Tariff of Abominations
Tariffs are taxes imposed on imported goods by a government to protect domestic industries, generate revenue, or control trade balances. When a country implements a tariff, foreign goods become more expensive for domestic consumers, often leading them to buy local products instead. However, the increase in price doesn’t simply vanish – it directly impacts consumers, who ultimately bear the burden of these higher prices. This effect, where tariffs indirectly act as a tax on consumers, often makes goods less affordable and can contribute to inflation, effectively decreasing purchasing power and raising the cost of living for citizens in the country imposing the tariff.
The early use of tariffs in the United States dates back to the country’s founding, where tariffs were essential to generating revenue and fostering the growth of American industries. In the 18th and 19th centuries, the young United States government relied heavily on tariffs as its primary source of income since there was no federal income tax until the early 20th century. These tariffs generated revenue but also protected fledgling American industries from foreign competition, particularly from Britain, whose industrial power and low-cost goods threatened to undercut American manufacturers. While helpful for new industries, the increased cost of imported goods also meant citizens faced higher prices for certain goods, sparking concerns about affordability.
One of the first major tariffs, the Tariff of 1789, was enacted under Secretary of the Treasury Alexander Hamilton. Hamilton advocated for developing American manufacturing to achieve economic independence from Britain, and he saw tariffs as a way to protect and nurture domestic industries. The Tariff of 1789 placed duties on imported goods, generating revenue to help fund the federal government and pay off debts from the Revolutionary War. While this tariff established a steady income source and stabilized government finances, it had a mixed impact on American citizens. Although it protected emerging industries, it also raised costs on everyday items like clothing, tools, and household goods for consumers, creating a financial burden, especially for those relying on foreign-made goods for affordability or quality.
The increased prices encouraged Americans to buy domestically produced items, which helped support growing American industries, particularly in the northern states. As a result, more local manufacturing jobs emerged, contributing to economic growth within the U.S. and supporting certain sectors. However, this growth wasn’t universally beneficial. The impact of the Tariff of 1789 varied significantly by region, laying the groundwork for tensions between the industrial North, which benefited from protectionist policies, and the agricultural South, which relied more on imported goods and experienced higher costs without seeing comparable local job benefits. For Southern citizens, the tariff effectively made essential goods more expensive while providing minimal direct economic advantages, stirring early resentment and a sense of economic unfairness.
This regional tension set a precedent for the divisiveness of protectionist policies in the U.S. As tariffs continued to be a central part of American economic strategy, citizens became more aware of the complex effects tariffs could have on their livelihoods, often depending on regional and economic factors. These early experiences influenced later debates over balancing the goals of protecting domestic industries with maintaining affordable goods for consumers.
Throughout the early 19th century, tariffs continued to be a key component of American economic policy, simultaneously providing revenue and building up American industry but also sparking significant political and economic friction. The Tariff of 1828, known as the “Tariff of Abominations,” imposed high duties on imported goods like wool, iron, and textiles. While the tariff protected Northern industries, it was widely disliked in the South, where the economy depended heavily on agricultural exports and imported goods. Southern leaders argued that the tariff disproportionately benefited Northern manufacturers at the expense of Southern consumers and farmers. This tariff controversy ultimately contributed to the Nullification Crisis, during which South Carolina declared the tariffs null and void within the state, leading to a tense standoff with the federal government.
Despite these tensions, tariffs remained a critical part of the American economy through the mid-1800s, providing revenue and supporting American industries but also making goods more expensive for consumers. Tariffs became increasingly divisive, contributing to economic divides, with the industrial North generally advocating for higher tariffs to protect its industries, while the agricultural South opposed them. This division over tariffs reflected the broader economic and political rifts that would eventually culminate in the Civil War.
In the decades following the Civil War, the United States continued using tariffs to protect its industries, particularly during the Gilded Age. Industrial leaders lobbied for high tariffs to shield American products from foreign competition, fostering rapid industrial growth within the U.S. By the late 19th century, the United States had become one of the world’s leading industrial powers, thanks partly to these protectionist policies that enabled American businesses to thrive. However, the protective shield of tariffs came with trade-offs, particularly for consumers, who faced inflated prices due to restricted competition. This trend of rising consumer costs and regional disparities continued to fuel debate on whether the benefits of tariffs for American industry justified their inflationary impact on the wider population.
In the 20th century, the United States' heavy reliance on tariffs came under intense scrutiny as the economy reeled from the effects of the Great Depression. Protectionist policies, like the Smoot-Hawley Tariff Act of 1930, revealed the significant risks of high tariffs in an increasingly interconnected global economy. The economic devastation of the Great Depression ultimately pushed the U.S. to shift towards more open trade policies, recognizing the dangers that protectionism could pose to both domestic stability and global markets.
