CEO Opinion Piece: Trump and the History of Tariffs
So, Donald Trump has massively destabilised the US and global economies with his pursuit of tariffs. His policies are widely ridiculed by economists. Yet tariffs are according to Trump “a very beautiful thing”.
Who is right? And how can history help us decide?
Trump’s politics are sometimes seen and proclaimed as a radical and different entity to anything gone before. The truth and reality is more prosaic. Exploration of the history can be instructive.
There’s nothing new about using tariffs as a corrective tool. It probably started with the Ancient Greeks, was common to Europeans as they jealously guarded the profits of colonisation and tariffs are still used in limited forms by most countries today. But not in the same punitive way and to the same scale as Donald Trump in recent weeks.
The UK jumped on board in the 14th century. Edward III took interventionist measures, such as banning the import of woollen cloth in an attempt to develop local manufacturing.
Robert Walpole, who was Prime Minister from 1721 to 1742, led an agenda to promote manufacturing through tariffs. Although less aggressive than William Pitt, 1st Earl of Chatham his parliamentary opponent who later went on to be Prime Minister, his rhetoric had a strong echo of protectionism.
Portrait of Robert Walpole (1676–1745) Painted by Arthur Pond (1705–1758)
He said, “Nothing contributes as much to the promotion of public welfare as the export of manufactured goods and the import of foreign raw materials.” By 1820, the UK’s average tariff rate on manufactured imports was 45% to 55%.
But protectionism received a real pushback in the UK when the corn laws were abolished following pressure from the Anti-Corn Law League, and following the devastating Irish Famine. But while free trade was progressing in Britain, protectionism was still very much on the up on the European mainland and in the US.
But the UK pivoted again after the great depression.
After the experience of the second world war, there developed a much stronger sense of internationalisation and international co-operation. And we saw the establishment of international, co-operative institutions like the Bretton Woods System and the General Agreement on Trade and Tariffs
Since WW2, as tariffs have reduced, so the volume of trade has grown.
Amongst economists there is near unanimous consensus that tariffs are self-defeating and have a negative effect on economic growth and economic welfare, while free trade and the reduction of trade barriers has a positive effect on economic growth. The American economist Milton Friedman (he who inspired Margaret Thatcher’s commitment to so called sound money) said of tariffs, “We call a tariff a protective measure. It does protect…it protects the consumer against low prices.” For the first time in my life I’m quoting Friedman in support of an argument I’m making, but on this he might have had a point!
(Trump’s 1st administration, other historic examples). “… tariffs have persistent adverse effects on the size of the pie (GDP).” https://pmc.ncbi.nlm.nih.gov/articles/PMC7255316/
Broadly speaking this was the claim the Chinese made, not without irony, on social media last week when invoking a speech made by Ronald Reagan in 1987,”At first, when someone says to impose tariffs on foreign imports, it looks like they’re doing the patriotic thing by protecting American imports and jobs. And sometimes, for a short while it works. But only for a short time…because of the prices made artificially high by tariffs, that subsidise inefficiency and poor management, people stop buying. Then the worst happens, markets shrink and collapse, businesses and industries shut down, and millions of people lose their jobs.”
But if tariffs can be so damaging, why have they been deployed so widely across history?
One answer is that ‘Free Trade’ also has had its’ detractors…
Reagan himself, (father of the North American free-trade zone) used protective tariffs against heavily subsidised Japanese car industry in the 1980’s.
So what explains Trump’s current policy? They are an outlier in the era of globalised trade. And the current push for tariffs by Trump is made worse by the lack of clarity about his objectives. To redress historic trade imbalances, to rebuild US manufacturing, to raise revenue to fund tax cuts? Its unclear, and the story keeps changing. It is arguably this which has so spooked the markets.
One explanation could be that in his first term, Trump’s actions were reigned in by the “grown ups” in the room, whereas for his current inner circle the priority is allegiance to the leader come what may, and a sharing of Trump’s interpretation of negative balance of trade as the US being cheated. This interpretation is interesting because it ignores the comparative recent growth of the US economy whilst ignoring the poor distribution of wealth within the US.
Whatever your view, as Trump launched “Liberation Day” and the great new world of tariffs, it might have been very useful for him and us if he had studied and understood the history of tariffs, the arguments around tariffs, the evidence of the impact of tariffs.
Just as we do through Parallel Histories where we give school students the opportunity to think critically, to analyse and debate contested history. Helping students navigate sensitive topics by going back to historical sources when investigating the causes of conflict. Our dual narrative approach provides the starting point for investigation into the historical controversy as each side tells it, first from one position and then from the other. In the process, stereotypes are disrupted, and preconceptions challenged. Students learn how to question historical claims and identify the difference between proportionate and disproportionate claims.
Whatever your view on tariffs, I think Donald Trump and his supporters could have benefitted from this at school.
Bill Rammell
Bill Rammell is a former Labour Minister and University Vice Chancellor and now Chief Executive of Parallel Histories.
