Understanding Tariffs: A Brief History, Economic Impact, and Current Use

A Brief History of Tariffs
Tariffs have long served both economic and political purposes. In the U.S., the Tariff Act of 1789 was a foundational piece of legislation designed to protect American manufacturing and fund government operations.

Notably, the Smoot-Hawley Tariff Act of 1930 raised duties on over 20,000 imports and is widely viewed by economists as exacerbating the Great Depression. Post-WWII, international agreements like GATT and the WTO helped lower trade barriers and promote global economic integration.

How Tariffs Affect Consumers
When tariffs raise the cost of imported goods, businesses often pass those costs along to consumers. A 2019 study by the New York Federal Reserve, Columbia, and Princeton Universities found that recent tariffs on Chinese imports were almost entirely paid by U.S. consumers.

Additionally, the CBO has concluded that tariffs reduce economic output by increasing input costs and lowering consumer spending power.

Pros and Cons of Tariffs

Pros:

1. Protect Domestic Industries

• Fact: U.S. steel and aluminum tariffs helped counter foreign subsidies and global oversupply, providing targeted protection for domestic producers.

2. Encourage Local Employment

• Fact: Tariffs led to reshoring in some sectors (e.g., steel), though broader employment gains were offset by job losses in import-reliant industries.

3. Negotiation Leverage

• Fact: Tariff threats prompted concessions, such as Mexico deploying National Guard troops to its border and Canada establishing anti-drug trafficking measures.

Cons:

1. Higher Consumer Costs

• Fact: Recent tariffs are projected to increase average household costs by $3,800 annually in 2025, with goods like washing machines, clothing, and electronics seeing significant price hikes- Trade Retaliation.

2. Trade Retaliation

• Fact: Retaliatory tariffs on U.S. agricultural exports caused $13.2 billion in annual losses, with soybeans and pork hit hardest.

3. Global Supply Chain Disruptions

• Fact: 2018-19 tariffs led firms to shift production to Mexico/Vietnam instead of reshoring, increasing costs and delays- Global Supply Chain Disruptions.

Why the Current Administration Supports Tariffs
The current U.S. administration is maintaining and expanding tariffs for several reasons:

• Industrial Policy
• National Security
• Trade Rebalancing

Conclusion
Tariffs are a longstanding and complex economic tool. While they can protect certain industries and serve strategic aims, they often lead to higher consumer prices and strained international relationships.
Understanding both their history and modern use helps provide clarity amid today’s dynamic policy environment.

If you’re feeling uncertain or have questions, don’t hesitate to reach out. Whether you’re worried about your budget, investments, or long-term plans, we’re here to help.

Emerald Advisors, LLC is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.