Source: Xingye Research, authors: Zhang Lihan, Guo Yuwei, and Lu Political Commissar

summary

The rise of trade protectionism will occur every few decades in the United States. The purpose of trade policy can be attributed to three "Rs": Revenue, Restriction and Reciprocity. Accordingly, the trade policy since the founding of the United States can be divided into three stages:

First, during the trade protectionist period from 1789 to 1933, tariffs fluctuated significantly during this period. Between the American War of Independence and the Civil War, it was still in the early stages of industrialization, and protecting infant industries and increasing fiscal revenue were the main reasons for the United States to increase tariffs. From 1863 to 1933, with the diversification of tax sources, protecting industries and defending the gold standard became the main reasons for the United States to increase tariffs. Second, the free traderism period from 1934 to 1973, when US industry was mature, promoting exports through reciprocity agreements became the main goal, and tariff levels dropped significantly. However, in the early 1970s, when the US industry was relatively weakened and the balance of payments was imbalanced, trade protectionism rose again. Third, since 1974, the United States has entered a new stage of trade policy with low tariffs but complex non-tariff barriers.

Several rises and retreats in US trade protectionism show that: First, protecting domestic industries, improving international balance of payments, and reducing fiscal deficits are the unchanging motivations of trade protectionism. Second, high tariff policies that are moving against the historical wave are doomed to be unsustainable, and with the deepening of globalization, high tariffs continue for a shorter and shorter period. The abominable tariff law, the Smut-Holly tariff law and Nixon's high tariffs ushered in a turning point in five, four and less than one year respectively. The Dingli Tariff Act alone coincides with a significant increase in global gold production and has lasted for a long time. Third, the direct reasons for the end of high tariffs are more complicated. The dissatisfaction of the American people with high prices, opposition from domestic interest groups, and counter-response from trading partners may lead to a turning point in trade protection. Fourth, the turning point of tariff policies is usually accompanied by fundamental changes in the monetary system, such as the sharp depreciation of the US dollar or the significant increase in gold production. This means that there may be a trade-off between the monetary system and tariffs, and the excessive imbalance in the balance of payments must eventually be revised.

1. Review of major tariff bills in the United States

Irwin (2017) believes that historically, the purpose of US trade policy can be attributed to three "Rs": revenue (Revenue), restriction (Restriction) and reciprocity. Among them, in terms of income, tariffs can increase government fiscal revenue; in terms of restrictions, tariffs can restrict foreign imports to achieve the purpose of protecting their own industries; in terms of reciprocity, reaching a tariff reciprocity agreement with foreign countries can promote US exports. Based on the above three purposes, looking at the history since the founding of the United States, the United States' attitude on tariffs and trade issues can be mainly divided into three stages.

1.1 The period of trade protectionism

Between 1789 and 1933, the United States was in a stage of gradual industrialization and economic takeoff. For the purpose of protecting domestic industries, trade protectionism prevailed in the United States. During this period, raising military expenditures and defending the gold standard also strengthened the domestic trade protectionist tendency in the United States. The economic downturn and rising prices may be the driving force for lowering tariffs, and a more flexible exchange rate system (abandoning the gold standard) paves the way for lowering tariffs.

1.1.1 After the War of Independence to the Civil War: Protecting the Immigration Industry and Raising Military Funds

From 1789 to 1862, roughly corresponding to the American War of Independence and the Civil War, the United States was still in the early stages of industrialization, and protecting infant industries and increasing fiscal revenue were the main reasons for the United States to increase tariffs. At this stage, the contribution of tariffs to US fiscal revenue is usually around 90%, and the United States' comprehensive tariff policy is mainly concentrated in this stage. However, we can observe that the US tariff levels change greatly at this stage, because tariffs protect US industrial development while hurting US agricultural exports, thus touching the "cake" of US Southern interest groups.

In the 1820s, the American Industrial Revolution began to accelerate. In 1818, James Monroe, the fifth president of the United States, proposed in his Congressional address that "tariffs should especially provide protection for the infancy manufacturing and industries closely related to national independence." In 1828, in order to protect the industrial development of the United States, the Adams administration passed a tariff law, which increased the average tariff level of taxable products in the United States to 44.8%. This tariff law was later called the "abhorrent tariff law" by the American Southern interest groups.

