Key Takeaways:
– Major tariffs in the late 1800s, often linked to increased American manufacturing, actually had a minimal impact, according to top economists.
– Report by Alexander Klein and Christopher Meissner contradicts claims made by former President Donald Trump regarding the benefits of tariffs.
– Tariffs did not usually enhance productivity but often reduced it.
– Economists suggest the size and isolation of the US domestic economy during this period made tariffs less impactful.
Let’s deep dive into why experts are advising against counting on tariffs to bring back America’s manufacturing greatness.
18th Century Tariffs and the Manufacturing sector
Most of us might have read about the Gilded Age in our history books. That’s the time when America saw a surge in growth, particularly in the manufacturing sector. It was also the era when the US tried its hand at high tariffs. But did tariffs back then really help American manufacturing? Or, was it just a coincidence that growth happened during the same period? Top economists Alexander Klein and Christopher Meissner set out to find the truth and their findings are quite interesting.
According to their research, high tariffs during the Gilded Age (from 1870 to 1900) had a lesser impact than what many, including ex-President Donald Trump, might believe. In fact, their report shows that these tariffs were unlikely to have played a major role in the US becoming a competitive manufacturer globally.
The Misconceptions About Tariffs
Donald Trump is well-known for his belief that imposing heavy tariffs can jump-start domestic production. He’s not the only one. For decades, several people have attributed America’s manufacturing growth to the tariff wall which made foreign products more expensive. But Klein and Meissner, in their deep probe, refute this popular belief.
According to the very paper they wrote, tariffs didn’t make a significant difference because the US domestic economy was substantial and fairly separated from global trade. That’s to say, if we had been shipping in large amounts of foreign goods during the Gilded Age, tariffs might have impacted things more. But, with a substantial and relatively isolated economy like ours, it didn’t make much of a dent.
Tariffs’ Impact on Labor Productivity
So, did tariffs influence any aspect of the economy? The duo found that tariffs did indeed make a difference but in a way that few would expect. Rather than enhancing productivity, they ended up reducing the output of goods per hour worked. Productivity suffered, meaning fewer goods were produced for each hour of work, therefore making the workforce less efficient.
What this means is that while tariffs might seem like a short-term solution to protect domestic industries from international competition, they could actually have a long-term deleterious effect on productivity.
A Hint from History or A Lesson for the Future?
Although Klein and Meissner’s report doesn’t specifically reference Trump’s preference for tariffs, the title of their report might give a clue about their viewpoint on this matter; ‘Did Tariffs Make American Manufacturing Great? New Evidence from the Gilded Age.’
In this day and age, where original ideas are hard to find, it’s often helpful to look to the past for guidance. By investigating the impact of tariffs during the Gilded Age, Klein and Meissner give us critical insights into the potential effects of similar policies in the future.
It’s clear from their report that there’s more to creating a thriving manufacturing industry than imposing trade barriers such as tariffs. Factors such as technology, infrastructure, education, and workforce skills arguably play a far more significant role in fostering a successful manufacturing sector.
So, the next time someone says tariffs can magically revive America’s manufacturing sector, remember that history – and some pretty smart economists – tell us otherwise. The road to a thriving manufacturing sector might be more complex and require far more than just tariffs.