Tariffs and the Tariff Man
McKinley called himself the "Tariff Man", how did that go?
Apparently we are going to start seeing tariffs used in ways we’ve never seen them used in modern history. Tariffs will have to increase prices, and therefore inflation, but other than that I don’t know nearly enough about tariffs. I decided I need to do a deep dive into how tariffs have been used in the past.
President William McKinley called himself a “Tariff Man”. He actually was responsible for two major tariffs. Before he was president, he was a congressman, and as a congressman he sponsored Tariff Act of 1890, which later became called the McKinley Tariffs, under President Harrison. Then later, as President McKinley, he implemented the Dingley Tariffs.
Both were huge tariffs that averaged almost 50%. They were designed to protect US producers, punishing anyone who imported goods instead of producing them in the US.
1890 was a very different time, and a very different set of circumstances then today. At that time, there was no federal income tax, so tariffs were a primary source of revenue for the government. During the Civil War and after it, tariffs were the only source of federal revenue, and served as a way to pay for the war. By the time of the McKinley Tariffs, tariffs brought in about half the revenue of the government, with the remainder coming from excise taxes like liquor and tobacco taxes.
On the other hand, the government then had a faction of today’s expenses. There was no Medicare or Medicaid or Social Security. The US military wasn’t the policeman of the world back then. So tariffs represented a huge part of a vastly smaller budget.
Ironically, at the time of the McKinley Tariffs, the government was not looking for more revenue. Civil War debts were mostly paid off by 1890. In 1890 there was actually a huge budget surplus, the government had more money than they needed!
There was a big debate, called the Tariff Debate of 1888, about what to do about the budget surplus. The Democratic argument was that tariffs were too high and should be cut. The Republican argument was that if tariffs were too high, that showed they weren’t working. If they were working nobody would be paying tariffs, they would be buying products made in the US. The Republican solution was to raise tariffs until they got so high they fixed the problem, when they would disappear because nobody was buying imports.
Republicans won the debate, and the elections. They implemented the tariffs and they caused prices to go up on the protected items. There were winners and losers. In general, the winners were the owners, and to some extent, the workers, in protected industries. The losers were the people paying higher prices for things that had tariffs on them. At that time, a huge percentage of the country lived on farms, and farming was in a recession. Tariffs failed to fix the downward spiral of farm prices, but now the cost of many items farmers had to buy went up.
The next election showed that the popular consensus was that tariffs were a mistake. President Harrison, Congressman McKinley, and the rest of the Republican party lost resoundingly.
So why wasn’t that the end of tariffs? In 1893 was a huge depression, the Panic of 1893. Democrats were in charge at the time, and somebody had to be punished for the depression, so this time Democrats got thrown out. In 1896 McKinley ran for President and won on a platform of restoring prosperity to the country.
After his election, McKinley implemented a new set of tariffs, the Dingley Tariffs. If anything, the Dingley tariffs were higher than the McKinley tariffs. McKinley used the tariffs not only to raise revenue but also to extract concessions from other countries. Do you want to avoid tariffs? Make sure US exports are protected in your country!
The economic period following McKinley’s election was a pretty good period. This may not have anything to do with tariffs at all. The country was recovering from a huge depression, and it is probably a time where any policy would have done well. It’s impossible to say how much different it would have looked without tariffs.
One of the most interesting end notes to the McKinley story is that right at the end of his presidency it looks like he changed his mind about tariffs. He gave a speech at the Pan American Exposition where he said “We should sell everywhere we can, and buy wherever the buying will enlarge our sales and productions, and thereby make a greater demand for home labor.” We’ll never know where that might have led, because he was assassinated the next day.