Judging from the impact of the tariff law, the tariff law has intensified the contradiction between interest groups in the north and south of the United States. There is a conflict of economic interests between the northern industrial states of the United States and the southern agricultural states. Northern states tend to have high tariffs to protect local industries, while southern states rely on exports of agricultural products and tend to have low tariffs to promote exports. Under the opposition of Southern interests, Congress lowered the tariff rates twice in 1830 and 1832, but after the Jackson administration signed the 1832 tariff laws, South Carolina declared that the tariff laws of 1828 and 1832 were unconstitutional and threatened to withdraw from the federal government.

In 1833, Congress passed a compromise bill, which stipulated that tariffs were gradually reduced from 1834 to 1842, and it was not until all relevant taxes were reduced to 20%, which temporarily calmed the debate between interest groups on tariffs between the north and the south. However, with the government election, the mutual struggle between the interest groups between the north and the south has not stopped. In 1837, the United States experienced an economic crisis, and in 1842, the Black Tariff was promulgated. The US tariff level increased again. After the economic crisis, the Walker Tariff Act in 1846 was passed, and the US tariff level was reduced. Until 1861, the Civil War finally broke out. In 1861, the Morrill Tariff Act was issued to raise military expenditures for wartime. Against the backdrop of high U.S. government debt, the long-term post-war Republican rule has allowed the United States to continue its high tariff levels for a long time.

1.1.2 After the Civil War to Before the Great Depression: Protecting Industry and Defending the Gold Standard

From 1863 to 1933, with the improvement of the tax system, the consideration of protecting industries and the defense of the gold standard became the main reason for the United States to increase tariffs. From 1863 to 1913, as other taxes (such as consumption tax, etc.) contributed to fiscal revenue expand, the contribution of tariffs to US fiscal revenue fell to about 50%. After the income tax was passed in 1913, the proportion of tariffs in U.S. fiscal revenue decreased further. From 1917 to 1933, the proportion of tariffs in U.S. fiscal revenue decreased to less than 20%. At the same time, we can also observe that since 1863, the average import tariffs of all goods in the United States have tended to differentiate from the average import tariffs of taxable goods, which reflects that the United States has begun to impose targeted tariffs on some industries to protect the development of domestic industries in the United States.

At the end of 1892, the bankruptcy of the Baring Brothers triggered a run and a sharp currency tightening, which led to the bankruptcy of many American railway companies. The US economy fell into recession. The US industrial production fell by 17% from the peak in May 1892 to the low in February 1894. The unemployment rate jumped from less than 4% in 1892 to more than 12% in 1894. Gold flowed out of the United States in large quantities, and the US "gold standard" monetary system was shaken (Irwin, 2017). McKinley was elected president in 1896. In 1897, the McKinley administration signed the Dingley Tariff Act, which increased the average tariff level of taxable products in the United States from 40.2% in 1896 to 52.4% in 1899. It was the highest average tariff level of taxable goods after the Civil War and before the Great Depression in 1929. In his presidential inauguration speech, McKinley emphasized the need for reducing fiscal deficits and strengthening tariffs to protect American industrially. McKinley believes higher tariffs will improve the fiscal deficit, reverse the trend of gold outflows, and help restore the country's prosperity and provide protection for industries.

Judging from the impact of the tariff law, it is more fortunate that at about the same time when McKinley enacted the tariff law, as the supply of Australia, South Africa and Alaska increased, the world's gold supply began to grow rapidly. Under the "gold standard" monetary system, the relaxation of global monetary conditions promoted economic recovery and asset prices began to rise again. However, this somewhat coincidental timing led to the widespread belief that McKinley’s tariff laws were the cause of the economic recovery (Irwin, 2017).

From 1895 to 1900, the export volume of manufactured goods in the United States doubled, accounting for 26% of the total export volume to 35%, and the export volume of manufactured goods increased by an astonishing 90%. The recovery of global economic prosperity is one of the reasons for the surge in US exports. The increase in exports of finished goods has strengthened the voice of some domestic American producers with export demand, and questioned the need for high-profile tariffs to restrict imports, ultimately resulting in the idea of ​​reciprocity as a new avenue for trade policy. In fact, the third section of the Dingli Tariff Act authorized the president to reduce tariffs on a certain list of specific goods to countries that make "reciprocal concessions" to U.S. goods. In practice, however, most of the reciprocity treaties McKinley submitted to Congress with foreign countries have not been ratified.

