AMERICA’S FOUNDERS SPOKE OUT STRONGLY AGAINST THE EFFECTS OF TARIFFS ON AMERICA'S PROSPERITY
At The 1773 Boston Tea Party, they destroyed tariffed products
On December 16, 1773, American colonists boarded English ships in Boston Harbor to throw tea into Boston Harbor to protest the tariff imposed on tea.
On July 4, 1776, they spoke out again in the Declaration of Independence, decrying imposed tariffs:
For cutting off our Trade with all parts of the world:
For imposing Taxes on us without our Consent:
Taxes on specific imported products are known as tariffs. These tariffs are passed on to the purchasers of those products in the colony or country where they are consumed through price increases on those specific products. The cost of the tariff is directly paid by the importer and built into the prices they charge, so these price increases are inflationary exactly as any other price increase is, reducing consumer purchasing power for all other goods and services – just like a pay cut would also reduce a family’s purchasing power. Imposing tariffs typically results in retaliatory tariffs which raise prices dramatically, and result in trade wars which can cut off trade between nations, depressing both countries’ own economies. The Founders protested these tariffs, added costs imposed on them by the unitary executive, the English King, with the Boston Tea Party and other protests against tariffs and transaction taxes beginning in 1773.
In the early years after independence in 1781, America’s founders used tariffs on a limited range of products to finance a small federal government which started with a few dozen employees in 1789. After a time, they steadily reduced tariffs to encourage international trade so they could sell American products to other countries in return for agreeing to reducing tariffs on imported products. By steadily reducing tariffs on imported products, they increased the buying power of all Americans, which stimulated economic growth and prosperity as Americans bought still more products and services in America.
In 1920-30, the US reimposed a broad range of tariffs on imports. Under the Smoot-Hawley Act, passed by the House of Representatives in May 1929, Congress doubled many tariffs, precipitating a global trade war. This caused the October 1929 Wall Street stock market crash amid the massive unregulated stock market price action speculation of the Roaring 20s. As tariffs and retaliatory tariffs expanded among nations, global trade collapsed by 67%, and American industry suffered the consequences of lost sales and profits. Widespread bank failures occurred all over the US in the 1930s as economic conditions deteriorated with mass bankruptcies of businesses and farms. As America's uninsured banks collapsed (there was no deposit insurance and bank depositor panic withdrawals spread like wildfire), critical local sources of business and agricultural financing completely disappeared in many places, causing still more business and agriculture industry failures.
With little bank financing available to meet payrolls and finance sales, the Great Depression resulted as businesses collapsed and industry ground to a halt. Free market agricultural prices collapsed as desperate farmers overproduced in unregulated agricultural markets (there were no agriculture price supports nor subsidized crop insurance). The US economy entered a deep economic depression as the official unemployment rated soared from 8% in early 1929 to over 25% by 1931, which continued until the US entered World War II in late 1941. Massive federal spending on weapons and other military hardware beginning in 1942 effectively rescued the American economy, but cost America 550,000 killed in action in a global war which killed 60 million people.
When national governments impose tariffs on products imported from other countries, this typically results in retaliatory tariffs by that country on imports from the other nation. This depresses trade and economic growth in both countries, since tariffs increase consumer prices, which reduces the amount of money consumers have available to spend on other goods and services.
For example, China reacted to Trump's US government tariffs on Chinese made technology and other products imported to the US in 2018-2019. They imposed retaliatory tariffs on American agricultural products. Since the overall market demand for these farm products went down, this cycle of tariffs and retaliatory tariffs reduced the market price paid to all US farmers who produced those corn and soybean products, and put a significant number of American farmers out of business.
America and Europe have also had similar less-publicized trade spats over specific kinds of products in recent years – such as European nations’ wine exports to America at a time when overall American wine consumption has been declining, and American agricultural products, technology products, and services being subject to European Union tariffs and regulatory standards, and so forth.
US international trade - imports and exports - totals over $5 trillion each year, nearly 20% of our entire economy. A 67% collapse in US trade, as when US tariffs were doubled in 1930, would cost millions of American jobs. After the recent compromises with three of our largest trading partners, current tariff levels are similar to those 1930s tariff levels.