Tariffs made America great, Donald Trump likes to argue. Is it true?
Tariffs were high during America’s Gilded Age — roughly 1870 to 1900 — because tariff revenue was the federal government’s main funding source, and because manufacturers lobbied successfully for protection from imports.
Two economists, Alexander Klein and Christopher Meissner, tried to find out if those high tariffs were responsible for the rise of American manufacturing in the period. They downloaded reams of P.D.F.s of old tariff schedules from the Library of Congress and typed the data by hand into a database for analysis, cleaning it up and coding it as they went along. Because they broke the tariffs down by detailed product, and had state-by-state data on the performance of domestic manufacturers, they were able to detect effects that had been invisible in previous analyses.
Their conclusion: “The era’s high tariffs are unlikely to have helped the United States become a globally competitive manufacturer.”
Trump isn’t the first to attribute America’s manufacturing success to the tariff wall that made imported products expensive compared with those produced at home. “It is difficult to imagine how this pattern of development could have been realized without a protective tariff,” Robert C. Allen, a distinguished professor at New York University’s Abu Dhabi campus, wrote in a 2014 journal article.
In reality, though, tariffs didn’t make much difference in the United States because the domestic economy was both large and relatively isolated from world trade, Klein and Meissner wrote in their paper, which was issued by the Center for Economic and Policy Research in London. Klein is an expert on manufacturing at the University of Sussex in Britain and Meissner is an economic historian at the University of California, Davis.
To the extent that tariffs did make a difference, it was to reduce rather than enhance the productivity of labor, which is the output of goods per hour of work, they found.
What did account for America’s rise, then, if not tariffs? That’s outside the scope of the paper, but the economists cite explanations that others have put forward. For example, natural resources such as “massive iron ore deposits near Lake Superior” could have given domestic producers an advantage.
It’s possible that industrial success led to higher tariffs rather than the tariffs boosting industries — say, because profitable companies worked Washington to deliver high tariffs that would lock in their advantages.
By digging into the tariff data line by line, Klein and Meissner found that high tariffs tended to reduce the average size of establishments in an industry, apparently by limiting import competition and allowing smaller, less efficient companies to enter the market.
While the tariffs lowered labor productivity, they did increase output and employment in protected industries, the economists found. But that’s not evidence of global competitiveness — it just means that domestic businesses expanded to cash in on the higher prices that domestic buyers were paying because of the tariffs.
I ran Klein and Meissner’s paper past Douglas Irwin, an economist at Dartmouth College who specializes in trade and tariffs. “What is striking to me is how ‘modern’ the results seem in the sense that many recent empirical studies find similar results in non-U.S. contexts,” he wrote in an email.
The one shortcoming in the paper, Irwin wrote, is that data limitations prevented the authors from determining definitively whether some U.S. manufacturers were harmed by having to pay more for imported raw materials and parts. If so, that would make tariffs look even less attractive. “This point is particularly important in iron and steel, where the high cost of inputs really hurt the competitive position of manufacturers of transportation equipment, metal goods and the like (just like steel tariffs today),” he wrote.
Klein and Meissner have nothing to say about Trump’s infatuation with tariffs, but their title gives a hint. It’s “Did Tariffs Make American Manufacturing Great? New Evidence from the Gilded Age.”
The Readers Write
I wonder if the economist you cited in your newsletter about the economy and voting took into account that some voters are simply misinformed. I heard about a survey finding that a large number of potential voters thought the phrase “the stock market is at, or near, all-time highs” was false, and that those voters were much more likely to be supporters of former President Trump. So maybe it still is “the economy, stupid,” but in a much weirder way, where actual economic conditions matter less than the (often incorrect) feeling voters have of economic conditions, seen through a partisan lens.
Josh Miner
La Crosse, Wis.
As a practitioner for nearly 50 years, I have soured on arbitration and now eliminate arbitration clauses from contracts I draft. Discovery and motion practice have expanded, with attendant disputes. The leeway afforded arbitrators has too often been abused, and too often the rulings are result-oriented and not consistent with governing law. With limited rights to contest those rulings, dissatisfaction has become endemic. Finally, the costs of arbitration venues are not insignificant and far exceed court costs.
Neil E. Ayervais
Littleton, Colo.
I was a mediator for the Third Appellate District Court in California. It worked well and I can assure you in those cases it was by far more effective than continuing the case on appeal. According to the statistics provided by the offices, the mediation program annually saved the cost of one additional judge in the Appellate Court.
Gail Sheehy Smyth
Fort Belvoir, Va.
As a German attorney, I can understand the interest of U.S. companies to seek refuge in arbitration, since your extraordinarily high damages caused via contingency fees seem to be excessive from a German legal perspective.
Udo Hartmann
Berlin
To add to your item about banks taking advantage of customers: Massachusetts requires mortgage companies to pay interest on money held in escrow for taxes and insurance. So, what interest rate did I receive last year? 0.01 percent.
Jim Cook
Westborough, Mass.
Quote of the Day
“Voters consistently say that the economy is the most important issue of the 2024 election. And yet the affluent overwhelmingly support Kamala Harris, whose administration favored bold redistribution and big government spending, while a critical mass of working-class voters favor Donald Trump, whose economic agenda consisted largely of cutting taxes for the rich and trying to kill the Affordable Care Act.”
— Rogé Karma, “America’s Class Politics Have Turned Upside Down,” The Atlantic (Oct. 31)
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