History and Evolution of Tariffs in USA

The word “Tariff,” a simple word, explains the import duty on any good imported from another country.

“Tariff” literally means “a schedule of duties imposed by a government on imported or, in some countries, exported goods,” or the “duty or rate of duty imposed in such a schedule,” according to Merriam-Webster dictionary.

However, the history from Roman days speaks of tariffs as an inevitable income source. It is interesting to study its evolution from time immemorial in the U.K., U.S.A., India, and China, from the Silk Road, and today, evolved from the W.T.O., and the mutually exclusive duty structure arrived at among millions of goods/services used among the nations.

Tariff in U.S.A., a newly made rich nation from the U.K.

The word originally referred to a list of prices in the context of shipping, linguist and content creator, Adam Aleksic told NPR.

“It had the implication of a guy at a dock with a table [of prices], and he would charge goods as they came in by the good, based on their value in the table,” he said.

The word can be traced back to Latin as well as the Arabic word “taʽrīf,” meaning “notification” or “inventory.” Tariff got transferred to other languages like French, German, etc., and further to English, as an inevitable transition.

Importance of tariffs from the beginning in U.S.A.

Tariffs were the ruling mantra of politicians in the U.S.A. for raising its resources to run the government and its subsequent activities.

In a chronological order, let us have a brief history of tariffs (Quoting from the Centennial history of U.S. International Trade Commission – reference quoted at the end)

Congress enacted 42 tariff laws between 1789 and 1916.

The Tariff Act of 1789 was three pages long. The Smoot-Hawley Act of 1930 (the last enacted tariff before Congress delegated tariff-setting authority to the President) required nearly 200 pages to set tariff levels for nearly 3,300 items.

Whatever their perspective, members of Congress sought tariff-related data and analysis to inform their views and bolster their arguments. From the 1790s forward, Congress periodically passed legislation directing the executive branch to provide reports so that Congress could intelligently set a tariff rate for each commodity.

What is the history of the distribution of federal revenue by source?

1789 to 1862: Nearly all of federal revenue was derived from customs duties.

1863 to 1914: Approximately half of federal revenue came from customs duties and half from internal revenue sources (such as excise taxes).

1915 forward: As the result of the 16th Amendment making the income tax constitutional, the large majority of federal receipts came from internal revenue. For the first time, customs duties were a relatively minor contributor. Tariffs lost their importance.

What is tariff revenue as % of GDP over the decades?

Between 1818 and 1833, tariff revenue as a percent of GDP was consistently over two percent (excepting one year). With the Compromise Tariff of 1833 and following tariff laws, that figure fell to below one percent by 1840. From 1842 to 1860, it moved up into the range of 1.0-to-1.8 percent.

Then, for most of the Civil War, the figure dropped to slightly below one percent. Under the postwar Republicans, the figure rose again, attaining 2.7 percent by 1871.

That number, however, declined over the next half-century as the economy grew. It bottomed at 0.2 percent in 1918–19, following Democratic assumption of control over government and the ratification of the 16th Amendment, both in 1913.

Statistically,

For much of U.S. history, tariff revenue was a substantial percentage of the total value of imports. The number hit 48 percent in 1815; climbed to over 50 percent in the 1827-1830 period; was in the 20–30 percent range between the mid-1830s and the Civil War; came close to 50 percent in the late 1860s; and moved back to the 20–30 percent range from the mid-1870s to the start of the Wilson administration.

In May 1882, Congress again sought expert advice on tariff-setting, creating a temporary nine-member Tariff Commission, appointed by the President.

In 1916, Congress passed the Revenue Act, which raised internal revenue. In light of its relatively positive view of Taft’s Tariff Board, the Democratic Congress included a Title VII of the Revenue Act establishing the U.S. Tariff Commission.

What was the role of the Tariff Commission?

The Tariff Commission had the legal mandate to investigate and report on:

“The administration and fiscal and industrial effects” of U.S. customs laws, present and future.

How rates of duty on raw materials related to those finished or partly finished products. • The effects of ad valorem and specific duties, both single and compound.

“All questions relative to the arrangement of schedules and classification of articles in the several schedules of the customs law.”

The operation of customs laws, including how they affected federal revenues, industry, and labor.

The tariff relations between the United States and foreign countries, including “the volume of importation compared with domestic production and consumption,” commercial treaties, preferential provisions, economic alliances, export bounties, and preferential transportation rates.

“Conditions, causes, and effects relating to competition of foreign industries with those of the United States, including dumping and cost of production.”

Milestones in the development of statistics and analysis for Congressional tariff-setting efforts.

They were achieved in the years 1792–98, 1810, 1820, 1850, 1867, 1877, 1884, and 1890-1893.

Analysis (mandated plans, reports, advice) Treasury Department (TD)

Reports/plans were submitted to TD in the years 1790, 1791, 1810, 1815, 1832, and 1844.

The State Department got in 1842 – Annual report on commercial relations.

Advisory commissions, boards, and offices

Various reports for the tariff commission, tariff board, and department of revenue were submitted in the years 1865, 1866, 1882, 1891, 1898, 1909, 1912, and 1916.