After entering the 20th century, the rise in living costs and the trust monopoly caused by the increase in industrial concentration at the end of the last century triggered discussions on high tariffs in American society. Although economists doubt that tariffs will lead to higher inflation and increased industrial concentrations, the power of progressives in the Republican Party eventually prevailed, and in 1909 Congress passed the Payne-Aldrich Tariff Act, which significantly lowered the tariff rate (Irwin, 2017).

1.1.3 The Great Depression: Protecting Industry and Defending the Gold Standard

The Great Depression, which began in 1929, once again triggered a decline in U.S. net exports and gold outflows. In order to ease the impact of the Great Depression, the United States once again chose to raise tariffs similar to the late 19th century. In 1930, the Hoover Administration enacted the Smurt-Holly Tariff Act, which further expanded the scope and tariff levels of the United States on the basis of existing high tariffs, causing the average tariff level of taxable products in the United States to eventually rise from 40.1% in 1929 to 59.1% in 1932. The Hoover administration hopes to protect employment and alleviate the economic crisis by raising tariffs.

Judging from the impact of the tariff law, after the United States implemented the Smut-Holly Tariff Act, major U.S. trading partners have imposed tariffs on the United States. From 1929 to 1933, both the import and export volume of the United States fell by more than 50%. However, the reduction in imported goods did not drive domestic production in the United States, with the average annual GDP growth rate of -7.4% from 1929 to 1933. At the same time, the unemployment rate in the United States rose sharply and the economy experienced severe deflation. In 1933, the unemployment rate in the United States recorded 24.9%, and the average annual CPI between 1929 and 1933 was -6.8% year-on-year.

In the "Trade War in the 1930s - A Monetary System Narrative" released in April 2025, we mentioned that the fixed exchange rate under the gold standard was the crux of the economic depression that began in 1929, so abandoning the gold standard and depreciating the local currency became the first policy measure implemented by countries. In September 1931, Britain announced that it would abandon the gold standard, and the pound depreciated by 30%. By 1935, the UK's exchange rate depreciated by 141% compared with the gold parity in 1929. Some countries that are closely linked to the pound exchange rate, such as Denmark, Sweden, Norway, etc., have also abandoned the gold standard and devalued their currencies (Eichengreen & Sachs, 1985). This move effectively expanded the money supply, alleviated deflationary pressure, and improved export competitiveness, thereby promoting economic recovery in countries abandoning the gold standard. When Britain first abandoned the gold standard, the United States still insisted on the gold standard and the economy fell into a spiral of deflation-recession. The continued economic downturn caused the American people to rise in dissatisfaction with the Hoover administration. In the end, Hoover was defeated by Roosevelt in the 1932 presidential election.

After Roosevelt came to power, he immediately implemented the Emergency Banking Act and the Gold Reserve Act in March 1933 and January 1934, gradually abandoning the gold standard. Subsequently, in June 1934, the two houses of the United States passed the Reciprocal Agreements Act of 1934, which amended the 1930 Tariff Act, which mainly includes: First, authorizing the negotiation of tariff agreements with foreign governments or institutions. Without approval from the Senate, the president can sign trade agreements with foreign governments and amend the current tariffs and other trade restrictions, but the adjustment limit is 50%; second, it is to follow the principle of unconditional most-favored-nation treatment of tariffs. After the adoption of the Reciprocal Trade Agreement Act, from 1934 to 1939, the United States signed a total of 22 trade agreements aimed at reducing their respective tariffs (Tan Tan, 2010). The average tariff rate for U.S. taxed goods fell from 59.1% in 1932 to 37.3% in 1939.

1.2 The Free Tradeist Period

From 1934 to 1973, the United States was already the world's largest industrial country. During this period, the United States held high the banner of free trade and promoted U.S. exports through reciprocal agreements. However, in the early 1970s, when the US industry was relatively weakened and the balance of payments was imbalanced, trade protectionism rose again.

