President Trump wants to use tariffs to help make America great again. But did the tariffs help make America great in the beginning? The American economy grew rapidly at the end of the 19th century. (Real GDP grew by almost 4% per year from 1870 to 1913, while GDP per capita grew by almost 2% per year. The two figures are about double the performance of Britain in the during the period.) And some protectionists associate this impressive performance with high US tariffs. (Between 1860 and 1900, the average tariff on dutiable imports averaged 40 to 45 percent, never falling below 38 percent or exceeding 52 percent.)
An economist who doesn’t make this connection is Douglas Irwin, author of “Trade disputes: a history of US trade policyâAnd a recent guest on my Podcast on political economy. From the book, Irwin reads on research:
The high tariff policy was also not costly and inefficient, Irwin adds, as domestic competition remained vigorous. New companies could enter the market and gain access to the latest technologies. Transportation costs were falling, helping to connect and integrate a large national market. Let me again quote Irwin at length:
If protective tariffs weren’t responsible for US economic growth, what was? The United States was a huge continental market with an abundance of resources waiting to be filled with people. â¦ The nation had free internal trade and the free movement of labor and capital among states, and an abundance of untapped agricultural land and mineral resources, and the enforcement of contracts and protection of human rights. ownership through a non-politicized justice system. â¦ The federal government did not intervene in the process of creative destruction and did not limit competition or artificially support inefficient industries. â¦ More than any other country in the world at this time, the United States had an extraordinarily diverse economy with an abundance of prime agricultural land, a large endowment of raw materials, and growing technical expertise in manufacturing. At this point, international trade was not essential to the country’s prosperity. â¦ The most underrated international factor behind America’s industrialization was the work done by unskilled immigrants who worked in manufacturing industries and by skilled immigrants who facilitated the absorption of new technologies.