Who Will Survive the Trade War?

tags: economic history, Trade, Trump, Tariffs

Margaret O’Mara (@margaretomara), a professor of history at the University of Washington, is the author of the forthcoming book “The Code: Silicon Valley and the Remaking of America.”

America is entering a new era of tariffs. President Trump is in no hurry to resolve the trade dispute with China, he is adamant about imposing tariffs on Mexico, and farmers and companies are trying to figure how to withstand them for months or years, not weeks. 

This is not unprecedented. For the first half of America’s history, high protectionist tariffs were the norm. Even then, they didn’t work as intended. Rather than protecting workers and farmers, over time, tariffs did exactly the opposite, and big businesses were well placed to take advantage.

Tariffs are as old as the republic itself: The first substantive piece of legislation passed by Congress, on July 4, 1789, placed a 5 percent tariff on most imported goods, with special duties to protect domestic products like wine and candles. Imposed when government was small and taxes were close to nonexistent, tariffs ballooned in size and scope as the nation grew after the Civil War. By 1912, they topped 40 percent and made up close to half of federal revenue.

The tariff didn’t create Gilded Age monopolies, but it abetted their rise. Powerful industries lobbied Congress for special treatment — a tariff raised here, a barrier strategically lowered there — resulting in a tariff regime that strongly favored those with the most money and political clout.

An especially notorious example was the sugar trust, which gamed the tariff classification system to control nearly all of the lucrative market for refined sugar. The trust idled sugar refineries and took over smaller competitors, limiting supply and driving up prices. As one economist said in 1906, “The tariff breeds trusts as naturally as a Jersey swamp breeds mosquitoes.”

Read entire article at NY Times

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