Trump Says Tariffs Built America

Taxes raise money for the taxing agency, raise costs and create shortages.

After the ratification of the Constitution, the very first law passed by the new Congress was the Tariff Act of 1789. It imposed an 8 percent tax on pretty much all imports into the United States, with the revenue from the tariffs used to fund the new national government and to pay down debts accumulated during the Revolutionary War.

Can you imagine what other kind of tax would be accepted after the Revolution?

The key difference between today's tariffs and America's first experiment with import taxes is that those old tariffs were used to raise revenue, rather than as protection for domestic industries. This distinction was hard-won, as northern industrial interests tried to use their influence through Treasury Secretary Alexander Hamilton, to impose higher tariffs that would have served as protectionist measures.

Hamilton's argument wasn't all that different from Trump's. He wanted tariffs for what basically amounts to national security reasons as a way to protect America's nascent industries, without which the country would struggle to survive as an independent nation. Even though he lost that argument to the Jeffersonians, Hamilton's proposed tariffs were a least more closely connected to a legitimate national security concern than Trump's are.

While they weren't protectionist policies, those early tariffs did solve a very practical revenue problem for the early United States government.

But they were taxes with the same downside as all taxes but without the mythology of protection.

But tariffs can still be a tool of protectionism. Indeed, explicitly protectionist tariffs were enacted by Congress in 1815 and again in 1828. On both occasions, they imposed economic costs, failed to achieve their policy goals, and fostered political dysfunction that pushed America closer to the Civil War. Another round of protectionist tariffs enacted during the 1930s is now widely credited with worsening and extending the Great Depression.