Understand the beginnings of American tariffs and how they have evolved over 200 years.
Tariffs have been a key part of American economic policy since the country’s founding years. From the Tariff of 1789, which was designed to raise revenue for the new federal government, to the Smoot-Hawley Tariff Act of 1930, which many economists believe made the Great Depression worse, tariffs have been the subject of much debate.
In 2025, the Trump administration’s 10% base tax on all imports has once again made tariffs important. This has affected global supply chains and diplomatic relations. As the world becomes more interconnected and at the same time more nationalistic, it is important to understand the role that tariffs play in shaping the economic and political landscape. Understanding the history of tariffs can help us predict the potential impact of current and future tariff policies.
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Early American tariffs: Foundations of fiscal policy
Tariffs in the 19th century: Industrialization and protectionism
The Tariff Act of 1930: Smoot-Hawley and its impact
Modern tariffs: Globalization and trade wars
Early American tariffs: Foundations of fiscal policy
In the early years of the American Republic, tariffs were the country’s primary source of revenue. But the Tariff of 1789, one of the first laws passed by the new federal government, was as much about protection as it was about raising money. The tariff imposed duties on a wide range of imported goods and helped to pay down the young nation’s war debts.
Alexander Hamilton, the first Secretary of the Treasury, was a vocal proponent of using tariffs to protect and nurture American industries. He believed that without such protections, the U.S. would remain dependent on British and European goods and would not develop its own manufacturing base.
Yet, for all their economic advantages, tariffs were a double-edged sword, often sparking political discord. The Nullification Crisis of 1832 serves as a poignant illustration of how tariffs could inflame larger discussions about states’ autonomy and the power of the federal government. South Carolina, a state heavily reliant on cotton exports, found the high tariffs on foreign goods from the Tariff Act of 1828—also known as the “Tariff of Abominations”—to be a significant economic burden. In response, the state’s legislature passed an ordinance declaring these federal tariffs null and void within its borders, creating a constitutional standoff. This episode underscored the intricate dance between economic policy and political influence, laying the groundwork for ongoing conversations about the role of tariffs in America.
Tariffs in the 19th century: Industrialization and protectionism
In the 1800s, tariffs were a key part of the process of industrialization in the United States. The post-Civil War years saw a surge in industrial growth, particularly in the steel industry. Tariffs protected the American steel industry from cheaper European steel, allowing it to grow and prosper. This protection was key in building a domestic steel industry that could compete with and eventually surpass European powers.
The expansion of railroads, which were heavily supported by tariffs, was another transformative force in the American economy. The construction of railroads required vast amounts of steel, which the protected American steel industry could supply. This symbiotic relationship between tariffs, the steel industry, and railroad expansion not only changed the physical geography of the country but also facilitated the movement of goods and people.
The McKinley Tariff Act of 1890, named after its sponsor and future President William McKinley, raised tariffs on many imported goods to their highest levels up to that point. The average tariff rate on dutiable items increased from about 38% to 49%. The McKinley Tariff Act also included reciprocity provisions that allowed the government to negotiate trade agreements with other countries. These provisions were designed to reduce tariffs on certain goods in exchange for similar reductions by other nations, promoting more balanced trade relations.
The tariffs of the 19th century were not without their critics. Debates over free trade and isolationism were fierce. Free-trade advocates argued that tariffs stifled competition and innovation, while protectionists maintained they were essential for a robust domestic economy.
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The Tariff Act of 1930: Smoot-Hawley and its impact
The Tariff Act of 1930, also known as the Smoot-Hawley Tariff, is a prime example of how protectionist measures can lead to trade frictions and economic hardship. Enacted by President Herbert Hoover, the Act aimed to safeguard American agriculture and industry from foreign competition by increasing tariffs on more than 20,000 imported products. The agricultural sector was in crisis, and many believed that higher tariffs would shield domestic producers from external price pressures. Yet, the Act’s sweeping nature and the scale of the tariff increases had unintended repercussions.
The Smoot-Hawley Tariff’s most immediate impact was the swift and negative response from international trade partners. Canada, Britain, and France, among others, retaliated with their own tariffs, leading to a sharp decline in global trade. This protectionist spiral strained diplomatic relations and, amid the Great Depression, only worsened economic conditions. As trade barriers rose, international commerce shrank, deepening the economic crisis.
For many Americans, the higher prices from tariffs on essential goods like food, clothing, and household items strained family budgets, particularly during a time when economic hardship was already widespread.
Modern tariffs: Globalization and trade wars
In the era of globalization, the application of modern tariffs has seen a dynamic shift. Tariffs have moved from a period of general reduction fostering international commerce towards their more recent strategic use in navigating economic and political tensions.
The late 20th and early 21st centuries witnessed a concerted effort to reduce tariffs as countries sought to bolster international trade and economic integration. Free trade agreements like the United States-Mexico-Canada Agreement (USMCA) and the establishment of the World Trade Organization (WTO) were important in this movement. They wanted to reduce trade barriers and help the global economy grow.
However, this period of reduced tariffs also ushered in new challenges, as countries contended with the complexities of global supply chains and the uneven distribution of economic benefits.
The U.S.-China trade war, which erupted in 2018, serves as a compelling case study of how tariffs have morphed into a strategic instrument for economic and political ends. The Trump administration’s imposition of tariffs on Chinese goods, under the pretext of addressing issues such as intellectual property theft and trade imbalances, not only inflamed relations between the world’s two largest economies but also reverberated across global supply chains.
In 2025, the trade relationship between the U.S. and China—and the rest of the world—continues to shift as the second Trump administration defines its tariff policies. The full impact of the current tariffs on the American and global economy remains to be seen; time will tell if history is going to repeat itself. However, you can stay up to date on tariff news by signing up for Reuters Tariff Watch and getting deeper insights from our tariff blog hub.