The Smoot-Hawley Tariff Act, enacted in 1930, was intended to safeguard American jobs and industries by imposing steep tariffs on more than 20,000 imported goods. Lawmakers aimed to shield American businesses from foreign competition as the effects of the Great Depression began to unfold. Yet, rather than providing relief, this policy exacerbated the economic crisis, revealing the inflationary and depressive effects of excessive tariffs.
When the Smoot-Hawley tariffs took effect, they triggered immediate and widespread retaliation from the U.S.'s trading partners. In response, 25 other nations, including Canada, Mexico, Spain, France, and Germany, increased their own tariffs on American goods. This international tit-for-tat severely restricted U.S. exports, shrinking global markets and cutting off a vital revenue stream for American businesses that relied on foreign customers. U.S. companies, unable to sell their goods abroad, were forced to cut back production, resulting in widespread layoffs and further increasing the country’s unemployment.
As international trade stalled, inflation in the U.S. increased. Goods that could previously be imported at competitive prices became more expensive, both because of the tariffs and because fewer foreign goods were available to compete with domestic products. This inflation further reduced consumers’ purchasing power, increasing their financial strain and making it harder for them to afford everyday goods. The increased cost of living, paired with the plummeting availability of jobs, only deepened the economic hardship.
The contraction in global trade not only worsened the domestic economy but also fueled a vicious cycle of economic decline worldwide. When the U.S. blocked imports with high tariffs, it wasn’t just American consumers and industries that felt the impact; international businesses reliant on U.S. markets also suffered. With global demand for goods dropping sharply, production cuts and layoffs became common worldwide, spreading the economic depression across borders. The decline in international commerce compounded the economic downturn, extending the depression’s duration and causing prolonged economic stagnation and hardship.
The Great Depression underscored the inflationary risks associated with protectionist tariffs, especially in a globalized economy where countries are interdependent. As U.S. policymakers later acknowledged, high tariffs can backfire, leading to a decrease in exports, increased consumer costs, and strained international relations that exacerbate economic depressions. By effectively locking out foreign goods, tariffs shield domestic markets in the short term but often harm consumers, increase the cost of living, and shrink job opportunities in the long term.
In response to the harsh lessons learned during the Great Depression, the U.S. gradually began to embrace more open trade policies. Policymakers recognized that excessive tariffs, rather than fostering economic stability, could lead to inflation, increase consumer hardship, and amplify economic downturns. This shift away from protectionism marked a significant policy evolution, ultimately contributing to more integrated global trade systems, which many believed could help prevent future economic crises.
The American economy has experienced significant shifts from the Great Depression to the present day, marked by cycles of inflation, depression, and recovery. Throughout these fluctuations, trade policies—either promoting free trade or imposing tariffs—have had a profound impact on economic conditions, influencing inflation, employment, and overall growth.
Following the Great Depression and World War II, the U.S. shifted toward more open trade policies, partly to rebuild war-torn economies and prevent another global depression. Trade liberalization was spearheaded by The General Agreement on Tariffs and Trade in 1947, which reduced tariffs and trade barriers among participating countries. This period, known as the "post-war economic boom," saw rapid economic growth, low inflation, and high employment rates. Open trade allowed American companies to access new markets, leading to increased productivity and innovation.
By the 1970s, however, this period of prosperity began to decline due to various factors, including the 1973 oil crisis and increased global competition. Though inflation surged, it was primarily due to rising oil prices and supply shocks rather than trade policies. The open-trade policies remained largely intact, promoting economic stability despite these inflationary pressures.
The 1980s saw a revival of protectionist sentiments under President Ronald Reagan, who responded to high inflation and a competitive global market by implementing tariffs and trade restrictions in specific industries, such as automobiles and steel. These selective tariffs aimed to protect struggling American industries from foreign competition, particularly from Japan. While the broader economy continued to grow, certain sectors faced inflationary pressures as tariffs increased prices on imported goods. However, the inflation rate eventually decreased, and the economy stabilized due in part to the Federal Reserve’s monetary policies rather than trade measures.
The 1990s and early 2000s marked an era of robust economic growth, with low inflation, high employment, and increased global interconnectedness. Presidents George H.W. Bush and Bill Clinton ushered in a new era of free trade agreements aimed at expanding the U.S. economy through global markets with the North American Free Trade Agreement (NAFTA), which created a trilateral trade bloc between the U.S., Canada, and Mexico, removing most tariffs and trade barriers, and The World Trade Organization (WTO), which was a commitment by the U.S. to reduce tariffs and promoting free trade on a global scale. These free trade policies allowed American consumers to access lower-cost goods, helping to keep inflation low and increase consumer purchasing power. The economic expansion of the 1990s is often attributed to this period of free trade, alongside advancements in technology and productivity.