The administration got 7 reports during 1856 and 1913.

For non-partisan Congress members, 6 reports on tariff and other matters were submitted during 1867-1916.

The above 28 reports indicate the enormous work done to advise the administrators/senators/experts to give suitable advice on tariffs, import duties, commercial treaties, etc.

Now let’s analyze whether history reached its painful moments due to massive tariffs by the president of U.S.A., namely, Herbert Hoover, considered as unrealistic by nearly 1028 intellectuals/economists by writing an appeal to him.

But 1929 had to invite the great depression in the same country, resulting in loss of jobs, factories getting closed, and exports fell by 18% and by 31% as countries massively affected by American actions retaliated by increasing tariffs for American products.

I have quoted the following facts from the internet:

From the U.S. Bureau of the Census, the dutiable tariff peak was 59.1% in 1932, second only to 61.7% in 1830. The Smoot-Hawley Act was the culprit.

The World War 2 enabled U.S.A., to venture into massive industrialization, leading the world in all aspects of the economy of the world. Resurrection, you may call it.

WTO and thereafter

The World Trade Organization, the international body formed to help all nations sort out international trade disputes, was established in 1995 and now has 164-plus members. Sharp reduction in tariff rates among developing/underdeveloped and developed nations happens every day with actual consultations among them.

The evolution of market access over 16 years of “World Tariff Profiles,” a publication by WTO, spills the beans on its enormous achievements. (Actual statistical facts culled from the publication)

1. The average MFN tariff for all products declined from 10.1 percent in 2006 to 8.9 percent in 2021.
2. A 32 percent reduction in the MFN applied tariff by WTO members between 1996 and 2005.
3. Tariffs for agriculture and non-agriculture products both declined, with a slightly larger reduction in non-agriculture tariffs. The trend has been constant, with decreasing average tariffs almost every year, indicating a vast improvement.
4. In 2021, the average MFN tariff for agriculture products was 14.8 percent, compared to 8.0 percent for non-agriculture products. Bound tariffs – the maximum MFN tariff level for a particular product – have remained almost unchanged from 2006 to 2021.
5. The bound rates are significantly higher than the MFN tariff rates that are actually applied. On average, bound rates are more than three times higher than applied tariff rates. For example, in agriculture, the global average bound rate is 54.4 percent, whereas the global average MFN applied rate is 14.8 percent.
6. The ceiling levels for bound tariffs in many developing economies contribute to this difference, as some have very high ceilings, e.g., around 100 percent.
7. Let me quote more statistical delights to enthuse your curiosity.

Average bound and MFN applied tariff rates for product groups, 2021

The share of duty-free tariff lines has been increasing steadily for agriculture and non-agriculture products.

Tariffs can be prohibitively high, preventing all imports. Developed economies have the highest maximum tariffs, above 300 percent over the 16-year period, and LDCs the lowest, below 100 percent.

Developing economies fall between these two groups. Maximum tariffs are often AVE estimates and vary with the unit values of the products.

The conclusion arrived at the above publication article is as under:

The analysis of data published in the World Tariff Profiles over 16 years reveals some important trends in market access. The overall trend is modest trade opening across all indicators.

MFN tariffs have declined, the share of MFN duty-free tariff lines has increased, the share of international tariff peaks has decreased, and the maximum bound tariff has declined. This indicates some progress towards a more open and interconnected global economy.

Today’s news on tariffs and what next?

News about tariffs around the globe troubles any economist/student/actual producers/consumers. The basic question remains unanswered. Are we heading towards a massive race to seclude every nation from the welcome breath of massive developments from science/technology/exclusive medicines which have patients from around the globe? Interestingly, over-the-counter medicines in U.S.A., get a massive boost/cost reduction due to the untiring efforts of India’s pharmaceutical industry. Extensive research from U.S.A., helps India to scale newer heights.

U.S.A., has valid reasons to justify its people to produce items to meet their needs. Unreasonable reduction in cost from various countries camouflaged under various heads regarding the products has affected its economic psyche, resulting in a massive hike in tariffs.

Tariffs have always played their naïve roles, exploding/imploding the economies of the nations.

As a witness to the rapid developments on tariffs on a day-to-day basis, my sincere wish joins millions of human races who want peace on all fronts, at all costs.

This article was intentionally written, culling out facts from reliable articles, publications, and views of experts.

Caution

The above article, a collection of facts, does not constitute any advice/authority to quote but is just fun to know history at its worst/best moments. Kindly read the reference materials to enjoy the history of tariffs.

Reference

1.0 The evolution of market access over 16 years of “World Tariff Profiles” (WTO write up) 

https://www.wto.org/english/res_e/statis_e/wtp2023_special_topic1_e.pdf

2.0. 38 pages of massive statistical delight named “A Centennial History of the United States International Trade Commission” A U.S. Government publication, a must-read for anyone interested in human development.

https://www.usitc.gov/publications/other/centennial_book/chapter2.pdf