Since the promulgation of the Reciprocal Trade Agreement Act in 1934, the United States has lowered tariffs to promote trade through bilateral and multilateral free trade systems, and maintained a low tariff level for a long time. The average tariff level for taxable products in the United States fell from 46.7% in 1934 to 10.0% in 1970.

In order to cope with domestic economic stagflation, rapid growth in fiscal deficits, deteriorating balance of payments and the US dollar crisis, the Nixon government launched the "New Economic Plan" in 1971, which mainly included wages and price controls, suspension of gold and US dollars exchange, and an additional 10% tariff on all taxable imported goods. Among them, wages and price control is to control inflation, and suspending the exchange of gold and the US dollar is to alleviate the dollar crisis caused by the continued outflow of gold under the Bretton Woods system, while an additional 10% tariff on all taxable imported goods is to alleviate the deterioration of the balance of payments. Nixon used the 10% additional tariff as a means of negotiation, trying to eliminate the additional tariffs in exchange for appreciation of other countries' currencies.

Judging from the impact of the plan, the "New Economic Plan" has played a certain role in stabilizing the economy and controlling inflation in the short term. The growth rate of US GDP rose from 5.2% in 1970 to 10.2% in 1972, and the CPI fell from 5.7% in 1970 to 3.2% year-on-year. Subsequently, stagflation made a comeback, with the US GDP growth rate falling to 8.8% in 1974, and CPI rose again to 11.0% year-on-year.

At the end of 1971, the United States reached a Smithsonian Agreement with its trading partners, and the US dollar depreciated against gold, and other foreign currencies appreciated against the US dollar. At the same time, the United States canceled 10% tariffs. But the exchange rate established in the Smithsonian Agreement did not last long. In 1973, the US dollar experienced another crisis and the Bretton Woods system collapsed.

1.3 Period of non-tariff barriers covered by free trade

Since 1974, the United States has achieved protection of its own economy by establishing non-tariff barriers when its overall tariff level is low. From 1975 to 2018, the average tariff level for taxable products in the United States remained below 6%. Since 2019, the average tariff level of taxable products in the United States has risen, from 5.6% in 2018 to 7.4% in 2023.

During this period, the U.S. trade deficit widened rapidly. In 2024, the U.S. trade deficit was US$9.2 trillion, accounting for 3.1% of U.S. GDP. In 1974, the U.S. trade deficit was only US$4.29 billion, accounting for 0.1% of U.S. GDP at that time.

2. Revelation

It is not difficult to find that the rise of trade protectionism will occur every few decades in the United States. From the abominable tariff law of 1828 to the Dingley tariff law of 1897, it was 69 years apart; then to the Smut-Holly tariff law of about 33 years; 41 years later, it ushered in the Nixon shock; and in 47 years, Trump began to abuse tariff policies.

Protecting domestic industries, improving international balance of payments, and reducing fiscal deficits are the unchanging motivations of trade protectionism. In the early stages of American industrialization, the motivation to protect domestic industries was stronger; and as the US economy matured and the US dollar became a global standard, the imbalance between international balance of payments and fiscal revenue and balance gradually became the cause of trade protection.

However, high tariff policies that are moving against the historical wave are doomed to be unsustainable, and with the deepening of globalization, high tariffs continue for a shorter and shorter period. Five years after the abominable tariff law, that is, in 1833, the US Congress passed the compromise bill to reduce tariffs; four years after the Smurt-Holly tariff law, the two houses of the United States passed the Reciprocal Trade Agreement Act; the deepening of globalization after World War II made high tariffs more difficult to survive, and Nixon's additional tariff policy lasted less than one year. The Dingli Tariff Act alone coincides with the growth of global gold production and has lasted for a long time.

The direct reasons for the end of high tariffs are even more complicated. The dissatisfaction with high prices, opposition from domestic interest groups, and counter-response from trading partners may lead to a turning point in trade protection. Regardless of the direct inducement of tariff reduction, the turning point of tariff policy is usually accompanied by fundamental changes in the monetary system, such as a sharp depreciation of the US dollar, or a significant increase in gold production. This means that there may be a trade-off between the monetary system and tariffs, and the excessive imbalance in the balance of payments must eventually be revised.