The 2008 financial crisis triggered a deep recession, but it was rooted in the collapse of the housing market and financial sector rather than trade policy. However, during the recovery, U.S. trade remained largely open, with President Obama supporting free trade agreements like the Trans-Pacific Partnership, though it was never ratified. Low inflation and a slow recovery characterized this period, and open trade was viewed as a mechanism to stimulate growth by enabling U.S. companies to expand internationally.
In the late 2010s, the U.S. experienced a renewed focus on protectionism under President Donald Trump, who implemented tariffs on goods from China, Canada, the European Union, and other trading partners. These tariffs aimed to address trade imbalances, protect American industries, and reduce dependency on foreign manufacturing, especially in critical sectors like steel and technology. The trade war with China led to higher prices on a wide range of consumer goods, contributing to inflationary pressures as companies passed on the added costs of tariffs to consumers. Additionally, U.S. exporters faced retaliatory tariffs, which reduced their access to foreign markets and hurt industries reliant on international sales.
While the COVID-19 pandemic in 2020 was a more immediate cause of economic contraction, the tariffs also contributed to supply chain disruptions and price increases, further exacerbating inflation during the recovery period. The COVID-19 pandemic disrupted global supply chains and significantly impacted the U.S. economy, leading to high inflation as demand outpaced supply in many sectors. The crisis underscored the interconnectedness of global trade, with tariffs and supply chain bottlenecks making certain goods more expensive and less accessible.
Although trade policies have been somewhat relaxed under President Joe Biden, inflation remains high due to lingering supply chain issues and rising energy costs. The recent experience with inflation has prompted a reevaluation of protectionist policies, with some advocating for strategic tariffs to safeguard critical industries and others urging a return to free trade to reduce consumer costs.
Donald Trump has outlined a sweeping tariff strategy aimed at overhauling U.S. trade policies and boosting domestic industries. His plan includes a universal tariff of 10% to 20% on all imports, with an especially high 60% tariff on Chinese goods. Trump argues that such measures will protect American jobs, lower the trade deficit, and incentivize companies to bring manufacturing back to the U.S.
However, economists and trade experts are raising serious concerns about the dangers of broad tariffs, especially those targeting China. Historically, high tariffs have often backfired, imposing significant burdens on American consumers and triggering economic downturns. For example, the protectionist Smoot-Hawley Tariff of 1930, enacted to shield American industries during the Great Depression, led to retaliatory tariffs from trading partners worldwide. This led to a collapse in global trade, exacerbated the economic downturn, and intensified the Great Depression. More recently, China has also responded to U.S. tariffs by imposing its own tariffs on American goods, affecting U.S. exporters and raising prices domestically.
A similar outcome is likely if tariffs are broadly applied today. Tariffs make imported goods more expensive, which raises costs for American companies and consumers alike. Retailers typically pass these increased costs on to consumers, leading to inflation and reducing purchasing power. This inflationary effect hits lower- and middle-income households the hardest, as they bear the brunt of higher prices on essential goods. Additionally, retaliatory tariffs from countries like China could hurt U.S. exporters, shrinking demand for American products abroad and putting pressure on industries reliant on international markets.
Trump’s tariff proposals mark a significant departure from longstanding U.S. trade policies, which have generally favored free trade and low tariffs to promote economic integration. Shifting toward a protectionist approach risks isolating the U.S. from global trade networks, increasing costs for American families, and triggering retaliatory actions that could hurt U.S. exporters. While the goal of strengthening American industry is appealing, the historical record suggests that broadly applied tariffs may place more of the economic burden on American consumers, destabilizing the economy rather than achieving the intended protectionist benefits.
Economists largely agree that the best way to reduce the cost burden on American consumers is by promoting open trade policies and lowering tariffs on imports. Free trade provides American consumers with access to a wider array of goods and services at lower prices by tapping into global markets with lower production costs.
When tariffs are minimized or eliminated, both international and domestic companies compete, resulting in lower prices for consumers. This competition drives efficiency and innovation, which further reduces costs. By reducing the extra expenses associated with import taxes, consumer goods become more affordable, which helps control inflation and preserve purchasing power, especially for low- and middle-income families. Additionally, open trade allows the U.S. to source goods and materials from multiple countries, reducing dependency on any single market. This diversification helps stabilize prices, even when global disruptions impact specific regions or industries.
Open trade policies also encourage cooperation and economic interdependence among nations, reducing the likelihood of retaliatory tariffs and promoting stable, mutually beneficial trade relationships. Moreover, open trade fuels economic growth by enabling U.S. businesses to enter new markets, benefiting consumers with lower prices and creating job opportunities that strengthen the economy.
Economists also broadly support increasing taxes on the top 1% of earners as a means to relieve the tax burden on lower-income brackets, particularly the bottom 50% to 60%. By increasing tax contributions from the wealthiest individuals, who hold a significant portion of total wealth, the government can raise revenue to fund public services, reduce income inequality, and potentially lower taxes for lower-income households.
