Donald Trump and Grover Cleveland are the only two men elected to nonconsecutive terms as president, but the similarities end there. For one thing, they couldn’t be more opposite each other when it comes to tariffs.
In his biography of Theodore Roosevelt, author Nathan Miller describes how, when Cleveland was finishing his first term in 1888 and running for reelection, he ignored the advice of his Democratic Party and railed on tariffs.
“Our present tariff laws, this vicious, inequitable and illogical source of unnecessary taxation, ought to be at once revised and amended,” Cleveland said. He called tariffs “a burden upon those with moderate means and the poor, the employed and the unemployed, the sick and well, the young and old.”
More special interests
He lost that election after Republicans portrayed him as favoring foreign manufacturers over Americans, but also because large corporations, the beneficiaries of protectionism, showered money on the campaign of Republican nominee Benjamin Harrison.
Which brings up a pertinent point for modern Americans. If you love higher tariffs, you must also, by extension, love special interests. Once the government bestows a most-favored protected status on any industry, whether it be car manufacturers or wheat farmers, it becomes that much harder to ever remove it.
Meanwhile, those who suffer because they have lost access to foreign markets tend to be mostly invisible. It’s hard to recognize all the segments of an economy that didn’t grow as they might have without tariffs.
It’s easy for politicians to point to empty manufacturing plants and depressed towns that once thrived. It’s much harder to oppose tariffs by arguing about the scattered economic sectors that would thrive because new markets have opened overseas.
A hidden tax
Economists call tariffs a hidden tax increase, not because they are secret, but because they lead to higher prices for a variety of goods while removing manufacturers from the downward pressure of international competition.
Last summer, the Tax Foundation, a Washington-based nonprofit, called Trump’s first-term tariffs “one of the largest tax increases in decades.” Democrats, long proponents of protectionism, added to that tax hike as President Joe Biden raised some of those tariffs.
The Tax Foundation calculated that these two acts combined cost the average American household $625 more per year.
Americans seem to inherently understand that tariffs lead to higher prices. A recent poll by Reuters/Ipsos found that 70% of Americans (roughly 90% Democrats and 60% Republicans) said they expect groceries and other regular purchases to become more expensive.
The Great Depression
About 95 years have passed since President Herbert Hoover signed the Smoot-Hawley Tariff Act, which raised tariffs on many goods and led many nations to retaliate by raising tariffs on U.S. goods in return.
Some economists have been quick to note that this act did not cause the Great Depression, which was already underway in 1930 and which was caused by a number of factors. But NPR recently interviewed three economists who said the Act, combined with the Federal Reserve raising interest rates and Washington raising income taxes, led to a domino effect that made the crisis much worse.
More importantly, as Christopher Clarke, an economics professor at Washington State University, told NPR, “Less trade leads to less cooperation and less trust, which will lead to more violence.” This, he said, was a contributing factor to World War II.
President Trump, on the other hand, has argued that the Depression would not have happened if high tariffs had been in place from the beginning.
This isn’t 1888
One thing is certain — 1888 was a lot different from today. Washington wasn’t a labyrinth of government agencies demanding money. Grover Cleveland didn’t like tariffs primarily because they tended to collect more money than the government needed.
We should be so lucky this time.
Not all tariffs are bad. One could make the argument that higher tariffs on China, for example, could keep it from spending as much on its military.
However, as this week’s stock market rout demonstrated, the costs for the United States, after years of liberal trade and cheap foreign goods, may be high, too.