Teaching about Tariffs

Source: Gore, D'Angelo. "Trump's Flawed Claim that Tariffs Made the U.S. Its 'Richest'." FactCheck.org, 11 March 2025. https://www.factcheck.org/2025/03/trumps-flawed-claim-that-tariffs-...

​In his article "Trump's Flawed Claim that Tariffs Made the U.S. Its 'Richest'," D'Angelo Gore examines President Donald Trump's assertions that the United States achieved its greatest wealth during the late 19th and early 20th centuries due to high tariffs. Gore critiques these claims, highlighting inaccuracies and providing historical context to clarify the actual impact of tariffs on the U.S. economy during that period.

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Evaluating the 'Richest' Period in U.S. History

President Trump has frequently stated that from 1870 to 1913, the U.S. was at its economic peak, attributing this prosperity to the implementation of tariffs. However, when assessing real (inflation-adjusted) gross domestic product (GDP) per capita—a standard measure of a nation's wealth—the data indicates otherwise. According to figures from the Oxford University-based project Our World in Data, in 1870, the U.S. real GDP per capita was approximately $4,803. By 1913, it had risen to about $10,108. In contrast, by 2022, this figure had reached $58,487, illustrating that the nation's wealth has grown substantially over time. This data challenges the notion that the late 1800s and early 1900s were the pinnacle of U.S. economic prosperity.​

The Role of Tariffs in Federal Revenue

During the late 19th and early 20th centuries, tariffs—taxes imposed on imported goods—were a significant source of federal revenue, at times accounting for up to 60% of federal receipts. President Trump has suggested that reinstating high tariffs could eliminate the need for federal income taxes, which were introduced in 1913 with the ratification of the 16th Amendment. However, this perspective overlooks the evolution of federal expenditures over time. In fiscal year 2024, customs duties constituted merely 1.7% of the over $4.9 trillion in federal receipts. This stark decrease underscores that modern federal spending far exceeds the revenue that could be generated through tariffs alone, making it impractical to rely solely on tariffs to fund contemporary government operations.​

Factors Driving Economic Growth in the Gilded Age

The period between 1870 and 1913, often referred to as the Gilded Age, was marked by rapid industrialization and economic expansion. While tariffs were in place during this era, attributing the nation's economic growth solely to them is an oversimplification. Economists and historians point to several other critical factors that contributed to this growth:​

• Immigration: The U.S. experienced a significant influx of immigrants, providing a labor force essential for industrial expansion.​

• Technological Advancements: Innovations in manufacturing, transportation, and communication boosted productivity and efficiency.​

• Capital Investment: There was substantial investment in infrastructure, such as railroads, facilitating commerce and the movement of goods.​

Douglas Irwin, a professor of economics at Dartmouth College, emphasizes that while tariffs coincided with economic growth during this period, they were not the primary catalyst. In his 2000 paper, Irwin notes that the growth was "driven largely by labor force expansion and capital accumulation," suggesting that other factors played more pivotal roles in the nation's economic development.​

Misconceptions About Federal Debt and Surpluses

President Trump has also claimed that during the high-tariff era, the U.S. had "no debt" and enjoyed substantial budget surpluses. While it is true that the federal government experienced surpluses in various years between 1870 and 1913, attributing these solely to tariffs is misleading. Jeremy Horpedahl, an associate professor of economics at the University of Central Arkansas, explains that these surpluses resulted from government revenue growing faster than spending, with significant contributions from excise taxes on goods like alcohol and tobacco, not just tariffs. Moreover, the U.S. did carry federal debt during this period, contradicting the assertion of a debt-free nation.​

Modern Implications of Relying on Tariffs

The notion of reverting to high tariffs as a primary revenue source raises concerns among economists. Erica York, vice president of federal tax policy for the Tax Foundation, argues that replacing the federal income tax with tariffs is a "mathematical impossibility." In fiscal year 2023, individual income taxes generated $2.2 trillion, whereas tariffs brought in about $80 billion. To match current income tax revenues, an across-the-board tariff of approximately 70% on all imports would be necessary, a rate that could severely hinder international trade and economic stability.​

Additionally, tariffs are often considered regressive taxes, disproportionately affecting lower-income households by increasing the prices of imported goods. This contrasts with the progressive nature of the federal income tax system, where tax rates increase with higher income levels. Therefore, a shift towards funding government operations primarily through tariffs could exacerbate income inequality and place a heavier financial burden on those less able to afford it.​

Conclusion

While tariffs played a role in the U.S. economy during the late 19th and early 20th centuries, attributing the nation's wealth during that period solely to tariffs is an oversimplification. Multiple factors, including immigration, technological innovation, and capital investment, were significant contributors to economic growth. Furthermore, the structure and scale of the modern U.S. economy render the idea of replacing income taxes with tariffs both impractical and potentially harmful. A comprehensive understanding of economic history and current fiscal realities is essential when considering such policy proposals.

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Source: Gore, D'Angelo. "Trump's Flawed Claim that Tariffs Made the U.S. Its 'Richest'." FactCheck.org, 11 March 2025. https://www.factcheck.org/2025/03/trumps-flawed-claim-that-tariffs-...

Original Article

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Prepared with the assistance of AI software

OpenAI. (2025). ChatGPT (4) [Large language model]. https://chat.openai.com