Income and wealth inequality have grown significantly in recent decades, with the top 1% accumulating a disproportionate share. Progressive tax policies can help address this imbalance by redistributing income more equitably, which enhances economic opportunities and quality of life for lower-income groups. Shifting a greater share of the tax burden to the wealthiest individuals can alleviate financial pressures on middle- and lower-income earners through lower tax rates, credits, and deductions that benefit most Americans.
Because lower-income households tend to spend a larger portion of their income on essentials, reducing their tax burden often increases consumer spending, which stimulates economic growth by boosting demand—a key factor for job creation and business expansion. Higher taxes on top earners also allow the government to raise revenue without adding to the tax load of middle- and lower-income households. This revenue can fund essential programs, including healthcare, education, and social services, which directly benefit lower-income families. Redirecting funds from top earners toward initiatives like education, job training, and affordable housing also improves economic mobility, offering lower-income individuals greater opportunities to move up the economic ladder.
Donald Trump's 2024 tax proposal seeks to build on the 2017 Tax Cuts and Jobs Act (TCJA) by further reducing taxes for both individuals and businesses. The TCJA initially lowered tax rates across all income brackets, offering modest tax relief to lower-income earners. However, these cuts were considerably more substantial for higher-income households. For those in the lower 50% of income earners, the tax rate reduction provided modest short-term savings, typically around 1-2% in after-tax income. In contrast, the wealthiest households saw increases closer to 3% or more, resulting in disproportionately greater benefits for higher earners.
Under Trump’s current proposal, he aims to reduce the corporate tax rate further, from 21% to 20%, with a potential decrease to 15% for companies manufacturing domestically. This follows the TCJA’s initial corporate tax reduction from 35% to 21%, a measure that primarily benefits corporations, executives, and shareholders—largely higher-income individuals. As a result, the TCJA’s larger tax cuts were concentrated among corporations and wealthier households, which contributed to limited improvement in income inequality and left lower-income earners with minimal long-term gains in wealth or financial security.
Ultimately, Trump's economic plan appears to prioritize boosting the wealth of Corporate America, with consumers and taxpayers shouldering much of the cost. His tariff strategy, for example, is designed to increase the profitability of companies manufacturing within the U.S. by discouraging reliance on imported goods through high import tariffs. While this could benefit certain American industries, it places a significant financial burden on consumers, who will likely face higher prices on a wide range of goods—especially those commonly imported. These increased costs ultimately reduce purchasing power, particularly affecting middle- and lower-income families who spend a larger portion of their income on essentials.
Trump's tax plan also follows a similar pattern of benefiting the wealthiest Americans. While it does offer minimal relief to lower-income earners, the primary beneficiaries are the top 10% of earners, who stand to receive substantially larger tax breaks. His proposal to make the corporate tax cuts from the 2017 Tax Cuts and Jobs Act permanent further underscores this focus. By reducing corporate tax rates, Trump’s plan would enhance corporate profits, benefiting high-income individuals who hold significant corporate shares and investments. In contrast, the tax savings for lower-income earners are relatively modest and are set to expire in 2025, potentially leaving these taxpayers with higher tax rates in the future while corporate tax cuts remain in place.
In addition, these policies risk widening the wealth gap by providing more resources to corporations and wealthy households while leaving lower-income Americans with limited long-term economic benefits. Economists warn that this approach could lead to larger budget deficits, potentially necessitating future cuts to public services and programs that low- and middle-income families rely on.
Kamala Harris's 2024 tax plan stands in stark contrast to Trump's, focusing on raising taxes for high-income individuals and corporations while delivering targeted tax relief to lower- and middle-income families. Her proposal includes increasing the top marginal tax rate for the highest earners to 39.6%, effectively reversing the cuts made under the Tax Cuts and Jobs Act (TCJA). For individuals earning over $1 million annually, Harris plans to raise the long-term capital gains tax rate to 28%, while also increasing the corporate tax rate from 21% to 28% to generate substantial revenue from large corporations.
Analysts estimate that Harris’s tax plan would increase federal revenue by roughly $1.7 trillion over ten years, though adjusted projections suggest a net revenue increase of approximately $642 billion after accounting for potential economic impacts.
Analyses suggest that while Trump’s tax cuts could spur some economic growth, they also risk increasing the federal budget deficit. According to estimates by the Tax Foundation, Trump's tax proposals could raise the 10-year budget deficit by approximately $3 trillion under standard assumptions or $2.5 trillion when factoring in economic growth projections. This increase could heighten the risk of future budget cuts, particularly in public programs that lower-income households rely on, potentially reducing the net benefit of the tax reductions for the lower 50% of earners.
