circumstances the USA continued its post war polices. Increasing GATT, adopting more Most Favored Nation polices leading in 1995 to changing GATT into the World Trade Organization. They doubled down.
17. This led to even more agreements like the EU, and NAFTA and the proposed TPP and TTIP where entire geographical regions were included. These tweaks allowed the policies now known as "globalization" for lack of a better term to muddle along without any major opposition force.
18. However, in 2001 China entered the WTO and the entire system was torn a sunder. For the last almost 2 decades the elites have continued to try to make the post war system work but it is on its last legs.
19. The results of the system are creating massive disruptions and imbalances. What comes next is anyone's guess but the political power of those who support tariffs and borders are once again rising. It's clear the current system can not continue as is.
20. This was not meant to be an in depth discussion of the history of trade in the USA. Instead it is just a general overview for those that wish to have a basic understanding beyond the talking points regarding an issue being debated in today's political discourse. /end
