Trump's tariffs: “They are dramatic only if you have a short historical memory”

Is it true that, despite variations in form designed to balance those three objectives, tariffs are always taxes imposed on goods and services?

It’s important to make the point that a tariff is a discriminatory tax, to distinguish it from a regular revenue duty, which is not set out to be discriminatory. Britain in the Victorian and Edwardian eras, for instance, was a free-trade country which had revenue duties – for example, on beer – but these applied to domestic beer as well as foreign beer. They are so-called excise duties.

Tariffs only target foreign imports, with the specific purpose of giving home producers an advantage over foreign producers trying to sell their goods in your market, which it penalises. So that’s a big distinction.

When we chart how tariffs have been applied, and trade wars have kicked off, throughout the centuries, does it tell us anything to look at the changing nature of the goods involved?

If we take a very broad historical view, the biggest group of interests was the farming lobby – the people who grew the food. The purpose of the British Corn Laws [in force from 1815 to 1846], for instance, was to keep out cheaper foreign wheat, maize and rye to protect and, in a way, subsidise farmers at home.

It’s obviously the case that, after the industrial revolution, manufactured goods became much more important – so ultimately, the levers are being pulled where the wealth is being created and around which goods the powerful interests are crying out for protection.

Having said that, it’s worth noting that the European Union, in 2018, responded to US tariffs on steel by raising its own tariffs on American food and bourbon, as well as on Harley-Davidson motorbikes.

As we speak, the EU is again planning to retaliate against President Trump’s most recent tariff on steel by hitting back on US poultry, beef and bourbon, as well as steel.

And it’s also worth remembering that food – in particular, wheat – remains absolutely crucial for survival.

In the early 20th century, for instance, there were still major economic conflicts over wheat and pork in continental Europe. Austria-Hungary started a ‘pig war’ with Serbia in 1906, trying (unsuccessfully) to completely block its pork imports. The current situation is still very far from those dramatic episodes.

Free Traders at the time, of course, pointed out that an ‘open door’ policy was the best way to secure abundant, cheap food. That is true in peace time. But if your cheap food comes from another country that is hostile or pursues its own interests, that leaves your population extremely vulnerable.

The other thing we need to add into this picture is that, historically, states were much smaller. In terms of economic and social activity, before the 20th century the state was quite limited, which also meant that tax systems were relatively simple compared with those of today. Income tax was only being introduced by most European countries from the 1890s, so taxes on goods and imports were a very important part of state revenue.

Fast-forward to the second half of the 20th century, and most states had stopped relying on tariffs or import duties for their revenue – they had income tax, inheritance tax, capital tax, VAT and so on. So, relatively speaking, tariffs are more marginal from a fiscal and economic point of view than they used to be 100 or 200 years ago.

So is the current spate of high tariffs something of a historical outlier?

Not if we take a view of modern political economy across 200 years. For most of that time, the US was protectionist [shielding its domestic economy by taxing imports] – indeed, more protectionist than anything Trump is currently suggesting. When the Republican William McKinley became president in 1897, for instance, his tariffs were almost twice as high as Trump’s, and applied to a much wider range of goods.

Similarly, the 1930 Smoot-Hawley Tariff Act – which implemented blanket high tariffs on thousands of imported goods coming into the United States – was punitively onerous, and was criticised by hundreds of economists. Compared with that, we’re now in a much milder climate.

What’s also true, though, is that the stunned and agitated reactions we’ve seen in some quarters to these new tariffs are caused by the fact that they come after 70 years of trade liberalisation. In 1947, an international architecture of trade known as the GATT – the General Agreement on Tariffs and Trade – was established. This body evolved into its current form, the World Trade Organization (WTO), in 1995.

In those postwar years, the US played a crucial role in liberalising trade relations. Tariff levels kept falling throughout the 1950s and 60s, continuing all the way into the 2000s. It was really only in 2017, when globalisation turned backwards into deglobalisation and the first tariff and trade war between the US and China broke out, that the trend was reversed.

In short, if you have a short historical memory, what Trump has been doing in recent weeks does seem pretty dramatic – because it turns around the story that people had become used to across the past 70 years. But if you take a longer view of the 18th, 19th and early 20th centuries, all of this is perhaps a little bit less extreme than many people think.

In that case, is it more accurate to view the seven-decade period from the mid-20th century as the historical anomaly?

Yes – though there were actually two long periods that were peculiar and exceptional. One was the mid-Victorian era, when ‘Britain ruled the waves’ and was the most dominant political and economic power on the planet. During that era, Britain initiated trade liberalisation through trade treaties, which triggered a series of further treaties; over time, more and more European nations adopted what was called the ‘most favoured nation clause’.

Effectively, that meant that a nation provided equal terms to all its trade partners. If a country gave preferential treatment to one trading partner (for instance by agreeing to lower its tariffs), it must automatically extend that same treatment to all other countries with most-favoured nation status. It had a cascading effect and liberalised trade. But then came the first big world depression, which started in 1873, and tariffs began to rise again.

The other exceptional period, which we’ve already discussed, came just after the Second World War, when the US effectively stepped into the shoes of the British empire to become the global economic, political and military superpower. It advanced and pushed through trade liberalisation, both during the Cold War and afterwards.

