Protective tariffs are

tariff A tariff or import tax is a duty (tax), duty imposed by a national Government, government, customs territory, or supranational union on imports of goods and is paid by the importer. Exceptionally, an export tax may be levied on exports of goods ...

s that are enacted with the aim of protecting a domestic

industry Industry may refer to: Economics * Industry (economics), a generally categorized branch of economic activity * Industry (manufacturing), a specific branch of economic activity, typically in factories with machinery * The wider industrial sector ...

. They aim to make imported goods cost more than equivalent goods produced domestically, thereby causing sales of domestically produced goods to rise, supporting local industry. Tariffs are also imposed in order to raise

government revenue Government revenue or national revenue is money received by a government from Tax revenue, taxes and Non-tax revenue, non-tax sources to enable it, assuming full resource employment, to undertake non-inflationary public expenditure. Government re ...

, or to reduce an undesirable activity (

sin tax A sin tax (also known as a sumptuary tax, or vice tax) is an excise tax specifically levied on certain goods deemed harmful to society and individuals, such as Alcohol tax, alcohol, tobacco tax, tobacco, drugs, candy, soft drinks, fast foods, c ...

). Although a tariff can simultaneously protect domestic industry and earn government revenue, the goals of protection and revenue maximization suggest different tariff rates, entailing a tradeoff between the two aims.

How tariffs work

A tariff is a tax added onto goods imported into a country; protective tariffs are taxes that are intended to increase the cost of an

import An importer is the receiving country in an export from the sending country. Importation and exportation are the defining financial transactions of international trade. Import is part of the International Trade which involves buying and receivin ...

so it is less competitive against a roughly equivalent domestic good. For example, if similar cloth for sale in America cost $4 for a version imported from Britain (including additional shipping, etc.) and $4 for a version originating in the United States, the American government may wish to impose a protective tariff to make the price of British cloth higher for Americans. The underlying goal for a protective tariff is to protect the domestic industry from foreign competition. This political issue relies on the

purchasing power parity Purchasing power parity (PPP) is a measure of the price of specific goods in different countries and is used to compare the absolute purchasing power of the countries' currency, currencies. PPP is effectively the ratio of the price of a market bask ...

between the currencies of countries involved, and also with the parallel

currency substitution Currency substitution is the use of a foreign currency in parallel to or instead of a domestic currency. Currency substitution can be full or partial. Full currency substitution can occur after a major economic crisis, such as in Ecuador, El S ...

in the domestic countries.

History

United States

Alexander Hamilton Alexander Hamilton (January 11, 1755 or 1757July 12, 1804) was an American military officer, statesman, and Founding Fathers of the United States, Founding Father who served as the first U.S. secretary of the treasury from 1789 to 1795 dur ...

was the first American to propose the use of protective tariffs to promote industrialization in his "Report on Manufactures". Hamilton thought that a tariff on textile imports would subsidize American efforts to establish manufacturing facilities to eventually compete with those of the British. Heeding Hamilton's advice, president

George Washington George Washington (, 1799) was a Founding Fathers of the United States, Founding Father and the first president of the United States, serving from 1789 to 1797. As commander of the Continental Army, Washington led Patriot (American Revoluti ...

signed the Tariff Act of 1790 into law, as America's second piece of legislation. He stated tariffs were necessary for national security reasons:

A free people ought not only to be armed, but disciplined; to which end a uniform and well-digested plan is requisite; and their safety and interest require that they should promote such manufactories as tend to render them independent of others for essential, particularly military, supplies.

After the

War of 1812 The War of 1812 was fought by the United States and its allies against the United Kingdom of Great Britain and Ireland, United Kingdom and its allies in North America. It began when the United States United States declaration of war on the Uni ...

, cheap British products flooded the American market, which undercut and threatened the infantile industry of the United States. Congress set a tariff in 1816 in order to prevent some of these British goods from entering the United States, followed by another in 1824 and culminating with the controversial

Tariff of Abominations The Tariff of 1828 was a very high protective tariff that became law in the United States on May 19, 1828. It was a bill designed to fail in Congress because it was seen by free trade supporters as hurting both industry and farming, but it pa ...

in 1828. President

John Quincy Adams John Quincy Adams (; July 11, 1767 – February 23, 1848) was the sixth president of the United States, serving from 1825 to 1829. He previously served as the eighth United States secretary of state from 1817 to 1825. During his long diploma ...

approved the Tariff of Abominations after it received a majority vote in the

House of Representatives House of Representatives is the name of legislative bodies in many countries and sub-national entities. In many countries, the House of Representatives is the lower house of a bicameral legislature, with the corresponding upper house often ...

. This 1828 tariff's goal was to protect Northern and Western agricultural products from foreign competition, but in doing so sparked a national debate over the constitutionality of placing tariffs on imports without the intent to merely raise duty revenue. The earmarked items in this case included iron, molasses, distilled spirits, flax, and other finished goods. Opposition to this tariff came predominantly from the South since this region lacked a manufacturing sector, leaving it dependent on the North and foreign trade to supply its manufactures. In addition to artificially elevating import costs, the so-called "Tariff of Abominations" afflicted the South by hampering its cotton trade to England, the region's primary source of income. This 1828 tariff was so unpopular that it played a significant role in the failure of John Quincy Adams' reelection bid in 1828. Starting in the Civil War, protection was the ideological cement holding the Republican coalition together. High tariffs were used to promise higher sales to business, higher wages to industrial workers, and higher demand for their crops to farmers. Democrats said it was a tax on the little man. After 1900 Progressive insurgents said it promoted monopoly. It had greatest support in the Northeast, and greatest opposition in the South and West. The Midwest was the battle ground. The tariff issue was pulling the GOP apart. Roosevelt tried to postpone the issue, but Taft had to meet it head on in 1909 with the Payne–Aldrich Tariff Act. Eastern conservatives led by Nelson W. Aldrich wanted high tariffs on manufactured goods (especially woolens), while Midwesterners called for low tariffs. Aldrich outmaneuvered them by lowering the tariff on farm products, which outraged the farmers. The great battle over the high Payne–Aldrich Tariff Act in 1910 ripped the Republicans apart and set up the realignment in favor of the Democrats. The Democrats lowered the tariff in 1913 but the economic dislocations of the

First World War World War I or the First World War (28 July 1914 – 11 November 1918), also known as the Great War, was a World war, global conflict between two coalitions: the Allies of World War I, Allies (or Entente) and the Central Powers. Fighting to ...

made it irrelevant. When the Republicans returned to power in 1921, they again imposed a protective tariff. They raised it again in 1930 to meet the

Great Depression in the United States In the United States, the Great Depression began with the Wall Street Crash of October 1929 and then spread worldwide. The nadir came in 1931–1933, and recovery came in 1940. The stock market crash marked the beginning of a decade of high u ...

but that made the depression worse. The Democrats promised an end to protection, and low rates dominated the debate for the rest of the 20th century. In 2017,

Donald Trump Donald John Trump (born June 14, 1946) is an American politician, media personality, and businessman who is the 47th president of the United States. A member of the Republican Party (United States), Republican Party, he served as the 45 ...

proposed the use of protective tariffs as a means to improve the economy.Jean-Christophe Boucher, and Cameron G. Thies. "'I Am a Tariff Man': The Power of Populist Foreign Policy Rhetoric under President Trump". ''Journal of Politics'' 81.2 (2019): 712–72
online

References

{{reflist

How tariffs work

History

United States

See also

References

Further reading