Tim Worstall explains why Donald Trump and his advisors pointing to the historical experience of high tariffs after the US civil war fails to take into account all the technological changes that happened during that time:
Trump and his economics team clearly believe that tariffs work (at least for certain values of “work”)
Post US Civil War tariffs rose strongly. Doubled and in some cases more than that. It’s also true that the US economy expanded remarkably in that period. Went from the exploitative frontier (and slave) economy to the world’s richest manufacturing one in fact. So, yay for tariffs, obviously.
Except US trade kept increasing over this period. So, tariffs were not reducing imports. Or rather, the total level of imports did not fall because tariffs even as tariffs obviously had an effect upon limiting imports — without tariffs there would have been more.
So, what happened here? The answer is the ocean going steamship.
Tariffs are only one barrier to trade, one cost of trade. Paperwork is another, local standards a third, the theft by rapacious dockside unions a fourth and, obviously enough, the cost of transport a fifth. And we can go on — the cost of information flow a sixth and soon enough we’ll be Richard Murphy shouting eleventhly.
The ocean going steamship reduced the total costs of trade by more than the tariffs raised it. Therefore trade carried on increasing.
Now forward a century, the 1970s and following. We’re told that there’s been some grand policy turn to free trade. That everyone decided to gut the rich world of real manly jobs and ship them off to sweating coolies who could be paid peanuts. The GATT, WTO, just proof of the contention and look, look, they lowered tariffs!
But the container ship (which did for those rapacious dockside unions in most places other than the US), the jet liner, the telephone and now the internet have lowered all those other costs of trade massively. The total costs of trade have dropped massively whatever we could have, should have, done about tariffs. Global trade was going to expand by multiples whatever GATT or WTO did that is.
Which is why these tariffs now have to be so large and bigly. Because to get back to that 1970s – let alone 1870s — it’s necessary to raise total costs of trade to where they were, not just tariffs.