What’s obviously notable about both of those periods is that they featured a single dominant global power. As everyone reading this will appreciate, throughout the past decade we have moved further and further away from that situation of hegemony. The global system, with the rise of China and the continuing resilience of Russia, is now multi-polar, increasingly torn between rival competing great powers.

In a sense, then, is it right to see tariffs as a symptom of that global historical shift?

I think so, and I also think we need to get away from seeing tariffs only in economic terms – because for Trump, they are much more than that. They are an integral part of a wider territorial view – that the American economy is the land of the United States and the resources, raw materials and the people in that land. In this territorial conception, trade exchange is not seen as mutually beneficial but instead a system in which there is always a winner and a loser.

The interesting thing to add here is that we shouldn’t see this as an intrinsically American perspective, because the person who probably had the greatest influence in spreading protectionist ideas was a German: Friedrich List, an entrepreneur and economist who was persecuted by his homeland, the kingdom of Württemberg, and who fled into exile to the US in 1825 for criticising the government. He went on to support the protectionist campaign in US politics, and criticised liberal British economists and thinkers who argued for the mutual benefits of trade.

List’s argument was that two trading nations were rarely equal, and that the stronger nation would use trade to advance its interests – so a nation that was the smaller, weaker partner in this relationship would end up at a disadvantage permanently. Weaker countries, therefore, should protect their ‘infant industries’ so that they could grow to full strength. List’s national economic view became a widespread international conception of how the economy works, and the way in which economic development is tightly related to national strength and security.

So should we avoid seeing the story of tariffs and trade wars as emblematic of the US and its history?

Well, consider another aspect of William McKinley’s story. He introduced a very aggressive regime of tariffs when he came to power – but, a few days before he was assassinated in 1901, he had a bit of a rethink and came to the conclusion that, actually, tariffs didn’t work as well as he’d thought.

He planned to wind them back – but was shot before he could do so. I’d highlight that back and forth between a protectionist and a commercial vision as a key part of American history. Everyone knows the story of the Boston Tea Party [of December 1773]: how the Patriots, in their fight for independence from the British empire, sponsored a view of economic nationalism. They were all for making and wearing homespun local goods and abstaining from foreign imports, including the tea that got dumped into the harbour.

So there’s one conception of the American Republic that is very territorial and aims to be as self-sufficient as possible, and another that sees trade as mutually beneficial and closer to the liberal economic thinking that’s often held sway in Britain and Europe. Those two viewpoints have always been in conflict: in the 1920s and early 1930s, for instance, the United States shifted dramatically to the protectionist side, but then, in the 1930s and early 1940s under Franklin D Roosevelt and his secretary of state, Cordell Hull, the nation shifted back towards trade liberalisation.

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It’s so interesting that, amid these huge economic and historical sweeps, there was an ongoing push and pull of intellectual ideas between individuals operating on an international stage.

Yes, it is. These are not anonymous forces we’re talking about here, and they’re not just economic interests, either. For a really long time, from the late 18th to the early 20th century, the question of tariffs and free trade was a big political issue. Entire social movements, and many marginal and excluded groups, organised around them.

In Britain, it was the issue that first prompted women’s groups to hold big public political meetings. The Women’s Cooperative Guild was the first independent political lobby group by women for women, and the defence of free trade and defeat of tariffs was really core to its feminist politics. That’s because tariffs have political consequences – they benefit powerful lobbies and groups – so democratic defenders of free trade made the point that what was really at stake was an open, transparent and accountable democratic system.

If you have tariffs, then those powerful lobbies are likely to try to use parliament to arrange them in a way that benefits them, at the expense of consumers.

Finally, are there other recent shifts in the story of trade wars and tariffs that help illuminate the current situation?

I think that they occupy a different place in the political imagination compared with the early 20th century. That period saw enormous popular political conflicts break out over the subject of tariffs – not just in Britain, but also in places such as imperial Germany, where major upheavals were caused by proposed tariffs on goods including meat. That’s because, as well as being in some cases a life-or-death issue, provision of these goods was also seen as fundamental for the strength of the entire nation.

We’re in a different world now. Yes, the latest round of tariffs has made the headlines. But it’s not as if consumers are out in the streets in mass demonstrations as a result. So a key thing to appreciate is that, across the past 100 years, issues of tariffs and free trade have for many people lost their political salience.

We might not like it if the price of eggs goes up, but it’s no longer a question of political identity or something that pushes people on to the barricades.

Why is that the case? Well, as I mentioned, the state has been transformed over the past century to become a much larger entity. Many states now have social security systems which mean that increases in the price of bread, for example, are no longer a matter of life or death, because the state cushions and absorbs the impact of that increase to a degree. And, for the state itself, tariffs are not that big a deal because it has other sources of revenue.

But another key thing that’s happened is that, after 1945, trade politics moved out of the local sphere and into the supranational. Trade liberalisation is now largely discussed behind closed doors by experts and bureaucrats in organisations such as the WTO, and is no longer really part of popular political culture. Big protests do still happen outside the meetings of powerful nations – in Genoa [by anti-globalisation campaigners at the G8 summit in 2011], for instance. These aren’t insignificant – but they’re no longer part of mainstream politics.