A Brief History of Tariffs

Tariffs—taxes on imports—have shaped economies and empires for centuries, reflecting evolving views on wealth, power, and progress. From mercantilism’s gold-hoarding policies to today’s debates over industrial jobs, their story mirrors the twists of global trade.

The Mercantilist Era (16th–18th Centuries)

In the mercantilist age, Spain and France used tariffs and monopolies to keep gold and silver from flowing abroad, seeing precious metals as wealth’s foundation. Spain’s Casa de Contratación tightly controlled colonial trade, while France’s Jean-Baptiste Colbert—“Colbertism” personified—established royal factories for luxury goods like tapestries and glass, chasing self-sufficiency and prestige. Protestant nations like the Dutch Republic and England leaned toward openness, though with limits: the Dutch East India Company wielded monopolistic power, and England’s Navigation Acts (1651 onward) guarded its shipping. Inspired by Spain and Portugal, all Europeans exploited colonies, funneling riches from the Americas and Asia to Europe, laying global trade’s groundwork.

Laissez-Faire and the Free Trade Movement (Late 18th–19th Centuries)

France’s Physiocrats, like Vincent de Gournay with his “Laissez-faire, laissez-passer,” planted early seeds for free trade, but landed elites resisted. Historian John Darwin notes Britain’s turn to free trade was driven by the need for productivity gains to profit from India, softening elite opposition. Adam Smith’s *Wealth of Nations* (1776) then argued prosperity stems not from gold but from productive capacity—labor and trade yielding mutual benefits. David Ricardo’s 1817 comparative advantage theory reinforced this: even less productive nations gain by specializing and trading freely. Britain, the industrial titan, embraced free trade post-1846 with the Corn Laws’ repeal, leveraging its manufacturing edge. The U.S., however, stayed protectionist, nurturing its young industries.

Tariffs and Development in the 19th Century

America’s protectionism, rooted in Alexander Hamilton’s 1791 call to shield “infant industries,” spurred industrialization with tariffs like the Tariff of 1828. These duties also ignited social tensions—the Nullification Crisis (1832–33) saw South Carolina defy federal tariffs, nearly fracturing the Union. In Germany, Friedrich List’s 1841 *National System* defended tariffs to forge a unified market via the Zollverein (1834), challenging Britain’s dominance. Latin America, tethered to free trade, exported raw materials like Argentine beef under “comprador capitalism”—local elites thrived, but industries didn’t. The Austro-Hungarian emperor, fearing socialism, resisted railroads and industry, while Britain crippled India’s crafts through forced free trade. A “first globalization” (1870–1914) emerged, fueled by steamships and railways. Ukraine and Argentina became breadbaskets, gold finds (California 1849, Australia 1851, South Africa 1886) averted deflation, and innovations like refrigeration and diesel engines tied prosperity to open markets.

Tariffs in the 20th Century

World War I ended this golden age, disrupting trade with blockades and piling up debt. Post-war bids to restore the gold standard at pre-war levels (e.g., Britain 1925) sparked deflation and recession. The U.S. Smoot-Hawley Tariff Act (1930) hiked duties to record highs, triggering retaliation from Europe and Canada, worsening the Great Depression. A zero-sum mindset—seen in Nazi Germany’s autarky—fed into World War II. Post-war, Argentina and much of the decolonized Third World turned to import substitution industrialization (ISI), using tariffs to build local industries, but these often grew uncompetitive, faltering by the 1970s. The 1944 Bretton Woods system and 1947 GATT set a new trade framework, blending openness with stability.

Neoliberal Consensus and Second Globalization (Late 20th–Early 21st Century)

Post-WWII, the 1989 Washington Consensus revived Ricardo’s logic: free trade boosts consumer welfare. The Cold War’s end accelerated this, with the WTO replacing GATT in 1995 and admitting China in 2001. China’s export-led rise—driven by high investment and low consumption—lifted millions from poverty, but Robert Triffin’s 1960 dilemma hit the U.S.: as the dollar’s global reserve currency, America ran trade deficits, eroding its industrial base. This “second globalization” delivered cheap goods and inequality, often overlooking environmental costs (e.g., Chinese pollution) and labor exploitation.

Exchange Rate Adjustments as an Alternative to Tariffs

Tariffs impose a deadweight loss on importers, so devaluation is often favored to boost competitiveness. Italy’s frequent lira devaluations drew ire from trade partners, while the U.S., wielding greater clout, pressed Japan to strengthen the yen at the 1985 Plaza Accord. This mimics a tariff’s effect but spreads the burden globally, avoiding direct trade friction.

U.S. Trade Policy Today (2016–2025)

Since 2016, reshoring industrial jobs has been a bipartisan U.S. aim, spurred by supply chain shocks (e.g., COVID-19) and China rivalry. Progress is slow—manufacturing jobs rose to 13.2 million by 2023, well below 1990’s 17 million. In March 2025, Trump proposed sweeping tariffs—10% on all imports, 37% on Chinese goods—to revive industry, risking value chain disruption and inflation. Biden retained some tariffs (e.g., on Chinese steel), but automation dims job growth hopes. The EU’s 2023 Carbon Border Adjustment Mechanism signals tariffs may soon target climate, not just economics.

Tariffs are an ancient political tool—used by mercantilist kings to fund armies, lords to bolster grain prices, and politicians to protect nascent industry (Germany 1870), or let special interest profit (Argentina 1950).

Trump’s broad tariffs reflect a belief the free market can adapt to political goals like preserving industry, unlike targeted tariffs serving special interests (e.g., steelworkers). Exchange rate intervention require bilateral agreement and are coordinated by finance ministries and central banks. They offer a subtler alternative, as seen in the 1985 Plaza Accord. Yet Trump acts unilaterally to assert U.S. leverage, betting on tariffs to reshape trade.