Donald Trump has proposed a 10% tariff on all imports and would also like the ability to impose reciprocal tariffs on any country that exceeds the 10% tariff level on imports from the U.S. Trump calls upon the ghosts of the Republican past for his policy, reminding those of us who’ve forgotten, and that would be all of us, that future president William McKinley had been responsible for a similar policy in 1890 during his time as Chairman of the House Ways and Means Committee.
The bidding war in the race to insulate American consumers from saving money and American companies from facing competition is intense, as the Biden administration has completely abandoned the pursuit of lower trade barriers, kept all of the Trump tariffs, is planning on spending several trillion dollars subsidizing U.S. industry, and made it clear that it wholeheartedly agrees with the idea that trade is a burden on the U.S. economy. The only difference is the failure to credit McKinley for their economic policy.
As a farmer who depends upon foreign buyers for half of my soybeans and 15% or so of my corn, I have questions. Lots of questions. After all, even if the postwar bipartisan consensus on the benefits of increasing trade were a huge mistake, one thing we’ve learned from the past seven years and several hundred years of economic history before that, is we don’t get to act alone. Countries respond to changes in our trade policy by retaliating, most likely in ways that will affect my admittedly parochial interest in selling corn and soybeans.
Since the last two administrations have adopted the same trade policy, we’ve had seven years to see the results. Now might be a good time to examine how this change in trade policy has worked out.
The trade deficit is often given as a reason to impose tariffs. However, tariffs have proven remarkably ineffective at improving that metric, as the trade deficit was $517 billion in Trump’s first year in office and $951 billion in 2022. Many economists don't lose sleep over the trade deficit, but the level of the trade deficit is important to people who think about trade as a battleground rather than a series of voluntary transactions between willing buyers and sellers. By their own metric, increasing tariffs has been a huge failure.
Much of the argument over trade is driven by the conviction that declining trade barriers have hollowed out our manufacturing base. Unemployment is low and the news is full of stories about employers who can’t hire help, but, sure enough, manufacturing employment has declined as a percent of total employment. But, surely tariffs and subsidies have turned that around by now? Well, maybe not. Manufacturing employment was just over 10% of the workforce in 2010, and had dropped to 8.3% of employment by 2022. The downward trend in manufacturing employment has continued for over 40 years, and is more a function of productivity gains and changes in what we want to buy than trade policy.
Well, yeah, but what about supply chains? Surely we’re better off if we force manufacturers to locate in the U.S.? The jury is still out on that, as the trillions of dollars Biden is planning on spending on favored industries in the U.S. are far from being spent. We can certainly move production back to the U.S. with enough cash, but it is not clear to me that we will necessarily improve our supply chain security at a reasonable cost.
A couple of observations might be in order, though. First, arguably the worst supply chain problem during the pandemic was the shortage in baby formula, which just so happens to be an industry with almost no imports at all. Imports can lengthen supply chains and increase risk, but they can also increase the number of suppliers available to fill shortages.
Secondly, just because the government is spending lavishly to develop new industries or reshore existing industries doesn’t mean they will be successful. When capital is disbursed by government edict, there is some risk that political connections will matter more than the ability of the recipients to run a business. Just spitballing here…
And finally, the Trump card, as it were. China! It is certainly true that welcoming China into the international trading system has not led to improved behavior. On the other hand, our recent trade policies have done little to reduce tensions. Trump and Biden aren’t advocating tariffs only on China, but have increased tariffs on Canada and other allies. To defend existing trade policies by referencing only China is disingenuous.
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Well, how did Mr. McKinley’s tariff policy end up? The policy fight may be the same, up to and including a promise in the 1896 Republican Platform to protect the US merchant marine, a forerunner of today’s Jones Act, but the players are not. In the 1890s the opponents of protection were the populists, who believed tariffs favored big business and harmed small business, labor, and farmers. Political cartoons from the era show the leaders of big business enjoying favoritism from the Republican Party.
These days, the populists are the protectionists, arguing that protectionism benefits workers at the expense of Wall Street, farmers and other exporters be damned. In the 1890s, attention was paid to the forgotten people in this fight, the consumers who bear the burden of higher prices. Today, nobody seems to care a whit for consumers, concentrating on helping industries harmed by foreign competition and attempting to preserve existing jobs.
In the fall of 1890, Republicans lost 93 seats and Mr. McKinley was, at least temporarily, sent back to Ohio. In 1893, the economy entered a depression. The majority Democrats finally repealed most of the McKinley tariffs in 1894, but it was too late for the economy or the Democrats' election chances in 1896. And by 1896, the Republican platform was singing a different tune about tariffs. While continuing Republican’s fealty to tariffs as a method of raising revenue and protecting domestic industries, it pointedly did not call for a reinstatement of McKinley’s tariffs, instead remarking that tariffs should be flexible and actually decreased when foreign trading partners reciprocated. If example is the school of mankind, here is an example for those willing to learn.
Blake Hurst is a farmer and greenhouse grower in Northwest Missouri.
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