Trump Ignores the Ruinous History of Tariffs

Donald Trump’s economic panacea is to impose over-the-top tariffs on all imports, potentially generating enough revenue to eliminate the federal income tax. It is hardly an innovative idea. On the contrary, if enacted, it would return our postmodern economy to that of the Gilded Age of the late 19th century, to economic policies favoring the wealthy over the poor and middle class, when tariffs were the main source of government revenue.

That tariff-dominant era ended with the 16th Amendment to the U.S. Constitution in 1913, which facilitated the adoption of a graduated federal income tax. The income tax, not tariffs, has been the main source of federal revenue ever since, and for good reason.

Tariffs are a tax on imports, the functional equivalent of a sales tax, imposing a proportionately bigger burden on those with modest incomes. As my colleagues at the Peterson Institute for International Economics point out, Mr. Trump’s proposal for a 10 percent tariff on all imports (which totaled $3.1 trillion last year) and a 60 percent tariff on imports from China would cost a typical middle-income household at least $1,700 in increased expenses each year.

Mr. Trump’s radical “all tariff policy” would be self-defeating. It could not possibly fund our modern national security and social welfare needs, because tariff rates would have to rise impossibly high to yield the $2 trillion generated by individual and corporate income taxes. The resulting tariff war, when countries inevitably retaliate, would shrink imports and reduce tariff revenues. And it would discard or marginalize the one tax we have that requires people to pay their fair share.

Following the Revolutionary War, the national government did indeed rely almost entirely on tariffs, as pushed by Treasury Secretary Alexander Hamilton to avoid distasteful excise taxes and encourage the new nation’s infant manufacturing sector. The Civil War quickly proved their inadequacy. To meet the resulting fiscal crisis, Abraham Lincoln persuaded Congress to pass the very first income tax in 1862, essentially a tax on only the very top earners.

That was phased out after the war, returning the United States to its reliance on tariffs and the chaos and class resentment they created. In 1889, Thomas Shearman, a prominent lawyer, wrote a widely disseminated essay titled “The Owners of the United States” that listed families including the Astors, Vanderbilts, Rockefellers and Morgans who presided over untaxed fortunes from railroads, factories, oil refineries, mines and banks.