AILSA CHANG, HOST:
It's a new year, but President-elect Donald Trump is sticking to his old message about tariffs - he likes them. In a social media post this week, Trump touted tariffs as a way to create, quote, "vast wealth for the country," and he pointed to the experience of the Gilded Age in the late 19th century. But researchers who have studied that period say the economy thrived in spite of high tariffs, not because of them. We're going to dig a little bit deeper into that bit of history now with NPR's Scott Horsley. Hey, Scott.
SCOTT HORSLEY, BYLINE: Hi, Ailsa.
CHANG: OK, so what was going on with tariffs in the Gilded Age?
HORSLEY: Tariffs were high, and they were a big source of overall government revenue back in the late 19th century. Remember, we did not yet have an income tax in those days, so tariffs accounted for 50- to 60% of all the money the federal government brought in.
CHANG: Wow.
HORSLEY: Economic historians Christopher Meissner and Alexander Klein wrote a recent paper about Gilded Age tariffs from 1870 to about 1910. And Meissner, who's at UC Davis, recalls that was a transformative period for the United States as we shifted from a farm economy that primarily supplied raw materials to the rest of the world to the industrial force we would become known for in the 20th century.
CHRISTOPHER MEISSNER: We started the period exporting wheat and corn and a lot of cotton. And by the end of the period, the United States is a global manufacturing powerhouse.
HORSLEY: On a social media post on New Year's Day, Trump argued that tariffs were key to that economic development. Of course, he wants to impose steep, new tariffs once he's back in the White House, while at the same time cutting the income tax, which is the government's biggest source of revenue today.
CHANG: Wait, so what do economists say about all this? Like, how important were tariffs to that Gilded Age transformation or to our own economic progress these days?
HORSLEY: Well, this is a source of some debate, going all the way back to Alexander Hamilton, who argued that tariffs helped to foster U.S. industry by discouraging foreign competition. When Meissner and his co-author looked at the late 19th century, though, they found just the opposite - the industries that had the highest tariffs during the Gilded Age, and thus the least competition, tended to kind of get fat and lazy. They were not as productive or as innovative as industries with less tariff protection. So Meissner says tariffs are not the magic elixir that Trump would have us believe.
MEISSNER: Our bottom line is that tariffs did not make American manufacturing great. Tariffs don't tend to promote productivity, nor do they promote economic growth, and they have the obvious impact of being bad for consumers by raising prices.
HORSLEY: And that effect on prices is just as true in our own time. You know, Trump likes to say it's foreign companies that pay tariffs, but we know from experience in his first term most of the cost is borne by businesses and customers right here in the United States.
CHANG: Exactly. Well, Scott, if tariffs didn't actually help the economy in the 19th century, why did they stick around?
HORSLEY: Well, they did bring in a lot of money for the government, and Meissner says industries that were successful in getting protection from foreign competition were often reluctant to give that up.
MEISSNER: Lobbying was an important part of the story, as far as we could tell. Stronger industries are able to get the attention of Congress, and they used tariffs to their advantage to monopolize or get closer to monopolizing their own industries.
HORSLEY: You know, anytime the government puts its thumb on the scale with tariffs, there's an incentive for businesses to either seek higher levies or, alternatively, carve-outs from the import taxes. We certainly saw that during Trump's first term in office. For most of the 20th century, the U.S. moved away from tariffs and tried to promote freer trade. But over the last couple of administrations, we've seen that turn around, and now the president-elect is promising a new era of tariffs reminiscent of that Gilded Age.
CHANG: Hmm. That is NPR's Scott Horsley. Thank you so much, Scott.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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